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 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.
Amazon has an insurance deductible requirement. Your insurance deductible 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
Walmart
Walmart 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 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 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 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 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 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 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.