E-Commerce Businesses | GB&A

E-Commerce Businesses

With retail purchase trends shifting from storefronts to e-tailers, e-commerce businesses today are quickly becoming the modern storefronts of the 21st century. But when it comes to tailoring risk management programs, some e-commerce businesses incorrectly assume that their businesses are more insulated, or even immune to liability and potential claims versus their retail counterparts (due to the lack of a physical store). While there may be less “slip and fall” and customer theft exposure, there is significantly increased risk in other areas – the risks haven’t been eliminated they’ve just been shifted. Yesterday’s shoplifter have been replaced by today’s cyber thief.

For US based e-commerce retailers with manufacturers located overseas, product liability is one of the more misunderstood and exposures. As the only US entity to pursue litigation against, e-commerce retailers can be held liable for any bodily injury resulting from their products’ defects and failures.  Due to the high volume of online sales, dependency on server “uptime” and volume of credit card transactions processed, cyber threats are the fastest growing risks of concern. With revenues entirely dependent on your website, one breach in the form of a ransomware attack could have severe financial consequences in terms of lost income.  In the world of insurance for online businesses, cyber-liability is likely the most concerning large loss threat given its dependency on online sales and the amount of credit cards and personal data that is stored and processed. With the average data breach costs calculated at $100-$200 per client, the notification and legal costs can accumulate quickly. With inreasing FTC oversight and newly published OECD guidelines governing the protection of consumers, Directors and Officers insurance is another intergral part of a wholistic program. This is particularly important for online businesses with a larger number of employees, shareholders or investors, those actively pursuing financing and any e-tailers that make specific claims about their products.

SUB SECTORS

  • Apparel, Acessories & Jewelry
  • Health & Beauty
  • Consumer Goods
  • Home, Appliances & Electronics
  • Toys
  • Office Supplies & B2B
  • Auto & Machine Parts
  • Lifesciences
  • Custom & Made To Order 
  • Resale Sites & Discount Retailers
  • Online Professional Services

Risk Profile

The risk profile below is an outline of your company's core exposures. Click to learn more, and select your coverages of interest to begin building your insurance portfolio, or click "Connect With A Broker" to contact us.

  • Commercial Liability & Property

    Commercial liability packages provide coverage for defense costs, damages and other costs associated with claims arising from bodily injury, property damage, advertising (such as certain infringement and false advertising claims), product defects and failures, and more. When written on a BOP or commercial package with coverage for business property (such as inventory and office equipment), coverage is often broadened to include exposures such as business income, media liability, utility interruption, and basic levels of coverage for more robust products such as E&O, EPLI and cyber. Due to the fact that endorsements can either broaden and extend coverage or limit/exclude coverage, policies should be carefully reviewed. It is important to note whether or not the policy specifically excludes product liability, in which case, separate insurance is required to cover product related litigation. 

  • Product Liability

    Product liability and completed operations insurance provides protection in the form of defense costs, damages, settlements and additional costs, against claims asserting bodily injury and/or property damage resulting from product failures, flaws, and defects. While product liability is often included under a commercial general liability or package policy (as highlighted above), companies such as manufacturers, wholesalers or retailers as well as those operating in certain industries or with increased product exposure must often place product liability coverage separately. Coverage for claims related to product recalls or asserting financial damages resulting from a delay or failure to deliver product(s) require separate coverage under manufacturers’ errors and omissions policy and/or product recall insurance policy. Coverage should be evaluated carefully as terms and conditions can differ and policies may be written with an occurrence or "claims made" trigger which each react very differently in the event of a claim. 

  • Cyber Liability & Data Security

    A recent Wells Fargo study found that 44% of mid sized companies have already filed a cyber liability claim which highlights the frequency of breaches and need for coverage. E-commerce companies cyber exposures generally revolve around:

    • Loss Of Business Income resulting from a virus, breach or ransomware attack or extortion demand
    • Costs related to paying an extortion demand
    • Liability and Costs associated with data breaches exposing credit card information or personal information
    • Media Liability for accusations of infringement

    Because policy terms can significantly differ, it is important to review your policy’s terms and conditions. Particular areas that should be addressed include:

    • Are viruses (self propagating code) included or excluded?
    • Is coverage included for BPO’s (business processing outsourcing) and cloud providers?
    • Scope Of Coverage: Is coverage worldwide? How would coverage respond to a breach affecting servers located abroad?
    • Is there an exclusion for unauthorized collection of consumer data?
    • Are there any requirements or exclusions for failure to implement security measures or failure to upgrade security systems?
    • Coverage for regulatory investigations/fines (due to FTC increasing their oversight of smaller companies)
  • Employer's Liability & Workers Compensation

    Workers Compensation insurance is a mandatory coverage for companies with employees (including volunteers, uninsured independent contractors, leased or part time labor). It provides coverage for employees’ wages and medical payments resulting from injuries sustained while “on the job”. Coverages to consider include “broad form all states” coverage and foreign workers compensation coverage (especially important for employees traveling abroad for business). Additional employee related coverages that should be considered include: 

    • EPLI/Employment liability (protection for the hiring/firing of employees and discrimination/harassment related claims)
    • Employee benefits
    • ERISA/Fiduciary coverage (for the administration of employee benefits)
    • Long term disability
    • Kidnap & Ransom (for employees traveling abroad for business)
  • Professional Liability / Errors & Omissions (E&O)

    While cyber liability is generally a more important coverage component for e-commerce businesses. The requirement or benefits of an E&O policy depend greatly on the business and its operations. 

    Professional Liability insurance (also known as errors & omissions) provides liability protection for lawsuits brought by clients or 3rd parties asserting financial damages resulting from errors, acts or ommissions in providing services and claims asserting failure to perform or deliver. E&O provides defense costs, damages, and other costs associated with resulting claims and litigation. E&O is a critical insurance component for companies in the financial, professional services or technology sectors. 

  • Directors & Officers (D&O) and Employment Liability (EPLI)

    Directors & Officers insurance provides:

    • Direct Protection for individual directors and officers against non indemnifiable claims such as derivative claims or bankruptcy related litigation. 
    • Balance sheet protection in the form of reimbursement to the entity itself for claims in which the entity indemnifies individual directors or officers
    • Protection for claims asserted against the entity itself

    Claims are often asserted by shareholders, investors, employees, creditors, competitors and regulatory agencies and can include:

    • Claims asserting misrepresentations made to creditors, investors and shareholders
    • Breaches Of Fiduciary Duties
    • Anti Trust & False Advertising Claims. 
    • Bankruptcy related claims
    • Accusations of Fraud
    • Civil fines & penalties imposed by regulators

    Additional optional coverage components include:

    • EPLI/Employment Liability: Provides protection for the hiring, firing and management of employees. Such claims can include wrongful termination, failure to hire/promote, harassment, discrimination, and retaliation. Optional coverage for 3rd party 
    • Crime & Employee Dishonesty: Protection for the entity against theft, fraudulent invoicing schemes, warehouse theft, social engineering, etc.
    • Fiduciary Liability: Protection for the directors & officers assets against losses caused to employee benefit plans
  • Ocean Cargo & Transit

    Ocean Cargo and inland transit insurance is a critical component for e-commerce companies, providing protection for damage to products, goods and inventory during foreign transit overseas (via vessel or aircraft) and/or domestic transit in the US (via air, rail, truck, mail or common carrier). Damage can result from theft, physical losses (such as fire or water damage), spoilage, jettison, concealed damage, and more. Cargo policies also provide protection for products and inventory while in storage at the warehouse.

    For e-commerce companies considering securing coverage through their freight forwarder, there are numerous advantages to self controlled insurance policies such as:

    • Generally broader coverage
    • True "warehouse to warehouse" protection - eliminating any potential coverage gaps in between
    • Insurance is not "pooled", meaning rates and premiums are not affected by other shippers in your "pool"
    • Immediate certificate issuing minimizing potential shipping delays
  • Crime/Fidelity & Employee Theft

    Crime & fidelity insurance provides protection for the entity and its balance sheet against financial losses resulting from crime, theft and dishonest acts committed by employees, executives, independent contractors and other parties. Claims can include theft of money or securities, forgery, alteration, computer fraud, fraudulent invoicing, credit card and funds transfer fraud and more. More modern schemes include social engineering attacks (such as business email compromise, also known as CEO fraud) and warranty fraud.

    Crime insurance can be broadened significantly via additional coverage endorsements (enhancements), however many of these enhancements are not automatically included but instead require a specific request from your broker. When evaluating and structuring such protection, careful consideration should be given to the clauses and terms, including:

    • Is coverage written on a "per loss" or "per employee" basis
    • Is the policy a "loss sustained" or "loss discovered". Loss sustained policies can be overly restrictive.
    • Are independent contractors included?
    • Is coverage provided for credit, debit or charge card forgery
    • Is coverage provided for warehouse receipts? 
    • Is coverage provided for more modern criminal schemes such as CEO fraud? If so, what are the terms and requirements?

Get (Risk) Managed.

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