Member Article

Guide to Online Business Insurance

2021 has seen a huge growth in independent retail, with an ever increasing list of businesses starting to sell their physical products online. Inspired by the meteoric growth of companies like Gymshark, it’s never been a more exciting time to join the movement, however, there is often too much information (and misinformation) out there that can confuse the process of setting up a new ecommerce business. Often articles are missing information about the legal and insurance requirements for your business, so we’ve made this handy guide below to give you some pointers on where to start.

1. Should you incorporate a company?

If you are selling physical products online, there are significant advantages to incorporating a limited liability company and, as the name suggests, the primary advantage is limiting your liability. This level of protection is in place because the company becomes a legal entity in its own right for the purposes of contracting and liability, with a distinct identity from those who run or own it. So, for example, if you were to sell a scooter which turns out to be faulty and the owner crashes and injures themselves, they have a legal right to sue your company (rather than you personally) for damages. This protects your personal assets, for example your home and retirement funds and credit rating from liability in such cases. It is unsurprising, then, that limited liability companies now make up the vast majority of UK companies.

However, incorporation is not compulsory and for many, sole proprietorship works perfectly fine for some entrepreneurs. It is important to speak to an accountant to assess which of the options is most suitable for your personal circumstances. For example it may be harder to raise certain types of finance as a sole proprietorship.

2. What are your liabilities as a business owner?

The level of liability that you are taking on varies depending on the types of products that you are selling. So for example, posters and art prints are less likely to cause injuries to your employees and customers than toys or scooters or kitchen utensils. But nonetheless, freak accidents do occur in the unlikeliest of places.

You also need to pay attention to the small print for the platforms that you are trading on. For example, Amazon’s Pro Merchant Insurance Requirements requires Professional Merchants to obtain and maintain commercial liability insurance with a limit of at least $1 million per occurrence and in aggregate after exceeding $10,000 in gross proceeds in sales in one month on Amazon, or if otherwise requested by Amazon. The policy must name “ Amazon.com Services LLC., and its affiliates and assignees“ as additional insureds.

3. What should you avoid or look out for when seeking insurance?

Firstly, when you are seeking insurance, you need to make sure that the insurance is valid for the needs of your business. There is a big difference between a retail arbitrage and private label online products when it comes to rating the insurance. Selling private label products classes you as a manufacturer, with an increased product liability exposure. So this is something to discuss with your broker.

The products that you sell are the main factors behind how much annual premium you will pay, so what happens if you change your product and product categories each day or month? Do you remember to tell your insurer brokers about major changes?

Typical insurance application forms request details on historical, current and future annual revenue, which can be hard to provide when you’re just starting out.Unfortunately, since most insurers do not have access to the data from your ecommerce store in the way that other apps and tools have, you have to extract your data and convert it into a form for the insurance companies, which can be a slow and complicated process.

Then, if you do have a disaster and need to make a claim, this process can take a very long time to complete, with a lot of paperwork and calls to resolve various issues before the funds are released into your account.

4. What should you be looking out for?

Look out for specialist insurance brokers that are dedicated to meeting the needs of ecommerce businesses; they will have a better sense of the things that you need to watch out for.

There are also new insurtech companies that have embedded solutions and online capabilities to help you have a much smoother onboarding experience.

Finally, the claims process is often referred to as “the shop window for insurance”; it is a great indicator of whether a policy is right for you. Before committing to any policy, make sure you understand the claims process and how that would work; especially taking into account the length of time it would typically take to process, as well as any excess needed.

This was posted in Bdaily's Members' News section by Anansi .