The number of e-commerce companies continues to grow and the risks they face are also growing both in number and complexity. Protecting against these threats is critical.
There are an estimated 1.4 million e-commerce companies in North America and global e-commerce sales are expected to hit an astonishing $4.8 trillion by 2021. One reason for this explosive growth is the availability and affordability of tools that make starting an e-commerce business easier than ever. Nowadays, anyone can launch an online store with minimal investment of time and money thanks to platforms and services like Shopify, Stripe, and Fulfillment by Amazon. And while these third-parties make starting and running an online retail operation easier and safer than ever, modern e-commerce companies still face a number of new risks and protecting against these threats is critical to sustained success.
Global Security Report
Data breaches are one of the most obvious risks faced by any modern company, but e-commerce and digital businesses are especially susceptible. It’s less of a question about will a data breach occur and more of a question about when will it occur and how bad will it be. From stolen trade secrets to exposed customer information, a data breach can quickly wreak havoc on an e-commerce company of any size. And while larger established online retailers likely have safeguards and response plans in place, smaller or newer sellers understandably don’t have the knowledge or resources to adequately protect themselves.
One of the easiest ways for a smaller or new e-commerce company to protect against the risk of a data breach is with cyber liability insurance that responds to first and third-party damages. A great line of defense, cyber liability insurance is surprisingly affordable and covers many of the costs associated with recovering from a breach. Costs like litigation defense, regulatory fines, lost revenue, and even paying ransoms to get hijacked systems and data released.
Here at Layr, our cyber liability and data breach insurance policies cost as little as $40 per month and can provide up to $5 million in protection. We even offer a robust instant-issue policy that can be purchased in seconds online and isn’t subject to the back-and-forth underwriting processes common with other commercial insurance brokers.
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Physical Harm from Products
Another somewhat obvious risk that most e-commerce entrepreneurs should be aware of is the risk of physical harm from the product or products being sold. This includes both bodily injuries as well as damage to property. Companies selling items like edibles or consumables, exercise or sporting equipment, and electronics need to be especially careful as their products have a higher likelihood of causing bodily injury or physical harm.
One of the most cost-effective ways for a retailer to ensure that they’re at least partially protected against this risk is by ensuring that their manufacturers and suppliers are adequately insured with products liability insurance and, critically, that the reseller is listed as an additional insured. In fact, online sellers should regularly request certificates of insurance from each of their manufacturers and suppliers that confirms products liability coverage is in place and that the retailer is in fact listed as an additional insured.
Marketplace suspensions are a relatively new threat that appeared alongside the rise in third-party distribution through large online marketplaces like Amazon. The threat of suspension, both rightful and wrongful, looms large for companies who rely heavily on the market access, volume, and efficiencies generated by conducting business through a marketplace. And given the seasonality of many online stores, suspensions can be especially devastating if they hit during a period that accounts for a large percentage of overall sales.
This threat is also one of the trickiest to prepare for and defend against. The relative lack of clear guidance surrounding suspension policies at large marketplaces combined with the unpredictability around their willingness to enforce purported violations leaves many e-commerce entrepreneurs feeling vulnerable. And while they’re tempting with a fast-track to market and seemingly limitless volume, sellers should think long and hard before becoming overly dependent on these channels. The healthiest e-commerce companies nurture diversified distribution strategies to reduce the overall vulnerability associated with any single channel.
Lastly, while there are insurance brokers offering to sell what is sometimes called suspension insurance, most of the policies we’ve come across are from lower-rated carriers and often contain key exclusions providing the insurance company with broad grounds to deny a claim. If you’re considering suspension insurance, we strongly recommend requesting and reading the policy before purchasing paying especially close attention to any and all exclusions.
Every industry has its own set of unique risks and threats. As an e-commerce store owner, taking the time to recognize and acknowledge items like the ones discussed in this article are a great first step in determining how to put the right protections and defenses in place.