The Importance of Shipment Insurance During the 2021 Holiday Shopping Season

Butterflies. We all know that feeling. The swirly, gooey, fluttery feeling that tumbles in our stomachs when something exciting is about to happen. Maybe it’s a first date, maybe it’s an interview for a dream job, maybe it’s Christmas morning and we, as little kids, ran and jumped our way down to the Christmas tree before everyone was awake. 

Pits. We all know that feeling too. A pit in the stomach is heavy, burdensome, lethargic, dragging us down in our core when something we wait anxiously for something to happen. Maybe it’s…a first date, an interview for a dream job, or it’s Christmas morning and we, as little kids, ran and jumped our way down to the Christmas tree to only find no presents under the tree. 

We may not have experienced this as little kids, but that’s simply a matter of generation. Our parents likely shopped at malls, mom-and-pop shops, and department stores for us as kids. These days, everyone is turning to the internet for their holiday shopping. It’s a breeze to have holiday delivery for all our goodies sent right to our doorstep. The postal service really knows how to offer us the white glove treatment as we celebrate the holidays and ring in the New Year. 

Ecommerce businesses work hard all year to engage with their customers, offer promotions, and land sales, all leading up to the big one — holiday shopping. But the entire experience can be ruined all in the last few moments if the package doesn’t arrive within the expected number of business days. This time of year is not only stressful for consumers if the package doesn’t arrive but for brands as well hoping to keep their customers happy. 

What is Shipping Insurance?

Shipping doesn’t always go accordingly. Packages are sometimes stolen, lost, or damaged in the process and that can really snatch away our family’s holiday cheer. Tiny Tim wouldn’t be so full of holiday cheer if the post office doesn’t get him his new smartphone on time. Panicked parents have to either watch their kids go giftless or pay for next day air shipping rates to get the package within shorter delivery times. Carriers aren’t perfect and the cost of that can be significant for shoppers and merchants alike. 

To remedy that, shipping insurance is a service provided to both consumers and manufacturers that protects them when a package does not arrive at its destination due to loss, theft, or damage. If the parcel is insured, the insurance holder will be reimbursed the declared value of the items in the package. 

The declared value is important to understand. The declared value is based on the value of the goods in the package. Let’s say you’re shipping or receiving $75 of merchandise and it gets lost, the insurance holder will be reimbursed. If a buyer is reimbursed, it is likely through refund or a no-charge reorder. If a sender is reimbursed, it’s through money back for the sold goods. 

Depending on the carrier, some packages are always covered. For domestic shipping carriers, FedEx and UPS, all packages are insured up to $100 of value at no cost. Below is a chart of included insurance values for the three main domestic carriers in the United States:

 

Carrier	Service	Included insurance package value
UPS	All	Up to $100
FedEx	All	Up to $100
USPS	Priority Mail (domestic)	Up to $100 (CPP) and up to $50 (CBP)
	Priority Mail (international), Priority Mail Express (domestic and international)	Up to $200
	First Class Mail (domestic and international, Media Mail, Parcel Select	Not included

But there are some packages that cannot be insured. Commonly uninsurable products are currency and other financial instruments, gemstones, hazardous materials, and high-value items that may have a lower coverage limit than others (for example, flat screen televisions are only insured up to $1,000). 

Shippers often have a maximum declared value senders can set. UPS, for example, supports up to $50,000 in declared value with a UPS account number. For packages eligible for Enhanced Maximum, packages can have a declared value up to $70,000 per package.  

Providing insurance to your customers in the holiday season is absolutely critical for both your customer retention and your bottom line.

Differences Between Buyer and Sender Shipping Insurance

There are two categories of shipping insurance, buyer and seller. The basic difference is: buyer shipping insurance is funded by the consumer and seller shipping insurance is sender-funded. There are different processes for each. 

Buyer Shipping Insurance: Buyer insurance is consumer-funded, meaning at the point of checkout, the buyer has the option of adding shipping insurance to their overall cart and charged to their credit cards. The cost is typically around 1.5% of the cart value to protect your purchase from lost, damaged, or stolen parcels. 

There are two options for merchants to offer buyer shipping insurance: opt-in and opt-out. The difference between them is the default setting. For opt-in insurance, consumers check the box if they would like to insure their package for an additional cost, as the default is no insurance. For opt-out insurance, buyers will check the box to decline insurance on their package, the default is to add insurance. 

An example of opt-in buyer shipping insurance can be seen from Group 6 Boutique’s shipping policy page. Orders valued at $50 or less are covered with Priority Mail from USPS, but above that, consumers have the option to protect their package with shipping insurance. 

One example of opt-out buyer shipping insurance is from Solo Stove. Upon checking out with Solo Stove, shipping insurance is automatically included on the order and consumers have the option to opt out of the additional charge. 

One more example of an opt-in shipping insurance option comes from The Kitchn. They also offer a choice in adding shipping insurance to an order, as you can see below.

Seller Shipping Insurance: Seller shipping insurance is sender-funded, meaning insurance is included on all packages sent to the buyer. Sender shipping insurance is growing increasingly common, as it’s now often expected that the seller is responsible for the package until it makes its way to the buyer’s door. (And even more, into the buyer’s hands and not stolen off their porch.)

Some sellers will try to shift the responsibility to their package fulfillment partner. However, this can often be a frustrating experience for consumers who engage directly with the brand. Part of the difficulty is there is often a wait period required from the brand to the consumer, ensuring the package is actually gone and not just late. As you can imagine, this doesn’t go over well for consumers.

For sellers to actually offer true shipping insurance, it must be backed by an insurance provider such as Lloyds, Shipsurance, InsureShip, and others. If a shipping insurance is not backed by a provider, then the brand can either upcharge a consumer or accept responsibility with the full-cost burden to the seller. 

Why You Need Shipping Insurance for Your Brand

If brands can hand the cost of insurance off to the customer, that seems like a great idea, right? It’s actually not always in the best favor for the brand or consumer to add those upcharges. In an increasingly digital world, especially during the coronavirus, it likely makes more sense for sellers to absorb the cost of insurance instead. While it may seem like a high cost, the positive impacts will be far greater. Here are four reasons why it’s in brands’ best interest to pick up the insurance costs: 

1. Mitigate risks of costly theft, loss, or damage. 

The first and most apparent benefit of shipping insurance for businesses is risk mitigation. If a product is uninsured and gets lost, stolen, or damaged, typically the seller is on the hook to cover the costs. They’ll have to fully absorb the mailing and product costs to ship another product out to the customer. With insurance, the value of the package is reimbursed in these cases. Sellers can protect their bottom line while keeping the customer happy.

2. Protect your brand image at a lower cost. 

A negative post-purchase experience such as an unresolved stolen, damaged, or lost package will likely lend itself to angry customers, poor word of mouth, social media backlash, and a customer who will not return. In order to keep your customers happy, investing in their experience can ensure (pun intended) your brand’s reputation. Sellers can think of it this way: Choose between covering the full price of a product or the cost of insurance to keep customers happy and your brand reputation protected. A great example of a brand protecting their brand image is The Loco Mama, they focus on fun kids toys so they have to keep a friendly, relatable, and approachable image. By offering shipping insurance, they keep that friendliness intact through strong customer service and problem resolution if things do go awry.

3. Increase your revenue. 

A positive experience will bring your customers back and increase their brand loyalty. By providing great customer experience through every customer touchpoint, including product delivery, you’ll keep customers coming back. The relative low cost of shipping insurance will protect the customer experience after purchase, while likely creating increased revenue in the future through higher customer lifetime value, as well as positive word-of-mouth marketing. 

4. Ease of use and peace of mind. 

Many insurance carriers now offer simplified claim filing processes — some even let you file one-click claims. This ease of use leads to even more positive experiences as customers no longer have to fill out page-long insurance claims or deal with lengthy approval processes. All of this offers consumers and brands peace of mind — consumers’ packages will arrive and brands’ bottom line is protected. 

Shipping Insurance Costs

It’s important to note the cost of shipping insurance. Each carrier offers different options and prices to insure your packages on top of shipping costs. See the table below for a breakdown of carrier options:

 

USPS
Value of Package	Insurance Price
Up to $50.00	$1.65
$50.01 to $100.00	$2.05
$100.01 to $200.00	$2.45
$200.01 to $300	$4.60
FedEx
Value of Package	Insurance Price
Up to $100.00	$0.00
$100.01 to $300.00	$3.00
Every additional $100.00 value over $300.00	$1.00
UPS
Value of Package	Insurance Price
Up to $100.00	$0.00
Every additional $100.00 value over $100.00	$1.05
DHL
Value of Package	Insurance Price
Up to $100.00	$0.00
Every additional $100.00 value over $100.00	$1.05
Minimum for $300.00	$3.15

Carrier Insurance Comes with Big Caveats

Carriers offering insurance is a little bit like when your mom made you invite your little brother to your own birthday party. You didn’t want to invite him, but you understood that if you didn’t, he’d be sad and your mom would be mad. So, you reluctantly went along with it. Everything was good as long as he stayed quiet, did as you said, and kept pretty much out of sight the whole time. 

Sure, the charts above might give the illusion that carrier insurance is just fine. The prices are relatively low, plus these are practically household names synonymous with quality delivery. However, while carriers might offer insurance, they aren’t exactly the best at reimbursing when something goes awry.

First, each carrier has a long list of reasons they won’t fulfill a claim, including events like:

• Loss or damage that occurred after delivery, AKA theft
• Goods that were scraped or damaged because of insufficient packaging
• The proper insurance documents can’t be found
• Perishable items spoiled by the time they were delivered
• The claim was filed past the acceptable time limit

The second point to consider is that carriers aren’t in any rush to reimburse insurance claims. If your customers are counting on shipping insurance through a carrier, they can also count on waiting a couple weeks to be reimbursed if their claim is accepted.

Lastly, the experience is anything but wonderful. The time limits to file a claim vary with each carrier, package type, and whether the package was international or not. Some carriers only accept claims from the shipper, which means customers are counting on the brand to be a good middleman between them and their reimbursement. And filing a claim through each carrier is full of friction, often including some degree of evidence and document gathering, tedious form fields, and figuring out the appeals process if the original claim wasn’t sufficient enough for reimbursement. 

In the end, your customers are being robbed of the money they paid toward insurance through the carrier as well as any sense of a good, thoughtful experience with your store. 

What Are the Risks if I Don’t Use Shipping Insurance? 

Without shipping insurance, there is considerable risk to your order fulfillment process. But not all risk is created equally. These two considerations will guide sellers in their decision making for whether or not they should purchase shipping insurance. Considering these factors, brands can be even more cost effective in determining their risk level and whether or not they should mitigate.

1. Item types. 

The risk of the failed delivery service is dependent on the type of products. Some categories are more likely to be stolen than others. Designer brands, items that are more likely to be resold or pawned, and small and lightweight packages are some examples of the types of items that are most likely to be stolen. Porch pirates look for packaging or return labels with brand names, so a best practice would be avoiding an exterior box that showcases a flashy brand name or shipping labels that indicate what’s inside. 

2. Destination. 

The risk of the failed delivery is also dependent on where the products are being delivered. Some areas are simply riskier to send to. As you may guess, highly populated urban areas face the most package theft, but suburban and rural areas aren’t out of the woods either. Porch pirates will often follow delivery trucks and steal the package moments after it’s dropped at the door, unseen by anyone. Adding tracking or signature requirements can help minimize this risk, but even then many carriers impose coverage limits. When shipping internationally, best practice is always to insure the order, as customs adds another risk factor.

3. Timing. 

The risk of a failed home delivery also depends on the time of year the order is placed. Unfortunately, the most wonderful time of the year is also the season when a high percentage of packages get stolen. An influx of online shopping translates into an influx of package theft. Holiday shopping season is a much riskier time for package theft than other times of year.

Conclusion

The holidays are almost upon us (have you seen any Christmas decor up already in stores?) and brands must prepare quickly to be ready for the holiday shopping season, especially a season that will lean into the digital buying experience like never before. To be ready for Black Friday and Cyber Monday, brands must create positive experiences across the entire customer journey to win customer loyalty and outperform their competition this holiday season. 

One of the best ways to create positive customer experiences during the post-purchase part of the customer journey is to provide easy, generous policies in the case of loss, theft, or damage. Such an experience can be costly to brands, so investing in shipping insurance can be a great protection to take responsibility for their products until they reach the customers’ hands. 

So the option is yours — offer the butterflies or the pit in your customers’ stomachs. Once a product is purchased, the brand is winning but the experience isn’t over yet. Don’t offer your customers a pit in their stomach, wary of whether or not they will receive their package. Instead give them the butterflies as they wait for their exciting product to arrive and give it to their smiling child’s face.