What ecommerce businesses should know about shipping insurance
JP Arnaud-Marquez
·April 5, 2022
If you run an ecommerce business, you probably already know that not every item you send out will make it to its intended recipient, or if it does, it may not arrive in the condition it’s supposed to.
There’s a lot that can go wrong between the time your package leaves your warehouse or fulfillment center and the time when it arrives at your customer’s door (or doesn’t!).
That’s why it’s so important to make sure you have the right shipping insurance policy in place.
Let’s take a deeper look at what you should know as an ecommerce merchant.
Why shipping insurance is critical
Shipping insurance is a policy that you purchase that provides protection over lost, damaged, or stolen goods. If a shipped item doesn’t reach its intended destination, or if it’s lost, damaged, or stolen during the delivery process, a shipping insurance policy will reimburse you for the cost of the items.
This is important in cases such as:
- Lost or stolen deliveries Over a six-month period, more than half (51%) of ecommerce shoppers didn’t receive at least one item they’d ordered. It’s impossible to know how many of these packages were misdelivered as opposed to stolen, but 43% of Americans say that they’ve had a package stolen from their porch in the past, and mail theft is on the rise. Bellevue, Wash. saw a 72% increase in mail theft in 2020 compared to the previous year, as the rate of ecommerce purchases escalated during the pandemic.
- Packages damaged in transit Even in cases where an item arrives at its intended destination, it’s not always in its intended condition. Items are dropped frequently in transit – an average of 17 times en route. Damage is especially frequent with oversized items, such as pieces of furniture. A study from uShip found that 21% of respondents who had ordered a large item in the past year had seen it show up damaged. But product damage is commonplace with all types of ecommerce items: A large study found that 11% of UPS items showed up with damage, as did 10% of USPS items and 7% of FedEx packages.
- Perishable products that spoil in transit With the rise of D2C sales of products such as meal preparation kits, fresh flowers, and grocery orders, customers are buying products with a limited window of freshness more frequently than ever – and if your shipment gets delayed, the products may spoil before they ever make it to your customer.
- Customer returns that are lost in transit Sometimes, a customer may decide to return an item because it doesn’t fit properly or it’s just not their style – and you’ll authorize a refund when they drop it at a shipping location, but the package gets lost in transit and never makes it back.
In any of these cases, your customers will want a full refund, or request that you send an expedited replacement – but you’re left without a product that you can resell.
That’s why it’s important to make sure that your brand is covered by a shipping insurance policy that provides the right amount of coverage to keep you from getting hurt when you need to offer a customer their money back without getting anything in return.
Here’s a look at your options.
Types of shipping insurance policies
All of the major shipping carriers offer their own shipping insurance policies, but you can also supplement them with additional insurance if needed.
USPS
USPS Priority Mail Express offers free shipping insurance for up to $100 on all shipments, so if your item falls below this threshold while using Priority Mail Express, you don’t need to purchase additional coverage. However, if you’re shipping a higher-value item, you can supplement your coverage up to $5,000 to protect against loss or theft. The pricing for this level of coverage is $10.35 plus $1.55 per $100.00 or fraction thereof over $600 in declared value.
UPS
UPS also offers a complimentary protection policy for items valued at up to $100. However, if your package exceeds that value, you can insure your package up to a maximum value of $70,000, making UPS a better option for high-value ecommerce purchases. For every $100 of value after the first $100, UPS’ insurance fee is $1.05, with a $2.70 minimum.
FedEx
Like the others, FedEx also provides free coverage for declared values up to $100. For FedEx SameDay, you can declare a maximum value of $2,000, and purchase a policy for 2.70 for shipments valued between $100.01 and $300, and 90 cents per $100 of declared value for shipments valued more than $300. If you’re shipping high-value items like jewelry, you can declare a value of up to $100,000 per domestic shipment and $25,000 per international shipment through FedEx’s application-only Declared Value Advantage Program.
Third-party insurance
While all of the major carriers offer their own insurance coverage, it can often be worth investing in a separate third-party policy when you run an ecommerce business.
The benefits include:
- Lower rates Third-party insurance often costs approximately 1% of package value, while it can be as high as 3% for carrier-provided insurance.
- Broader coverage Carrier-provided coverage often has loopholes that mean your product won’t be reimbursed under certain circumstances. By purchasing a shipping insurance policy aimed at ecommerce businesses, you can make sure that you have a solid understanding of the policy and how well you’re protected, with the ability to develop customized coverage when needed.
- Faster claims resolution Third-party shipping insurance policies will generally inspect and resolve claims within a period of days, not weeks, unlike most shipping carriers.
- Integration with your ecommerce ecosystem Many third-party insurers use open APIs, enabling you to integrate your insurance with the rest of your ecommerce tech stack.
Better customer service and peace of mind
Whether you’re satisfied with your carrier’s standard insurance coverage, or you opt to spring for a third-party insurance provider if you’re shipping items in excess of your carrier’s standard liability coverage, it’s important to ensure insurance coverage one way or the other.
With the right shipping insurance policy in place, you’ll be able to maintain operations without disruptions, knowing that shipping losses and damage won’t negatively impact your bottom line. Budgeting for insurance upfront helps you manage the risk effectively, so that you’ll be prepared to resolve issues immediately as they come up.
By ensuring that all products that are shipped to or from your warehouse or fulfillment center are fully covered in case of damage, theft, loss, or spoilage, you’ll be able to prioritize immediately resolving the issue for the customer, even if that means spending a little extra on priority shipping of a replacement.
Incentivizing exchanges and replacements
When customers don’t receive their items, or their items are damaged or spoiled, many of them may default to requesting a refund immediately.
But by using a best-in-class returns management solution like Loop, you’ll be able to incentivize exchanges and item replacements, rather than refunding the customer’s money.
Using Loop, customers can generate self-service return or exchange requests, using a drop-down menu to provide their reason for requesting a return. That enables your solution to instantly provide the right suggested course of action: If the item was damaged, you can ship a new item; if it was the wrong size, you can suggest the same item in the next size up.
If a customer requests a refund, rather than an exchange, you can even offer them “bonus credit” that they can use in an exchange, which allows them to use their original purchase price to upgrade to a higher value item. That can often result in the customer spending more than the bonus credit amount, leading to higher revenue than the original purchase.
Using this model enables Loop customers to retain an average of 40% of value on returns and exchanges.
Conclusion
By pairing a good shipping insurance policy with an automated returns solution like Loop, your brand will be able to make the most of lost, stolen, or damaged deliveries, and retain a greater share of revenue through flexible reimbursement policies and workflows that lead to more exchanges and long-lasting customer relationships.
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