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Shipping Insurance: When Best To Use, Minimizing Customer Claims, How To Better Claim Results

As eCommerce skyrockets in popularity, it’s astounding to see the vast array of shipping insurance providers and the multitude of services they bring to the table. Also, the use of information technology in integrating shipping insurance is mind boggling for the average shipper. So, if your business is either already utilizing or considering shipping insurance, you’ve landed in just the right spot!

Join me on this insightful journey as we delve deep into the ins and outs of optimizing shipping insurance in today’s dynamic eCommerce landscape. First, we’ll discuss all the benefits of shipping insurance, and debate the merits of third-party insurers, self-insurance, or sticking to carrier-provided coverage like UPS, FedEx, or USPS. Additionally, we’ll review the option of having your customers foot the insurance bill. Further, you will get a better understanding of the overall cost implications of using shipping insurance. And lastly, I’ll equip you with valuable tips and resources to minimize claims while boosting claim outcomes!

What Is Shipping Insurance And Why Insure?

shipping insurance

First, what is shipping insurance? Simply, it is a type of insurance coverage that protects businesses and customers from financial loss due to damaged or lost shipments. In addition, many parcel carriers provide $100 free coverage on packages. Most carriers also provide additional coverage for a fee. This fee is based on the value of goods being shipped. Also, there are 3rd-party vendors that offer shipping insurance as well. 

Both carrier shipping insurance as well as specialized 3rd-party insurance can offer many benefits. At the same time, the cost of insurance can outweigh the benefits. As an alternative, there are cases where your customers can benefit by buying their own shipping insurance. Below are the key benefits of shipping insurance to the shipper and the customer.

Benefits Of Shipping Insurance

  • Cost-Effective Protection for Your Investment. Shipping insurance provides an affordable way to protect your investment in case of damage or loss during transit. 
  • Peace of Mind. With shipping insurance, you can have peace of mind knowing that your shipment is protected and that you will be compensated if anything goes wrong.
  • Better Customer Service. Shipping insurance providers can help improve a business’ customer service by offering a quick and hassle-free resolution for shipping issues.
  • Business Reputation Protection. By offering shipping insurance to customers, businesses can protect their reputation by demonstrating their commitment to customer satisfaction and quality service.
  • Minimal Hassle and Quick Settlement of Claims. Shipping insurance can ensure a hassle-free claims process with quick settlement times. Also, shipping insurance can allow you to focus on your business instead of dealing with claims.
  • Special Coverage. For example, some shipping insurance policies offer special coverage for high-value or fragile items that may not be covered under standard policies.

For more information on the benefits of shipping insurance, see InsureShield’s article, What Is Shipping Insurance?

Is It Best To Insure With A Carrier, 3rd Party, Or Self-Insure?

When it comes to insuring your shipments, you have several options: carrier-provided insurance, third-party insurance, or self-insure. Carrier-provided insurance is the most convenient option since it’s offered by the carrier and can be added to your shipping label. However, it may not provide enough coverage for high-value items. Third-party insurance offers more comprehensive coverage and may be a better option if you’re shipping high-value items. On the other hand, self-insurance involves setting aside funds to cover any losses or damages that occur during transit. Additionally, this option may be more cost-effective in the long run, but requires careful planning and risk assessment.  Below are some tips when it comes to deciding which type of insurer you should use.

Shipping Insurance Tips On Using A Carrier, 3rd Party, Or Self-Insure 

1. Carrier Insurance. 

Most carriers like UPS, FedEx and USPS automatically insure the contents of your package up to $100. Now if you need to insure your package for more than $100, you may want to look at cheaper 3rd-party insurance or self-insure.

2. Self-Insure. 

This may be a good option if you can afford it. This may save you money in the long run and the hassle of filing for claims. For example if you pay $0.50 each for 1,000 packages shipped. that will cost you $500. Is that really worth it compared to your potential loss and labor to file a claim?

3. 3rd-Party Shipping Insurance. 

There are a lot of 3rd party shipping insurance providers that convincingly claim to be cheaper and have faster claims processing than any transport carrier. The challenge for shippers is integrating the shipping insurance into their order fulfillment operations.This may be easy if your shipping software, like ShipStation, offers shipping insurance. Also, there are other insurers, like Route, that can integrate with your shopping cart software. Additionally, eCommerce software providers usually have add-on shipping insurance or even provide better free coverage than the carriers. For example, Shopify offers free shipping insurance up to $200. Further, these 3rd party insurers can enable your customers to easily pay and insure their own shipments. 

Lastly, some of these options offer specialized features or cover items that carriers will not cover. Types of specialized features can include carbon emissions offsets, free tracking, and provide claims services directly to your customers. Additionally, 3rd party insurers can cover “all” risks (not just limited liability) as well as hard to cover items like precious stones. Further, they can help you streamline filing, and can cover all your shipping carriers to name a few. Recommend that you read the fine print to identify which 3rd party insurer is best for you.

For more information of what carriers and 3rd party insurers cover, see ShipCalm’s article, What Is Shipping Insurance?

What About Having Your Customer Pay For Shipping Insurance?

While having your customer pay for shipping insurance may seem like a good way to reduce costs, it could also negatively impact their overall experience with your business. Customers may feel like they’re being nickel-and-dimed if they’re asked to pay for additional fees at checkout. Additionally, if something goes wrong with the shipment, customers may still blame your business rather than the carrier or insurance provider. So there are several factors for you to consider in having an option for your customers to pay for their own shipping insurance vs your business not being fully liable for shipping exceptions. These include:

Factors To Consider When Offering An Option For Your Customer To Pay For Shipping Insurance

  • Customer Preferences. For example, there may be cases where only a select number of customers think insurance is important. So it may be best to at least offer these customers an option for additional insurance.
  • Product Price. For example, your business sells expensive, but competitively priced items. In this case your business may not be willing to take on the expense of additional insurance, nor desires to be fully liable if a shipping exception occurs. So if this is your situation, it may be best to at least provide your customer the option to purchase insurance.
  • The Likelihood Of Claims Needing To Be Filed. There may be other cases where the shipper does not want to be fully liable for shipping exceptions. For example, this could include shipping fragile items, careless delivery carriers, or delivery locations with high incidents of porch piracy. In this case, the customer can at least elect to have peace of mind by buying shipping insurance.

Weighing The Total Cost Of Insurance: Increased Shipping Charges, Peace Of Mind, Labor To File.

When deciding whether or not to insure your shipments, it’s important to consider the total cost of insurance. This includes increased shipping charges, the peace of mind that comes with knowing your shipments are protected, and the labor costs associated with filing claims. While insurance can be expensive, it’s often worth the cost to protect your business and customers from financial loss. Below are the key factors in determining if you should offer shipping insurance and what level of insurance to offer.

Cost Factors Associated With Offering Shipping Insurance

  • Peace Of Mind For Both Shipper And Customer. Offering shipping insurance provides peace of mind for both the shipper and the customer. This is because it ensures that any potential losses or damages during transit will be covered. Not having peace of mind is a hard thing to measure. One, it can be a distraction to you and your business. Second, not offering insurance can result in loss of sales and repeat business.
  • Cost Of Product Lost. Shipping insurance can help mitigate the cost of lost products during transit, providing financial protection for businesses and customers alike.
  • Increased Shipping Charges. While offering shipping insurance may result in slightly higher shipping charges, it can ultimately lead to cost savings by reducing the risk of lost or damaged products.
  • Labor Cost Of Filing Claim. Labor costs can vary widely due to both the shipper’s policies, the product being shipped, and which insurer you use. So this must be factored in for both offering shipping insurance and which insurer you use. Automating and streamlining claims filing can reduce both labor and customer frustration.
  • Poor Customer Experience Resulting From The Claims Process. Offering shipping insurance should result in a better experience for your customer. However, you have to work with the right insurer to assure a streamlined claims process that provides a quick and hassle-free resolution. Additionally, you need to clearly communicate with your customers. They do not want surprises when they find out after the fact that your insurance terms and conditions result in a denied claim.

Minimizing Claims, Maximizing Claims Results To Enhance Customer Experience.

Minimizing claims and maximizing claim results will help enhance the customer experience and reduce the overall cost of shipping insurance for your business. By providing excellent customer service throughout the claims process, you can also enhance the overall customer experience and build trust with your customers. Below are both a list of things you can do to minimize claims to begin with and a list of things you can do to maximize your claims results.

Minimize Shipping Insurance Claims.

1. Optimize Your Packaging And Labeling. 

Using sturdy boxes and proper cushioning materials can prevent damage to fragile items during shipping and minimize the need for insurance claims. 

2. Use A Reputable Carrier. 

Choosing a carrier with a good reputation for on-time delivery and careful handling can reduce the likelihood of lost or damaged shipments and minimize the need for insurance claims.

3. Minimize Order Entry Errors. 

For example, implementing auto-correct addressing capability in your order entry systems will reduce errors.

4. Minimize Order Fulfillment Exceptions. 

Streamlining order fulfillment processes can help ensure that orders are shipped correctly and on time, reducing the need for insurance claims and poor customer experience due to delayed or mispicked shipments. 

5. Minimize Shipping Exceptions And Maximize Proactive Status Tracking. 

Using real-time tracking systems can help identify potential issues with shipments before they become major problems. 

6. Proactively Communicate With Customers To Minimize Issues. 

Providing customers with regular updates on their shipments and addressing any concerns promptly can prevent issues that could lead to insurance claims. 

7. Self-Insure. 

If you frequently ship high-value items, self-insuring may be a cost-effective option to minimize insurance claims and protect your business from financial loss. For example, if you’re an art dealer shipping expensive paintings, self-insuring may be a better option than relying on carrier insurance policies.

Maximize Shipping Insurance Claims Results

1. Pick The Right Insurer And Understand What Is Covered. 

It is key that you choose an insurer that specializes in the type of shipping insurance you need. Additionally, it is critical that you understand their coverage policies to ensure that you receive the maximum payout for any claims filed. 

2. Assign Appropriate Declared Value For Each Shipment. 

Accurately declaring the value of each shipment can help ensure that you are adequately covered in the event of loss or damage during shipping. 

3. Streamline Claims Process For Customer And For Your Business. 

Simplifying the claims process for both your customers and your business can help ensure that claims are filed promptly and accurately, maximizing the likelihood of a successful claim. 

4. Document As You Go To Assure You Have Necessary Documentation. 

Keeping detailed records of shipments, including photos and tracking information, can help ensure that you have all necessary documentation to support a claim. 

5. Proactively Communicate With Your Customer For Submission Of Claim Info And Pictures. 

Encouraging customers to submit claim information and photos promptly can help speed up the claims process and maximize the likelihood of a successful claim. This will also improve customer experience.

6. Inspecting Packages Upon Receipt. 

Carefully inspecting packages upon receipt can help identify any damage or loss that occurred during shipping, ensuring that claims are filed promptly and accurately. 

7. Promptly File Claim With Insurance Provider. 

Filing a claim promptly after identifying damage or loss can help ensure that you receive a timely payout from your carrier or insurer. 

8. Capture Claim # For Further Follow-up. 

Recording the claim number assigned by your carrier or insurer can help you track the progress of your claim and follow up as needed. 

9. Be Prepared To Review And Negotiate Claim Settlements. 

Being familiar with carrier or insurer claim settlement policies and being prepared to negotiate if necessary can help ensure that you receive a fair payout for any claims filed. 

10. Profit From Your Customer Buying 3rd Party Insurance? 

There are 3rd party insurers that will offer you a payout if your customer buys their shipping insurance. This may offset your costs, but you need to ask yourself if this is best for retaining customers. For instance, are you offering the best insurance deal for your customers or are you going with sub-par insurers because of their payouts?

For more information on shipping insurance, these references will provide specifics on major parcel carriers such as UPS, FedEx, USPS, And DHL. Additionally, the benefits of using a 3rd party insurer. See PitneyBowes’ article, What you need to know about shipping insurance for eCommerce and EasyShip’s article, The Basics Of Shipping Insurance Today

For more from SC Tech Insights, see articles of shipping and finance.

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