In 2015, 21 million Canadians (about 80% of the population) made at least one online purchase. Economists say that number is rising each year.
As Canadians move toward virtual buying, the opportunities for online sales have driven many brick and mortar stores to open up online sales. Some companies skip the physical location entirely and offer only online products and services. Either way, many businesses aren't fully insured for their online operations and delivery. In most cases, that's because owners don't know which types of insurance they need.
Why Get Business Insurance for an Online Store?
Online and physical stores often share many types of coverage. However, selling online comes with a unique set of risks. Physical businesses have to worry about property insurance to cover storefront risks like theft, fire, and water damage. For online shops, damage to physical property isn’t a major concern (except in the case of warehouses and product storage).
Transferring and storing data such as customers' credit cards and personal information is one of the greatest risks. Online storefronts may also be exposed to a range of cybersecurity issues, including:
Most online business owners are aware of these risks, but they aren’t sure how to handle them or whether it’s worth insuring against them. In our experience, cyber incidents like those listed above can cost a company as much as – if not more than – physical damages.
The good news about insurance for online businesses is that it’s often more affordable than policies that include full property coverage. You’ll still need general liability insurance – a policy almost every business needs – but it will be far more affordable if you don’t include coverage for items like customer slip and falls.
Which Types of Insurance Does an Online Store Need?
There’s no straight answer to this question because digital storefronts vary so widely. Some businesses open an online shop as an extension of their existing brick and mortar business (for example, a furniture store). Others sell products and services exclusively online (for example, graphic designers).
Online sales of physical products are often the most complex. If you have an inventory to protect, you’ll need property insurance for the location where you store them. You’ll also need general liability insurance in case your products (or services) cause harm to people who buy or use them – intentionally or not.
Let’s walk through some of the basic types of insurance an online storefront may or may not need and why.
Cyber Liability Insurance
Most general liability products won’t cover you in the event of data breaches or cyberattacks. This means two things:
You’ll need information security procedures in place to reduce risks
You should have cyber liability insurance in case your security measures fail
A cyber liability policy has several functions, but mainly, it protects your business by covering costs associated with a data breach. This might include the cost of notifying customers, recovering your data, and crisis management (including PR management).
Third-party coverage might also be necessary if someone else can be harmed by cybercrime that happens to your business. For example, stolen identities created from unauthorized access to your data storage could impact other people and result in further claims.
General Liability Insurance
Most businesses need general liability insurance, regardless of whether they’re brick and mortar or online stores. This protects you from lawsuits, which can arise for a number of reasons when you sell online.
If you sell physical products online, product liability is a specific policy you’ll likely need in addition to general coverage.
Errors and Omissions
Errors and omissions insurance protects your business from lawsuits resulting from misinformation or misrepresentation. Almost all businesses benefit from an E&O policy, but it's particularly important for online stores.
Business Interruption Insurance
Interruptions are costly for any business. Online, we’re at the mercy of technology, which means interruptions can come up unexpectedly. Your website may stop working and need repairs, or you could lose it entirely and need to start building it again. On the other hand, you can still experience normal business interruptions like waiting on suppliers. Either way, it’s a costly expense, and insurance can save you from major losses.
Other Considerations: Contracts & Terms
Online risk management has a lot to do with insurance, but it also includes creating protective documentation. Depending on your business, this may include EULAs (End User License Agreements), terms & conditions, privacy policies, and trademark registration.
Our brokers can help online store owners navigate these needs. If we can’t help you directly, we’ll refer you to great professionals with experience in setting up online businesses and creating legal documents.
Do You Have Questions About Online Business Insurance?
Insuring online businesses can be complex. There are a lot of options to walk through with your broker. Policies like cyber liability insurance are relatively new to the industry. That’s why it’s essential to have an in-depth consultation about the specifics of your online storefront before purchasing any policies.
If you have more questions about any business policies, call to speak with a qualified broker at Cornerstone Insurance. We’d be happy to answer your questions in-person or over the phone.