The Pros And Cons Of Parcel Insurance For Online Retailers And The Questions To Ask Before Investing
By Jarrett Streebin, EasyPost
Will the package make it to the destination? This is a thought that goes through nearly every shipper’s mind as they send off their packages via their respective carriers. As eCommerce continues to grow at an impressive rate, online retailers are under more pressure than ever to ensure that deliveries are made safely and promptly.
In reality, packages get stolen, encounter damage, or simply go MIA during transit. Package theft in 2019 was 36 percent and this rose to 43 percent in 2020. Of this 43 percent, 64 percent of respondents noted that they’ve suffered from package theft more than once.
A New York Times report noted that 15 percent of all online shopping deliveries do not make it to their final destination in urban areas.
These unsettling statistics beg the question of whether or not parcel insurance is worth the extra cost for online retailers.
Defining Parcel Insurance
Parcel insurance, also referred to as shipping insurance, is a policy that reimburses the shipper in the case the package is damaged, stolen, or becomes missing in transit. Insurance can either be purchased through third-party vendors or via carriers depending on which makes the most sense for your business.
To Insure Or Not To Insure?
So many varying factors directly impact the risk vs. reward of parcel insurance. Here are a couple of factors to consider to help you make your decision.
Included Insurance Limits
Major carriers include coverage up to a certain dollar amount, most ranging anywhere from $100-$200. These insurance limits refer to the package as a whole – if you are packaging multiple expensive items together in the same package, you’ll want to opt for additional insurance to fully cover the items.
What’s The Declared Package Value?
As an online retailer, don’t underestimate the importance of the declared package value, or how much you say the items inside the package are worth outside of the materials and shipping costs. In the case that packages become lost, stolen, or damaged, it’s your responsibility to prove how much the item is worth.
If you end up needing to file a claim for lost packages, you’ll need to prove what the contents are worth. Be prepared to have documentation on hand to swiftly file on the off chance that you need to file an insurance claim.
Always Factor In Risk
Weigh the downsides of insurance against the positives; what makes the most sense for your business?
What Type Of Item Is It?
Some items have a naturally higher chance of being stolen than others. For example, if you’re a computer company and your logo is printed on the side of boxes, you should opt for insurance due to higher chances of theft. As a best practice, consider using unbranded boxes to divert attention away from high-value items inside.
What Is The Destination?
Urban areas, particularly areas with many high rises, condos, and apartment buildings are naturally at a higher risk of package theft. As only 10 percent of package thieves are caught, it makes sense to opt for insurance if you regularly ship to larger metropolitan cities such as Los Angeles, San Francisco, New York City, Chicago, Austin, Seattle, etc.
What’s Your Monthly Package Volume?
Shipping a one-off package with insurance won’t be expensive, but if your monthly package volume is significant, it will result in a significant cost to your business. Consider how much it is to replace missing items and whether or not you are willing and able to send replacements as needed.
Key Takeaways
Take into consideration the value of your average parcel and your shipping carrier’s tolerance to risk. Running a cost and risk analysis can act as your guiding light as to whether or not parcel insurance is worth it.
Reflect on the previous year’s data to determine the number of shipments that were lost, damaged, or stolen. Divide this number by the total number of shipments and multiply it by the average order value.
If your average package’s insurance cost is less than what you’d spend to replace the item, it’s likely worth it to include insurance.
Maintaining an enjoyable, trustworthy customer experience should also be at the forefront of your decision. At the end of the day, you are working to keep your customers happy, and parcel insurance is an integral tool to help you achieve this.
Create policies that enforce consistency across your approach to parcel insurance, resulting in a streamlined customer experience that aligns with your business goals.
About The Author
Jarrett Streebin is the Founder and CEO of EasyPost, a technology company that builds APIs to help online retailers achieve Amazon-level shipping capabilities. Jarrett worked at The 451 Group and a family office before starting EasyPost in 2012. Jarrett graduated from UC-Berkeley in 2009.