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Online Retail Risks
You might think that the most important risk in starting or running an online retailer is whether or not you’ll make enough money to survive.
This is a pretty good point, as the survival of your business really depends on bringing in sufficient cash and remaining profitable.
Broadly speaking, the worst case scenario for this risk is that you lose all of the time, effort and money that you have invested into the business.
But when it comes to losing money, there are bigger risks to consider.
What happens if one of your customers is killed, seriously injured or suffers a serious illness as a result of one of the products you have sold?
You might think that would be the responsibility of the manufacturer or the wholesaler, but that is not always the case, especially if you are importing the goods yourself.
Another risk to consider is the damage or theft of your contents and stock, or damage to your property if you are operating your business from leased premises.
RISK 1: One of your products results in death, injury or other loss
INSURANCE TYPE: Product Liability
DETAILS: If you are found to be responsible for the product and the loss caused, this insurance can cover the costs.
RISK 2: A person suffers injury or property damage on your premises
INSURANCE TYPE: Public Liability
DETAILS: As an online business, you may not have customers visiting your premises but there could be other visitors potentially at risk
RISK 3: Your business suffers a privacy breach, hacking or cyber extortion
INSURANCE TYPE: Cyber Insurance
DETAILS: If your business relies on online systems to operate and stores client data online you are at risk from cyber related issues
RISK 4: Theft of contents or stock
INSURANCE TYPE: Theft and Contents & General Property
DETAILS: A combination of these can cover your contents and stock in the event of theft
RISK 5: Damage or loss due to fire or storm
INSURANCE TYPE: Contents & General Property Cover
DETAILS: A combination of these cover types can protect your contents and stock in the event of fire, storm, lightning, etc.
Now that you know about some of the risks faced by online retailing businesses, the next step is to run through some of the insurance types available to combat those risks.
This is just a small snapshot of the different types of online retailers insurance available in Australia.
Some of the other insurance types which may be useful for a retail business include the following:
- Product Recall
- Transit (inc. Marine Transit)
- Machinery Breakdown
- Deterioration of Stock
- Employee Dishonesty
- Business Interruption
We recommend speaking with an insurance broker about your specific needs. By calling us on 1300 LIABILITY (1300 542 245) we will be able to put you through to a broker who can help.
Earlier in this guide we touched on the fact that you may have additional responsibilities if you are importing goods yourself.
If you are the importer of a particular product, you are deemed to be the manufacturer of the product irrespective of whether you had anything to do with the manufacture.
This means that if a product you have imported results in the death, illness or injury of another person, you could be held liable.
Such an event could lead to a claim against you for potentially millions of dollars, especially in the event of death or permanent disablement.
Any retail business needs to ensure they have product liability insurance in place, and this is even more imperative if you are importing.
Furthermore, it is vital that you let your insurance broker or direct insurer know that you are importing goods yourself.
A separate issue is insuring your imported goods whilst they are in transit.
A marine transit policy will ensure that your goods are protected whilst they are on their way to your business.
Working from Home
Many online retail businesses start their lives in the family home, perhaps in a spare bedroom or the garage.
A common mistake made by many home based businesses is thinking that their normal home insurance will cover them, or simply that they don’t need insurance at all.
Whilst a normal home contents insurance policy may provide limited cover for your home based business, rarely will it be sufficient to properly protect your business.
Furthermore, the insurance will only cover your property. It will not provide any protection along the lines of public liability or product liability.
Irrespective of whether or not you take out a separate business insurance policy, it is vital that you let your contents insurance provider know that you are running a business from home.
Before you decide whether or not you need insurance for your online retailing business, we’d like to bring up one more important point.
Some retail business owners believe that they do not need their own product liability insurance as the manufacturer or wholesaler should be responsible.
Whilst ultimately this may be the case, it doesn’t stop smaller retailers from being dragged into costly court cases and legal action.
Often in cases involving a product the legal team will take action against all parties involved, including the manufacturer, the wholesaler and the retailer.
Even if the court eventually finds that it was the manufacturer at fault, and you are found to have no financial liability, the case itself can still be very costly.
In order to defend yourself you may need to spend tens of thousands, or even hundreds of thousands on your own legal team and defence.
This alone could be enough to send you and your business broke, regardless of the outcome of the legal action.
This is one of the great benefits of public and product liability insurance, as your policy can cover these legal defence costs regardless of whether you are found to be liable or not.
Quotes and Advice
Although our website allows business owners to request quotes, we strongly recommend that people running an online retail business speak with a broker to ensure they are properly protected.
Regardless of whether you start the quote process via our online form or over the phone, you can enjoy the peace of mind knowing that you are dealing with a qualified insurance broker.
Our network of brokers understand online retail businesses, and can work with you to put together a package that suits your needs and your budget.