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Over the last five years, there has been a definitive online shopping boom. Around the world, there are approximately 30.7 million e-commerce companies, with the dropshipping market, specifically, projected to reach over $440 billion by the end of 2025.
Whether it’s due to the low startup costs, the flexibility and scalability, or the earning potential compared to traditional retail models – some studies suggest that dropshippers can earn 50% more than traditional retailers – the e-commerce, dropshipping market has become increasingly attractive for entrepreneurs.
If you’re one of these entrepreneurs, however, there are certain precautions you should take before entering it. One of those precautions is business insurance.
Dropshipping Businesses Without Insurance
While there isn’t a lot of concise data on the number of dropshipping businesses without insurance, we’re willing to bet it’s not enough.
Across the general business landscape – both online and offline – an estimated 44% of SMEs are operating without insurance, and due to the dropshipping market being online-based, a significant chunk of that percentage is likely to be made up of dropshipping businesses.
Looking at the e-commerce industry as a whole, there are a lot of companies assuming that, because they don’t physically handle the products or have a brick-and-mortar store, they don’t need insurance. But this is a misconception that can leave them open and exposed to various risks.
Insurance for Dropshipping Businesses
So, what kind of insurance is necessary? Perhaps the most important insurance coverage for dropshipping businesses to attain is BOP insurance, which is an all-in-one policy that combines several essential coverages into one convenient package.
This includes a range of insurance types, including general liability insurance – protecting companies from claims related to bodily injury or property damage caused by the products – property insurance – protecting the valuable assets of companies, such as computer equipment, office space, or digital platforms – and business interruption insurance – protecting companies from any disruptions, such as downtime caused by supplier delay or a cyber attack.
By attaining BOP insurance, you’re making sure that your company is covered against a list of potentially damaging events, all of which could severely impact your operations if you’re dealing with them on your own.
The Risks of Uninsured Dropshipping Businesses
The nature of a dropshipping business is that it operates primarily online and doesn’t involve holding physical inventory. Instead, the business owner partners with suppliers who handle inventory and shipping directly to customers.
With this in mind, it’s understandable that many dropshipping businesses don’t comprehend the need for insurance. But it’s still a mistake. Without insurance – and BOP insurance, specifically – you leave your business vulnerable to a range of risks that can disrupt your operations, damage your reputation, and lead to significant financial losses.
Let’s look at product liability as an example. Even though you don’t physically handle the products, as the main port-of-call for customers, you’re still responsible for the goods you sell, and if a product causes harm to a customer, whether through injury or damage, your business is going to be held liable.
Without product liability insurance, this could be crippling. Not only will the legal burdens eat up a lot of your time, but the cost of legal fees and settlements could quickly become overwhelming, potentially even leading to the closure of the business altogether.
Additionally, since you’re operating online, you’re at an increased risk of cyberattacks and data breaches. According to a recent study, 43% of all cyberattacks target small and medium-sized businesses, with attackers knowing that SMEs lack the resources and expertise necessary to implement robust cybersecurity.
If your dropshipping company is attacked and you don’t have insurance, the financial consequences could be equally devastating. Bearing in mind that 60% of small companies close within six months of a major cyberattack, cyber liability insurance, specifically, could be the key to overcoming these challenges and protecting your business from the same fate.
Conclusion
In an ideal world, you would never have to deal with these problems. Your business will never be sued, all your products will be perfect, and your online platforms will remain safe from hackers. But understanding the dangers that are out there, this is simply not realistic. As a result, it’s your job to take the necessary precautions now, attaining the right insurance to protect your company for the long term.
