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What Online Sellers Should Know about Shipping Insurance

Shipping insurance
What Online Sellers Should Know about Shipping Insurance

While the past year of pandemic laid waste to much of the economy, ecommerce has been one of the bright spots. Homebound shoppers have been buying goods online in record numbers, with sales at 50 U.S.-based marketplaces growing by 40 percent in 2020, according to an analysis by Digital Commerce 360.

But as ecommerce spending increases, the attendant shipping problems are also on the rise, raising the question for sellers if it’s worth it to safeguard their deliveries with an insurance policy.

Sixty-three percent of small online sellers surveyed in March said that they had seen an increase in lost or damaged packages over the last year, according to UPS Capital, the financial services arm of the shipping giant.

Nearly half – 48 percent – of those same SMBs (small and medium sized businesses) reported that they had seen an increase in “porch piracy,” theft of a package after it had been delivered.

Customers take notice

It’s no surprise that customers aren’t happy when their package arrives damaged or doesn’t arrive at all. In the UPS Capital survey, 81 percent of SMBs said that they are adversely impacted by lost or damaged shipments, citing financial hits from replacing or cancelled orders and the reputational damage that comes from dissatisfied customers.

UPS Capital has been aggressively promoting its insurance service to SMBs, arguing that the shipping experience is a critical opportunity for small sellers to differentiate themselves from their competitors, and to close the gap with large sellers that consumers tend to rate more highly on the shipping experience. Canvassing online shoppers, UPS Capital found that 64 percent gave Amazon a four- or five-star rating for the shipping experience. Fifty-three percent gave those high ratings to Walmart, but just 29 percent said the same about SMBs.

“If anything happens on the fulfillment side, there’s an easy, simple way for the SMB to take care of the situation,” UPS Capital President Mark Robinson said of his firm’s insurance offering.

Shipping insurance, he argues, allows sellers to “sleep good at night because you don’t have to worry about something popping out and hitting you financially.”

Is there a rule of thumb that determines when you should buy shipping insurance?

No. Experts say that it’s a calculation that each seller must make on their own, generally drawing on a combination of considerations including their risk tolerance and the type of items they’re selling, which tends to be more of a determining factor than the value of the item itself.

“Most SMBs today who use insurance don’t do it as a dollar amount,” said Kiel Harkness, head of global marketing and business intelligence at UPS Capital. “The leading trigger,” Harkness said, “is actually the product type.”

In the UPS Capital survey of SMBs, 31.6 percent of respondents said that they will purchase insurance when sending certain product types, compared to just 10.5 percent who say that they will purchase insurance based on the cost of the shipment. But SMBs weigh other factors as well, including when shipping with certain carriers or to certain destinations, and whether they are shipping to an important or new customer.

“I think that it’s entirely subjective,” said Matt Morelli, director of business development at U-PIC Insurance Services.

“If I were a shipper, I would assess my appetite for dealing with risk based on the commodity(s) I ship, their values, how prone they are to being lost, stolen, or damaged while in transit, how much time I have to attempt to determine what is a real and valid ‘claim’ and what is not, etc.,” he said. “There is no one-size-fits-all ‘reason’ for why people insure. Every individual has their own motivation.”

Insure through the carrier or a third party?

Shipping carriers are required to offer liability protection for the packages they transport, but numerous third-party insurance providers are available to sellers, as well.

Those firms contend that they’re more user-friendly and generally more responsive to claims than the carriers.

“Our phones tend to ring the most when a shipper has a negative experience with a carrier’s claims process, or their rates,” Morelli said.

Robinson acknowledges that carrier liability protections aren’t going to be right for every shipper, and, indeed, the insurance that UPS Capital offers is distinct from UPS’ carrier-provided liability protection, and is more of a direct competitor with the third-party services like U-PIC and Shipsurance.

Carrier liability protection from the likes of FedEx and UPS might make sense for low-dollar shipments, given that each offer declared value policies up to $100, though private insurance service providers pride themselves on a more streamlined claims process and, according to Robinson, many offer reimbursement up to the invoice value while carriers tend to pay only for replacement cost.

“The truth is, when working with a shipping insurance company such as Shipsurance, our goal is to pay valid claims rapidly,” said Shipsurance Vice President Ariel Shmorak. “The cost is typically lower and the claims process is fast and paperless.”

What are shippers’ biggest misconceptions about shipping insurance?

“That it is expensive and useless!” said Shmorak, who believes that many sellers still think of the declared-value insurance provided by carriers as the main option, when the marketplace is now full of providers that boasting of a better claims process and responsive customer service – including options available through the carriers themselves.

“There is an awareness gap,” UPS Capital’s Harkness said of SMBs. “A significant majority really aren’t aware of the benefits.”

But many sellers also tend to think of insurance more from the perspective of cost than the benefits it can provide, and “in business any new expense is an unwelcome one,” according to Morelli.

He explains, “It’s not until they begin to realize the customer service impact that shipping issues have on their business that they start to look at insurance as a solution. Shipping insurance makes the seller whole, which empowers customer service teams to rapidly fix any issues caused by shipping. This is such a powerful tool, and I don’t think a lot of businesses take into consideration the positive impact of a customer service representative who has the ability to say ‘Sir, please accept my apology for the shipping problem, I am going to send you a replacement today.’

“Consumers in 2021 expect perfection, and when they do not receive perfection in exchange for their money … they expect rapid resolution. Insurance gives businesses the ability to rapidly resolve these customer service issues, to both make and keep customers happy. A happy customer is a return customer.”

My customer says an item arrived damaged, but won’t provide any information to me to file a claim. What do I do?

“We see this all of the time,” Shmorak said. “We work with the sellers and offer alternative methods for verifying losses.”

Shipsurance will discuss the matter with the shipper and try to see what options are available. Sometimes they are able to rely on emails from the buyer or communications sent over a platform. In other cases, they might be able to process the claim based on a copy of a chargeback through PayPal or a credit card.

“We try to get an indication of what happened and use the details to paint the complete picture,” Shmorak said.

What rule of thumb do you use to determine whether to use shipping insurance? Leave a comment below, and check out what readers had to say on the AuctionBytes Blog from May 10th.

Note: edited for clarity on 6/15/2021.

Kenneth Corbin on Linkedin
Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.

6 thoughts on “What Online Sellers Should Know about Shipping Insurance”

  1. “You pay us to deliver your package? Pay us more if you think it will help. Don’t count on it.”

  2. If I pay to insure a package, I am a small business use USPS exclusively for a couple hundred packages per year. Since 1998 I have had fewer than six packages I sent on which I had to file an insurance claim (damaged in shipping), and there was NO problem getting a refund on any of them. I HAVE had insurance claims denied for items that arrived poorly packed – I would not pay out on those, either ! IMHO most insurance claims are caused by shippers who do not pack defensively. I pack defensively and am comfortable tossing any of my packages out of a third story window. I

    As this track record started becoming clear to me, I stopped buying paid insurance and simply guaranteed my customers their money back (out of my own pocket) if something arrived damaged. Which just doesn’t seem to happen, and since 1998, nothing has been lost – delayed, yes, WAY delayed during the pandemic, but in the end always delivered. On high value shipments, though, I DO buy USPS insurance, just because it would be a big chunk of money to have to pay out.

    In the beginning I opened an account with one of the courier companies and used it until I read the terms on the back of the waybills as to what they would NOT cover (antiques, glass, etc.) I canceled the account and have used USPS almost exclusively ever since.

    I use Stamps.com but have never investigated theirs or any other third-party insurance; one big problem for me is that apparently at least some of them will NOT reimburse for postage, only for the item value. (Maybe this has changed?) USPS insurance refunds value AND postage charges (but not the insurance fee).

    Also, I can see a problem in that USPS has changed and requires that only the Shipper can file an insurance claim (same as courier companies have done all along). That means shippers must rely on customers to help out getting the claims filed and paid. It used to be that either USPS shipper or recipient could file a claim; so easy (actually seemingly more sensible) to have the customer do the filing/give the package to their post office, but not any more.

  3. If shipping a long distance via USPS I buy insurance.
    Rarely feel the need to buy insurance with UPS or FedEx.
    Payout from USPS … 4 Stars.
    Payout from UPS & FedEx … 5 Stars

  4. USPS is horrible, if they lost a package you get refunded in full, item and postage, if they break it only refund for the item. They still get paid for breaking the item. EVEN worse, they are requiring an inspection on every claim, so now I have a mad customer because their item was busted up and I mean snapped in half, but I have to ask them to take time out of their day to run to post office to get inspected. Since selling thru ebay, they don’t have to take to the PO, they just have to file for a return and I have to refund back or get a defect. Or pay for them to return but still can’t file/complete a claim because its not in the original package. I’ve filed more claims in the last year then the prior 10 years combined. OH and there is NO way to contact anyone in USPS claims.

  5. Up until this year, I rarely had to file a claim with USPS. I always ship Priority and I used their boxes to ship artwork. Not anymore. I have a 40% damage rate with using their shipping triangles. So I switched to high density tubes and very sturdy flats for smaller items. Without fail, a postal worker attempts to shove a 38 inch long tube into a standard mailbox and the tube, along with the artwork is mangled. The change over to high density tubes dropped the damage rate to 30%. Still unacceptable, so now I ship through UPS only. Since the switch, I have not had a single package containing artwork get damaged. Postal workers need better training or reading skills as all tubes were clearly marked in black sharpie “Artwork – do not bend or fold”/

  6. I’m a little late to the party here but I am a big fan of the independent insurance companies.
    They have saved me hundreds of dollars when packages have gone missing or have been pirated.
    The cost of insuring my shipments is included in the cost of shipping.
    This insurance covers and assuages my fear of shipping almost anything. The only problem I have encountered is the rare customer who refuses to sign the online affidavit. I try to make it easy for them – assure them that it actually IS easy; tell them that they have only to choose from a short drop down list; and then if English is not their first language, I let them know which options are best for the situation.
    Honestly, the most valuable part of Insurepost or Shipsurance is my own personal peace of mind.

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