What Insurance Requirements Do You Have As An Ecommerce Seller?
Do ecommerce businesses need insurance?
Ecommerce is a booming business. Ecommerce sales amounted to USD 4.9 trillion in
2021, and that figure is expected to grow by 50% by 2025.
You don’t have to be a megabrand to start selling things online. With the
variety of selling platforms available today, anyone can start an ecommerce
business. Whether you’re selling handmade goods on platforms like Etsy, creating
your own private label brand, or shipping wholesale products to Amazon, selling
online is an accessible business model with a ton of potential.
Before you get started selling online, however, you will have to take care of a
few steps to ensure you are approved to sell on the platform. Some platforms may
require you to have a resell license, a business license, a federal tax ID, and,
most notably, small business insurance to “set up shop.”
Why Do You Need Ecommerce Business Insurance?
You may be wondering why so many of the selling platforms have insurance
requirements. The answer is surprisingly simple:
Business insurance protects you and your selling platforms against the
unexpected.
Imagine that you’ve privately labeled a personal care product and shipped 2,000
units to Amazon. But, unbeknownst to you, the formula contains an ingredient
that can cause a reaction for some users. Your customers order the product and
some break out in a rash. Angered and injured, some of these customers decide
they will sue you — and the selling platform — for the bodily injury caused by
your product.
If you have a general liability insurance policy, it’s designed to protect you
against third-party lawsuits for property damage or bodily injury. If you’re
facing a claim, your insurance can kick in to help pay for the costs of medical
bills, lawsuits, legal fees, settlements, and judgments up to your policy's
limit.
This means you’re protected from the potentially high costs of paying for an
injury out of your own pocket, and so is your selling platform.
Understanding Ecommerce Insurance Definitions
Before we get into the insurance requirements for each platform, let’s take a
moment to define and understand a few ecommerce insurance concepts:
What is general liability insurance?
Most all businesses can benefit from the coverage provided by general liability
insurance. This foundational business insurance policy is intended to protect
your business against third-party claims for bodily injury or property damage
resulting from your product or business activities.
General liability coverage is designed to protect sellers against personal and
advertising injury claims for slander, libel, or copyright infringement. If one
of your competitors feels like your recent Tweet or Facebook ad is bashing their
products or that your product name infringes on their copyright, general
liability is meant to help cover the costs of lawsuits and legal fees.
If you’re an online retailer, general liability insurance (GLI) may also provide
additional product liability coverage for manufacturing defects, design flaws,
or your failure to provide adequate instructions or warnings on the label.
Ask your insurance provider if product liability is included with your general
liability coverage or if you’ll need to add it as an endorsement to your GLI
policy.
What is a business owner's policy (BOP)?
A business owner’s policy (BOP) is a specialized policy that combines a few of
the most common types of insurance that a small business might need. A BOP
typically includes general liability plus commercial property coverage, which
can benefit any business with a physical location (such as a retail store,
warehouse, etc.), products, and equipment.
BOPs are a very popular way to obtain GLI because they are often more affordable
than purchasing the two policies separately. For many ecommerce platforms, a BOP
will meet any general liability insurance requirements.
What are policy limits?
A policy limit is a maximum amount your insurer will pay for an insurance claim.
If you have a policy limit of $100,000, then your insurer will pay up to that
amount for a claim.
But what happens if your claim exceeds your policy limit?
If you have that same $100,000 policy limit and get hit with a liability claim
for $250,000, then your insurance will cover the $100,000. However, you’ll be
responsible for the remaining $150,000 due.
What are per-occurrence limits v.s. aggregate limits?
A policy limit is an easy way to understand how much your insurer will pay out
in the event of a claim. A more nuanced way to look at policy limits is to
understand the difference between per-occurrence limits v.s. aggregate limits.
* per-occurrence limit: the maximum amount your insurer will pay per
occurrence, or per incident
* aggregate limit: the maximum amount your insurer will pay over the entirety
of your coverage period (commonly a 6 to 12-month period)
Understanding the difference between the two can help you ensure you’re
selecting the right coverage for your seller's business and not leaving yourself
open to unnecessary risk. Don’t confuse the two.
What is an umbrella policy?
Some sellers choose to add an umbrella policy to their insurance coverage.
Umbrella insurance is meant to extend the limits of your underlying policy. It
kicks in when you’ve reached your policy limits and is intended to protect
business owners from the risk of very large lawsuits or high-dollar claims.
In the previous example, you could still be responsible for paying out of pocket
for a $250,000 claim if your GLI policy limit is only $100,000. If you have
umbrella insurance, however, the umbrella policy would kick in after the GLI
policy to cover the remaining amount, ensuring you don’t have to pay
out-of-pocket for excessive claim amounts.
Now let’s take a look at the insurance requirements from the most commonly used
ecommerce platforms.
Ecommerce Insurance Requirements by Platform
Amazon, Walmart, and Shopify are the Big Three when it comes to seller
platforms. While Amazon has dominated the online retail space, Walmart and
Shopify are both investing heavily in giving Amazon a run for its money. Behind
the Big Three e-retailers, Wayfair, Target, Newegg, Etsy, and others are
providing opportunities for sellers to profit through the sales of wholesale,
retail, and handcrafted products.
Here are the 2022 insurance requirements for each.
Amazon
Amazon [https://www.amazon.com/] Pro merchants and sellers with gross sales
exceeding $10,000 in any month are required to carry commercial general
liability insurance and product liability insurance as outlined in the Amazon
Services Business Solutions Agreement.
[https://sellercentral.amazon.com/gp/help/help.html?itemID=1791&language=en_US&ref=efph_1791_cont_G521#FBA]
Amazon has an insurance deductible requirement. Your insurance deductible
[https://www.iii.org/article/understanding-your-insurance-deductibles] is the
amount of money you are responsible for in the event of an insured loss. If you
want to sell on Amazon, your GLI policy must have a deductible of less than
$10,000.
* Min: $1 million per-occurrence limit
* Min: $1 million aggregate limit
* Deductible must not exceed $10,000
* Certificate of insurance (COI) required
* Amazon and its assignees must be listed as an additional insured
[https://www.irmi.com/term/insurance-definitions/additional-insured]
Walmart
Walmart
[https://corporate.walmart.com/media-library/document/insurance-requirements-february-2018/_proxyDocument?id=00000161-573d-dcfd-a37b-ffff3e9f0000]
requires all suppliers and sellers providing goods for resale on its platform to
carry general liability and product liability insurance.
In addition, you may be required to provide proof of workers' compensation
insurance if you have employees that will be entering Walmart premises,
commercial auto insurance if you or your employees will be making deliveries to
Walmart premises, and/ or umbrella coverage to help you reach the following
policy coverage limits:
* $1 million per-occurrence limit
* $2 million aggregate limit
* Certificate of insurance required
* Walmart Inc. and its subsidiaries and assignees must be listed as additional
insured
Shopify
Shopify [https://www.shopify.com/]does not currently have insurance requirements
for sellers, meaning you can set up your store and begin selling without
providing proof of insurance. However, that doesn’t mean your business is
protected against lawsuits or claims resulting from your product sales! Talk to
your insurance provider about the best general liability and product liability
coverage and policy limits for your Shopify store, so you’re not left vulnerable
to an unhappy, litigious customer.
* no per-occurrence limit requirement
* no aggregate limit requirement
* no certificate of insurance required
Wayfair
Wayfair [https://www.wayfair.com/] has separate insurance requirements for
designers v.s. dropship suppliers for its home furnishings and decor platform.
If you are a Wayfair designer, the platform requires that you maintain any
legally required insurance policies, like workers’ compensation if you have
employees.
For sellers, the platform requires a general liability policy or a combination
of general liability and umbrella coverage as needed to cover the per-occurrence
and aggregate limit requirements.
* $1 million per-occurrence limit
* $2 million aggregate limit
* Certificate of insurance (COI) required
* Wayfair LLC must be added as an additional insured.
Target
Target [https://corporate.target.com/about/products-services/suppliers]is
another e-retail platform that allows sellers to use the brand’s existing scale
and influence to reach more customers online. Like other sellers such as Wayfair
and Walmart, Target will expect you to meet any legal insurance requirements in
your state, which may include workers’ compensation insurance if you have
employees and commercial auto insurance to cover delivery trucks.
Target sellers [https://corporate.target.com/about/products-services/suppliers]
are required to carry general liability insurance, including product liability
coverage. Target’s contract specifies vendors “must provide insurance for the
life of Goods covering claims occurring or brought by third parties, including
after Purchaser discontinues sale of Goods.”
Target is one of the few retailers that may require vendors to provide Network
Security and Privacy Liability, which is part of a cyber liability policy that
can protect against data breaches and damages due to lost or stolen breaches.
Target has the highest policy limit requirements from its vendors, including:
* General liability: $5 million per occurrence
* Workers’ compensation: $1 million
* Commercial auto: $1 million
* Network security and privacy liability: $1 million
* Target Corporation and its subsidiaries must be listed as additional insured
* Certificate of insurance required
Newegg
Newegg [https://www.newegg.com/] is an e-tailer focusing on consumer
electronics, smart home and gaming products, and more. Newegg has two sites for
sellers: the original tech-focused site and its smaller, niche site,
Neweggbusiness, serving business buyers.
Newegg’s contract
[https://c1.neweggimages.com/mps/selleragreement/929e2e9a-21a1-4114-bf25-495a29df853a.pdf]
states that sellers must maintain general liability, product liability coverage,
and errors & omissions (E&O) insurance with at least an A.M. Best Rating of A-,
VII or higher. Newegg also requires product liability and product recall
insurance for sellers that manufacture their own products.
* $1 million per-occurrence limit
* $2 million aggregate limit
* Certificate of insurance required
* Newegg must be listed as additional insured
Esty
Etsy made a name for itself as THE platform for selling handmade goods and
crafts and has expanded to include wholesale, digital products, and much more.
Etsy does not require sellers to carry insurance to utilize the platform at this
time. However, as we’ve mentioned before, carrying general liability insurance
for your selling business can protect you in the event a customer is injured or
alleges an injury resulting from your product.
Even if you win a frivolous lawsuit, the cost of fighting in court can add up
fast. If you’ve been selling on Etsy or any platform before, you know that
sometimes customers can quickly turn from sweet to sour. When you have general
liability insurance in place, you can protect yourself from the high costs of
defending yourself against an unhappy customer in court.
* no per-occurrence limit requirement
* no aggregate limit requirement
* no certificate of insurance required
Get a Quote for General Liability Insurance and Start Selling
Are you ready to start selling on one of these popular ecommerce platforms? Most
e-retailers require vendors and sellers to carry — at the minimum — general
liability and product liability coverage. Even if a platform doesn’t have an
insurance requirement, a GLI policy can be an effective way of making sure you
get to keep your selling profits.
Coverdash helps sellers and e-retailers meet insurance requirements to sell on
the major ecommerce platforms.
Our insurance brokerage can help you find the perfect policies to protect your
small business, including general liability, business owner's policy,
professional liability, worker’s compensation, and cyber insurance. Our team of
ecommerce insurance professionals will shop the leading commercial insurance
carriers to find you the best coverage at the most affordable rates.
Our ecommerce insurance service doesn’t stop at finding you the right coverage,
either. At Coverdash, we’ll help you get your certificate of insurance (COI)
delivered to your ecommerce platform so you can stay compliant with platform
requirements.
Don’t let ecommerce insurance requirements keep you from making sales online.
Request a quote from Coverdash so you can start selling without delay.
