Shipping insurance: Why your e-commerce business needs it
No matter how sound your logistics processes are, with packages flying all over the place — especially during peak season — there’s always the possibility of something going wrong. Packages get misplaced, damaged or lost in transit all the time, but shipping insurance is a way to protect both you and your customers from a number of unpredictable events. In this article we will break down everything you need to know about shipping insurance and why it’s important for all online businesses.
What is shipping insurance?
Shipping insurance is a financial protection service which can be purchased by shippers or recipients that covers lost, stolen, or damaged shipments during transit. In the event of accidents, theft, or unforeseen circumstances, the insurance will compensate the business or customer for the declared value of the goods.
Shipping insurance safeguards against financial losses, and provides peace of mind for both sellers and buyers in the shipping process. It's an investment to mitigate risks and ensure the safe and secure delivery of goods from the sender to the recipient.
The importance of shipping insurance
The main purpose of shipping insurance is to provide financial protection against unexpected events; such as loss, theft or damage. However for online businesses, shipping insurance provides an extra layer of trust between the seller and consumers. Without insurance, unforeseen events could result in financial losses for either party. While loss or theft in the shipping process is unwelcome regardless, financial compensation helps the shipment be replaced or reimbursed.
Shipping insurance is also important because it helps streamline claims and resolutions in case of mishaps, which facilitates a smoother resolution process and protects businesses against losing customers. Overall, shipping insurance is an essential tool to mitigate risks, build customer trust and ensure the secure transportation of goods.
What is covered by shipping insurance?
Shipping insurance usually covers the following:
- When goods are lost,
- When goods are stolen,
- When goods are damaged in transit due to weather or vandalism,
- Shipping delays & covering reshipment costs.
What isn’t covered by shipping insurance?
Shipping insurance is unlikely to cover the following:
- Damage caused by the shipment itself (ie. leakage),
- Losses or damages caused by unsuitable packaging,
- Losses due to failure to pay customs duties or taxes,
- Loss or damage caused by wilful misconduct.
What types of coverage are available?
There are a number of insurance policies you can take out when organising shipping insurance, depending on the value of your shipments and international requirements. In general, you can organise shipping insurance through the carrier (ie. Royal Mail, DHL, FedEx) or through third-party insurance companies (Arpin International Group, InsureShip, U-PIC).
Some specific kinds of coverage include:
- Full-value coverage: This type of insurance covers the entire declared value of the shipped goods, including the cost of shipping.
- Declared value coverage: Shippers declare a specific value for their goods, and the insurance covers up to that amount. This is commonly used by carriers like UPS or FedEx.
- Freight insurance: This kind of insurance is typically used when the buyer is responsible for transportation costs.
- Warehouse-to-warehouse coverage: Extends coverage from the point of origin to the final destination, including any temporary storage locations en route.
For international shipments, there are a number of more specific shipping insurances to ensure a safe and secure transit. Marine cargo insurance is specifically designed for goods transported over sea routes, providing coverage against sinking, fire, and piracy during the ocean transit. International Shipping Insurance is a coverage that extends from the seller's location to the buyer's, including all modes of transportation (sea, air, land) and any intermediate storage. This kind of international shipping insurance offers seamless and continuous protection throughout the whole shipping process.
How does shipping insurance work?
So, how does the whole process work? It will usually start with the seller reaching out to either their carrier or a third-party to discuss whether your business is eligible for insurance. If so, it’s then possible to narrow down which kind of insurance is best in terms of shipment value, size and distance. Once a policy has been outlined, the insurer will then pay a premium to ensure the financial protection of goods.
However, in the case of loss or damage on route, the insurer will need to file a claim either by phone, email or mail which will then be processed by the insurance company. The insurer will need to provide some kind of proof of policy and be able to prove that the package was lost or damaged in transit in line with the agreement. If the insurance company agrees that the policy in place covers the claim, the insurer will be compensated the pre-agreed upon amount.
There are a number of factors that can affect the premium the insurer pays for the insurance. For example, high-value, fragile, or hazardous items often command higher premiums due to the bigger risk of damage or loss. International shipping by land, sea, or air can affect the risk assessment. Longer journeys or risky routes prone to natural disasters, political upheaval and piracy can result in a more expensive premium. Lastly, if the insurer has a history of filed insurance claims, then this too could result in higher premium.
When choosing shipping insurance you will need to consider the types of coverage available and if they are suitable for your businesses and goods. You will need to review policy thoroughly for any exclusions and limitations to understand what risks are not covered by the company. Evaluate how easy it is to make a claim, and understand which deductibles you will be responsible for. Higher deductibles can result in a lower premium, but may leave you out-of-pocket when it’s time to file a claim.
When is shipping insurance worth it?
Whether or not to purchase shipping insurance is usually based on the value of the item being shipped. For e-commerce businesses who trade in jewellery, electronics, designer apparel, antiques and other highly valued items, shipping insurance is very important. If the loss of your goods causes significant financial pain, then it’s probably worth making a few enquiries. Failure to secure a policy could result in significant financial losses for either the buyer or shipper.
Furthermore, if a shipment has to travel a long way and pass through multiple warehouses and ports, the more likely it may get lost or damaged in transit. As a result, e-commerce businesses who regularly ship internationally would benefit from some form of shipping insurance. Lastly, when customers spend a lot of money online, they expect their purchases to arrive on time and in one piece. As a result, providing shipping insurance on all sales can provide a sense of safety and trust that can improve customer relationships.
Scenarios where shipping insurance proved beneficial
There are countless real-world scenarios where shipping insurance can prove beneficial for both e-commerce stores and customers. Here are four possible scenarios where shipping insurance can help:
- A company ships a package of fragile electronic components internationally. Despite careful packaging, some items are damaged during transit due to rough handling by the carrier. In this case the insurance would cover the cost of the damaged components.
- A small e-commerce store sends a valuable package to a customer in another country, but unfortunately the shipment goes missing during transit, and its location cannot be traced. In this case the insurance policy would compensate for the declared value of the lost goods and ensure the small business was reimbursed for the financial loss.
- A shipment of cargo is enroute to a coastal port when it suddenly encounters a severe storm. As a result of heavy rain and rough oceans, some of the cargo arrives on shore water damaged. If the cargo was covered for natural disasters, the insurance company would kick in to help cover the cost of the damaged items.
- A business sends a shipment to a country with strict import regulations, and the customs authorities confiscate the goods due to non-compliance with documentation requirements. Shipping insurance should cover the cost of customs-related issues and help compensate for any lost items.
When it comes to logistics and international shipping, anything can happen, but shipping insurance offers e-commerce stores peace of mind and a way to securely transport items to their destination safely and without incurring major financial losses.
Emily Browne is a writer for ShippyPro who blends her passion for writing with an interest in all things e-commerce. Emily strives to make complex topics more digestible, proving that the world of logistics isn't as confusing as it sometimes feels! Her expertise in supply chain management, coupled with a knack for storytelling, helps readers navigate the complex world of e-commerce and shipping.