Starting an online store—insurance

So far our Digital Guide’s entries on setting up your own online store have focused primarily on the online store software aspects required for this business model. But before you boot up your PC and enter your electronic emporium, there are some critical legal aspects that need to be resolved ahead of engaging in any business activities. In the following article, we’ll give you an overview of three of the most important insurance types that you need to be aware of before going live with your online store.

But before reading on, please keep in mind that this text is an introduction to what you need to be aware of as an online business owner regarding insurance—there are many other policy types available on the market besides the ones mentioned in this text, so make sure that ample research is done prior to finally setting up shop.

E-commerce: origins and current situation

Thirty years ago, there was no e-commerce industry to speak of, and the word ‘Amazon’ was more likely to conjure up images of rainforest canopies or giant female warriors rather than an online store. Back then, the internet was exclusively the turf of academics, government agencies, and hobbyists. But in 1989, with the introduction of the World Wide Web at CERN, a technologicalchange in the telecommunication industry occurred that brought on a fundamental shift in the way we organise both our business and personal lives.

Perhaps no economic sector has experienced a revolution more profound than that of the retail industry. No longer bound by the opening times of brick-and-mortar locations or hassled by the need for transportation, potential customers are able to shop around the clock and have reacted to these convenient conditions by making billions of pounds’ worth of yearly online purchases.

And while much of the market is driven by big players such as Walmart and Amazon, (the latter accounting for 60% of e-commerce growth last year), it’d be a mistake to assume that the e-commerce world hasn’t experienced its fair share of modestly-sized start-ups. Whether it’s a means of generating passive income, a way of supplementing traditional retail sales, or a model that operates exclusively online, executing a quick online search will reveal just how many small business and private individuals rely on the internet to hawk their wares.

So you want to be an online retail star?

Enticed by the prospect of carving out your own piece of the online retail pie, you’ve completed your business plan, found a suitable e-commerce platform, and stocked up on inventory: so you should be ready to finally get the ball rolling and send out your first orders, right? Wrong. One very important step needs to be accounted for before you can truly open your digital doors for business: like any commercial entity, your online store is going to need the right insurance. As previously stated, this text focuses specifically on three different insurance policies commonly purchased by online store owners.

These include:

  • Premise liability insurance,
  • Cyber liability insurance,
  • and Business interruption insurance

Premise liability insurance

While most of us consider online stores to be strictly virtual enterprises, in many regards they bear no major differences to traditional brick-and-mortar business models. What happens, for example, when an employee, client, or government inspector is injured while visiting your office or storage facility?

Bodily injury and property damage cases present two common scenarios that, when not properly insured for, can quickly drive a business into insolvency. And it doesn’t matter whether you’re renting out space, or running things from home: if damage is done to a third party, you could be potentially liable for paying out compensation. Signing up for a premise liability insurance policy (often this is included in a general liability insurance policy) is easy to do and could be the difference between a few hours of paperwork and closing up shop for good.

Cyber liability insurance

You’ve almost certainly encountered stories in the news involving attacks on the servers of large companies or institutions on which sensitive client data was stored. Two prominent attacks in the UK over the recent years include data breaches to both NHS and Wonga. Here, an array of sensitive information was stolen including patient data and customer data.

While it’s true that most hackers have bigger fish to fry than your average sized online store, it’d be wrong to assume that a business is safe from attack just because it’s not a Fortune-500 listed company. As a business owner, it’s your responsibility to safely secure the personal information that clients and customers have entrusted you with. Those who experience attacks and have failed to secure a thorough policy, could face hefty, potentially paralysing, legal fees and other regulatory fines. Fortunately, there are plenty of polices to choose from to protect you and your business from such horror scenarios; a few examples include:

  • Data breach and crisis management coverage: this policy helps business owners deal with the fallout resulting from the compromised security of their servers. Legal costs, regulatory fines, and emergency IT support constitute some of the biggest expenses here.
  • Extortion coverage: deals with losses stemming from extortion threats.
  • Media liability coverage: covers damages resulting from theft on intellectual property or the defacement of a professional web presence.

Business interruption insurance

Many online stores purchase their web space through third party providers or rely entirely on e-commerce platforms to create their online presences and sell their goods. But what happens when the server on which your site is hosted suddenly crashes? Generally, most providers react quickly to such situations, making extended periods of down time a rare event. Even so, fires, natural disasters, and other accidents can still occur, and these scenarios can often lead to extensive interruptions of business operations.

Business interruption insurance seeks to mitigate these losses by helping to keep your company afloat while you’re busy trying to get back on your own two feet again. Other potential cases that may be covered by this insurance type include:

  • Damage to inventory or merchandise that has already been sold (e.g. as the result of a fire or storm)
  • Losses resulting from the need to relocate due to unintentional damage to your business’ property.

Summary: know the risks before getting started

Any business venture involves some degree of personal risk, and the same also applies to running an online store: loans will inevitably need to be taken out to finance your inventory and any necessary hardware components or software packets. External factors, like the state of the economy or changes in fashion and taste may also affect sales, but at least for some things there are ways of reducing the stakes of running your own business.

Protecting yourself with the proper insurance policies is one way of cutting down on these potential losses. Every business owner needs to be informed about the vast selection of different policies, and in some cases, it may be worth your while to meet with an independent insurance agent to find out which offers are right for you.

Please note the legal disclaimer relating to this article.