The internet has created a new series of risks that smaller business traditionally may not have faced. The nature of online commerce means you have potential to access global markets and therefore can be more susceptible to global trends and fluctuating exchange rates.
At the time you are getting a quote for your online retail insurance the adviser will ask you what proportion of your business is exporting abroad. They may want a breakdown between different locations such as inside the EU, the Americas etc. As an online business, this is one of the ways your risk is calculated and highlights the importance of business insurance and specifically, product liability insurance.
So what is product liability when it’s online?
If you are making or manufacturing your own goods to sell online, product liability is likely to be a main part of your business insurance. It is often wrapped up together as part of a public liability cover though, so question this for your own clarity when talking with an adviser.
If one of your products causes injury due to a fault you could be liable for a compensation claim against you. For example – if you produce electrical goods and a fault causes an electric shock, or a food product you sell causes food poisoning, you could be held responsible. However unwittingly, the simple fact is that a claim of this kind could be devastating to a small business, because there is no legal limit on the size a claim could be.
Product liability is the part of your insurance cover which would protect you from the claim and for the legal expenses to defend yourself even if the claim was unfounded.
Even as an online retailer in its strictest sense, as someone who doesn’t produce the good themselves, product liability is often still a vital part of your protection. If you brand the goods with your own business name, if you re-sell goods, fix, refurbish or alter them, or in cases where you sell goods by an unknown manufacturer, you could still be liable in a compensation case arising from their use.
In a global marketplace, especially from outside the EU, it can often be difficult to trace a product back to its original producer, and in many cases these products can be made up of components each with their own, equally long line of manufacturers. In an online world, a lack of face to face communication can compound the issues further.
Beware when sourcing items from abroad, your insurer, and clients may want to know from whom and where you source your components.
Always seek legal advice when signing contacts with exporters and manufacturers you use. Most prevalent in the US, hold harmless agreements can release a party from any liability towards goods sold or produced. These arrangements can greatly affect your insurance.
Product recall insurance can cover the additional costs on top of any claims against you, should you need to recall a product. This could be for costs arising from inspection, communication and distribution or replacements.
Stock cover for websites and online businesses
Where ever you keep your stock, be that at home, in a store room or elsewhere, you’ll want to be sure your vital products are protected from things like fire and theft. Don’t forget stock cover can be set to insure fluctuating levels around busy seasons, and specialist insurers can provide cover for goods kept in freezers or outside.
‘Goods in transit’ insurance, may be relevant to you if you drive your own stock to and from a store room, warehouse, picking up from importers or even to the post office for delivery.
Do you hold stock at third party premises? ‘Items held in trust’ is the term when a manufacturer holds items in their stock on your behalf. You need to be aware of the arrangement, and whether you need to cover these items yourself.
As a digital savvy entrepreneur you’ll appreciate the need for modern cyber protection. This will cover you against breaches in data protection, data recovery and the effects of cyber-attacks.
As an online business, you’ll only need buildings insurance if you have premises which you own. Any rented office or warehouse will be covered by the landlord’s commercial property insurance. You will however need to update your home insurance policy to include business use, assuming that’s where you work from.
The online marketplace is changing the way we do business, but just because you are not meeting customers face to face you should not be lulled into believing your risks are lowered. Getting the best business cover you can remains vital to securing the longevity of a growing business.
Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.
Date: October 17, 2016
Category: Small Business