As you may already know from past experience, there is nothing more disappointing than an order that arrives damaged or delayed. This holds true both for shoppers and for the brand they ordered from. Shoppers have come to expect their orders to arrive in a timely manner and free of damage. At the same time, brands want to provide a positive customer experience every single time someone shops with them. However, incidents do happen, no matter how much you don’t want them to. This is where shipping insurance comes in.
Regardless of how confident you are in your order fulfillment process, things can go wrong every now and again. Instead of denying the unavoidable, you can prepare ahead of time and quickly mitigate any issues that may arise.
This article covers what shipping insurance is, what it covers, what it costs, and if it’s really worth it!
What is shipping insurance?
Shipping insurance (including international shipping insurance) is a protective policy that helps secure products that are in transportation. It acts as a safety net to help protect your business from a variety of incidents that can happen between the time you ship the parcel, to the time it arrives at your shopper’s doorstep.
For example, if goods are improperly handled and arrive damaged, you will be reimbursed the declared value of the items in the order.
Shipping insurance is offered by last mile carriers and third-party couriers as well. It allows brands to offload the financial liability of losses. The insurance can provide meaningful coverage in circumstances where the brand has little to no control over the outcomes.
Is shipping insurance important?
When considering the importance of insuring your shipped packages, keep the following in mind:
- In a 2017 Statista Consumer Survey, 80% of shoppers cited damaged and/or broken items as the primary reason for returning items they purchased online.
- Depending on product category, shoppers reported that they returned between 5% and 18% of their purchases.
And ecommerce shipping activity is rapidly increasing. Global parcel volume is expected to double by 2026. With parcel shipping volumes only going up, shipping without insurance could lead to some expensive mistakes. While you may be okay to absorb these costs every now and again, insurance ensures you never have a “now and again”.
What does shipping insurance protect against?
The protections you can gain from purchasing shipping insurance vary widely depending on your selected provider. At a high level, these are some of the circumstances and mistakes that your shipping insurance provider can guard against:
- Damaged, broken parcels
- Lost packages
- Parcel theft
- Shipping malpractice
- Excessive delivery delays
With protection from many different types of incidents, you may be thinking that shipping insurance sounds expensive. Let’s break down how much it really costs, and the factors that influence the price that you’ll pay.
How much does shipping insurance cost?
The cost of domestic and international shipping insurance will be different for every brand. Several factors will influence your rate, including the value of the insured items and more. Here are the biggest factors that will come into play when calculating your shipping insurance cost:
- Shipping volume: Are you shipping a few parcels sporadically or bulk orders regularly?
- Shipping distance: How far are you shipping your orders?
- Shipping destinations: What countries or regions are you shipping to and at what rate do thefts, damages and losses occur?
- The value of the items: What is the declared value of your shipped products?
- Your claims history: How many times have you filed a loss claim in the past?
All of these factors will be considered when a last mile courier or third-party insurance provider calculates the cost of your shipping insurance. To get a little bit more specific, here are some sample rates from both major couriers and third-party vendors:
Shipping insurance in Canada
Canada Post
Canada Post offers free liability coverage up to a value of $100 CAD. They offer this for for Flat Rate Box, Priority and Xpresspost shipping. Additional coverage up to a value of \$5,000 CAD for shipping within Canada is available for a fee. Additional coverage is available for purchase up to a value of $1000 CAD for U.S. or other international shipping.
UPS
Parcel damage, loss and theft is covered similarly by UPS up to a value of $100 CAD. Coverage for packages with a declared value of up to $50,000 CAD are subject to fees.
The cost of these fees can range, as seen in similar American shipping insurance rates.
Shipping Insurance in the U.S.
FedEx
FedEx in the U.S. charges approximately $3 USD on liability coverage for shipments valued between $100.01 – $300 USD. After $300 USD, they charge about $1 USD per each $100 USD in value.
UPS
Liability coverage fees for UPS differ in the U.S. from Canada. While it’s free up to a declared value of $100 USD, it costs $1.05 for every additional $100 value. However, UPS in the U.S. has a minimum charge of $2.70 USD for liability coverage. The contents of your package must have a value of minimum of $300 USD to qualify for their insurance.
USPS
Among the major carriers, USPS has some of the most straightforward flat-rates for liability coverage fees:
Liability coverage fees for packages with contents valued at up to \$50 USD are \$1.65 USD with USPS. After that, they increase as follows:
- Packages with a declared value between $50.01 USD and $100 USD cost $2.05 USD in liability coverage fees.
- Anything shipped with a value between $100.01 USD and $200 USD are $2.45.
- Packages valued between $200.01 USD and $300 USD are $4.60.
- After $300 USD, every $100 extra in value up to $5000 USD is $0.90 USD.
Shipping insurance from couriers is not exactly insurance
It’s important to note that this liability coverage offered by major couriers is not “insurance” in the traditional sense. Carriers often encourage shippers to purchase separate shipping insurance on products of high value. With the large couriers across the board, the declared value of your lost/stolen/damaged package is the maximum value that you can be reimbursed if the loss was due to the courier’s mishandling.
The coverage offered by major carriers is not your only option for shipping insurance, however. It’s common for brands to add third-party insurance onto their packages that protect anything after the free carrier coverage up to a declared value of $100.
Third-party providers
Third-party insurance providers such as Route, Shipsurance and Shippo, to name a few, can offer insurance more specifically tailored to your product offerings. These third parties often advertise competitive rates against the major couriers. For example, Shipsurance claims to offer up to 90% off rates given by couriers as low as $0.20 USD per $100 USD in value, while Shippo offers up to 50% off carrier rates. Third-party shipping insurance can also include access to exclusive offerings such as the post-purchase portal offered by Route.
It is critical to note that every courier or third-party providing liability coverage or insurance will have their own stipulations, limitations and restrictions. This can include not having the ability to ship out certain items such as hazardous materials, liquids, and even some types of jewelry. Read the fine print to ensure you’ll be reimbursed for the amount you expect when you file a claim!
When is shipping insurance worth it?
The million-dollar question is, “is shipping insurance worth it?” And the answer will be different for every brand.
Shipping insurance is not a one-size-fits-all solution. There is a lot to consider when deciding if domestic or international shipping insurance is right for you, including the following:
- Your product offerings: Shipping insurance makes more sense for high-value items as the losses involved would have a more significant impact on your business. We recommend assessing the average value of the product in your shipped orders before determining if shipping insurance is right for you.
- Your shipping volume: If your shipping volume is high, then there are higher chances that mistakes may be made. And if more incidents are occurring, then shipping insurance will make sense for your business.
- The fine print: In addition to limitations and regulations around what can and cannot be shipped, insurance providers may also have stipulations that can make certain shipments uninsurable. Reading the fine print is crucial in determining whether or not a provider’s insurance is right for you.
- The cost of strained shopper relationships due to poor shipping experiences: Not only should you consider the financial cost of shipping insurance, but you should also keep in mind the cost of negative customer shipping experiences. Poor shipping experiences can undeniably sour shopper relationships. According to Canada Post, 79% of Canadian consumers will stop shopping from a retailer after a bad returns experience. And in light of free, one-day shipping becoming the new normal, shopper expectations for shipping experiences are high. Shipping insurance can make it easier and more inexpensive for you to quickly replace damaged or stolen packages, which can help you maintain your customer relationships and brand reputation.
When is shipping insurance not worth it?
Above all, shipping insurance is not worth it for your ecommerce business if it is more expensive than what it would cost you to replace damaged, lost, or stolen goods, or expedite shipping yourself. This comes down to running the numbers yourself using past data on shipping incidents and your replacement/expedited shipping costs.
If the first quotes you’ve received from last mile carriers or third-party insurance vendors are too expensive right off the bat, don’t get discouraged! When it comes to securing shipping insurance, it’s important to shop around and attempt to negotiate a better rate with a representative.
Final thoughts on shipping insurance
Deciding whether or not you need domestic or international shipping insurance and seeking out the right insurance provider is by no means an easy, quick, or straightforward process. But depending on your brand’s shipping routines and volume, it can be an important one that can have a significant impact on your operations going forward.
Take the time to shop around so you make the best decision based on the realities facing your brand! Ultimately, there’s no one size fits all solution. So with backed research, you’ll make the right call for you.
