Thoughts on shipping insurance

This is a subject that affects many of us in one way or another, and this is something to think about especially if you deal with high volume.

First, a summary of my thoughts. Shipping insurance is a rip off. And I’ve had a shipment worth 5K go missing that I had to pay for. The reason why carriers offer shipping insurance is because they make money from it. Insurance should only be reserved for insuring against losses that you cannot afford. If I have something inventory related get lost/missing, that’s just a business expense.

Small package shipping insurance costs roughly 2% of insured value. The amount of packages that get lost is around 0.5%. So 75% of your insurance premium is just moving money from your pocket to the carrier’s, and 25% eventually comes back to you in claims.

For those of you who routinely buy insurance for your shipments, I suggest you look at your records, and calculate how much you’ve paid for insurance over the years, and how much you got back in claims. It’ll probably surprise you how much money’s been wasted. When I took a big loss on a shipment (that was shipping from the manufacturer to me, I gave them special instructions to not insure any shipments to reduce freight costs. I had to sign a waiver stating that I accept responsibility for any damages/loss), I took a look back at all the problem free shipments I had, and calculated that if I insured everything since I started getting shipments from them I would’ve paid around 15K in premiums over 5 years. So taking the 1 time loss is a clear winner.

Psychologically constantly throwing away $5-10 to insure a shipment doesn’t feel like much, and taking a $500 loss on a single shipment feels bad, but if you run the numbers shipping insurance is a bad bet. Ultimately it’s a business decision. For a low volume seller who absolutely can’t afford to take a loss it might be worth it (and even then, it doesn’t protect against buyer fraud). For high volume sellers you’re always better off just internalizing the risk.

There are of course, always exceptions. If your packaging falls apart really easily (which would result in damage/loss), or shows that it’s a high value item (Which would result in a lot of theft) you might have an excessive amount of claims (which would make the insurance pay out a lot), in which case the carrier might refuse your business at some point.

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First … our orders are generally under $100 on Amazon. Orders from other sources could be in the $300 to $500 range.

All of our orders on Amazon ship Ground Advantage or USPS Priority Mail Flat Rate. $100 insurance in included with the purchase of either of those USPS shipping services. So … under those parameters, it is very cost effective and we have recouped the cost of the orders that USPS has lost. Typically, USPS lost orders are less than 3 in any one give year for us.

Now … prior to Ground Advantage, USPS First Class Package did not have insurance. Our approach was any order over $50 was sent USPS Priority Mail Flat Rate Envelope which included the $100 insurance. Any order over $100 still went out as USPS Priority Mail Flat Rate Envelope with no additional insurance added. We are in a unique position where $100 insurance will cover the cost of goods up to around $500.

As a past insurance agent, we are pretty familiar with the ins and outs of a variety of insurance products. Our train of thought always lead us to be “self insured” whenever possible on amounts that we know we can handle and to be insured on items that would be more catastrophic.

Many people feel this way. For years, we complained about paying the house insurance rates. That ended in 2017 when a tornado fueled storm hit our house with winds and hail that did damage most only see as a news clip on TV. In one night, all of the money that had been spent over the years on house insurance was paid back to us in a single lump sum (actually even more).

Now we know your reference is towards shipping insurance and not exactly the same as house insurance but our train of thought will vary depending on the item being insured. For us it always is a question of whether or not we are will to take the risk or not … the risk to not buy insurance and the risk if we do buy insurance.

Amazon offered insurance through Buy Shipping … wouldn’t buy ever.
USPS insurance that is included … we use to our benefit.
USPS insurance we have to buy … as needed when we feel there is a risk.
UPS and FedEX insurance follows our USPS thoughts … but we ship very very little with either (UPS for some packages to family … FedEX for business documents when needed).

Insurance for shipping is a cost of doing business. If you factor the cost into the products prices, then it isn’t has hard to deal with in the long run. And in our case, USPS insurance and Amazon’s A to Z have done a very good job (between the two) at minimizing losses do to shipping issues.

For us, there is a value … and we control what risks we are willing to take.

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Well when insurance is included, you obviously file a claim if it goes missing, since it’s already part of the shipping cost. Tacking on additional insurance is almost certainly a losing bet (which is solely what I’m talking about here).

House insurance is a little different since that’s something that can break you if you don’t have it. If you’re a high volume seller, buying shipping insurance on top of what’s included is just moving money from your pocket to theirs. Some people buy insurance on every single package shipped (that’s over the included insurance value). If they were to put all those funds into a “self insurance fund” and self-pay “claims” out of that, after a decade in business they’d have a nice retirement fund.

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Insurance is about managing risk no matter what type of item is being insured. Each of us has to learn to manage that risk in a way that is acceptable to us. It is up to each of us to do the math and then make a decision based on what risk we are willing to take. Everyone’s math and risk will be different so the certainty of the outcome will vary … thus the cost of the insurance to cover the varying risk was created … in an attempt to minimize the risk and make one whole again.

We acknowledge your emotions and feelings on the subject; however, our conclusions as to the outcome of purchasing (or not) of insurance does differ from yours.

Taking on additional insurance is a bet … but we do not believe it is “almost certainly a losing bet” … it is a risk you are trying to manage.

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It’s highly dependent on the business.

If someone’s insuring a package once in a while because they’re unwilling to accept the risk of loss on it, that may be worthwhile. If someone’s insuring 500 packages a year, self insuring will come out ahead. What I’m saying is for anyone routinely buying insurance, it’s worth looking at your records and seeing how much it’s really costing you and possibly reconsidering that expenditure going forward.

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That’s me. I rarely insure anything under about $150, because everything has a base of $100 insurance now via USPS GA/Priority. But a bigger order I will just because I don’t like feeling punched in the gut. So I only add insurance a handful of times a year.

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@GGX it sounds like you’re thinking about shipping insurance for your large shipments to FBA, is that correct? Versus shipping insurance for individual (FBM) orders?

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I’m thinking about everything. Manufacturer to you, you to a customer, you to retailer if you do that. I don’t think there’s an insurance option for FBA shipments anyway. FBA is supposed to reimburse you for partnered carrier lost shipments. In practice they don’t since often times there’s no pickup scan.

If you have enough volume your loss rate will be within a standard deviation or 2 of the norm which generally makes insurance a waste of money.

Back when I did ebay/FBM w/ more expensive items, I would charge the customer for shipping w/ the insurance rate, but I wouldn’t buy insurance with the carrier. Having to replace a missing shipment out of pocket was a very rare occurrence so that was a pretty big money saver. I used UPS at the time and maybe 1 out of 1000 shipments would go missing. The products were well packaged with a LOT of styrofoam so even damaged packages wouldn’t damage the actual equipment.

It really adds up when looking at the entire supply chain.

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We have a long history of reimbursements. Post an example for others to learn from. We find Amazon’s reimbursement problems come from their bot issues more than anything. We have always been reimbursed with a BOL and PRO#.

I digress that is not additional insurance though.

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If UPS loses a package before there’s a scan you will not be reimbursed for it since there’s no proof you shipped it. No real example to post. If the tracking number doesn’t show a scan you’re SOL.

Yeah, if you’re paying 2% of shipment value for insurance each time and it’s making 3 or 4 stops before reaching the consumer, it adds up to a lot.

Also another benefit of being self insured for this is you don’t need to deal with some scumbag who’s trying to find a reason to deny you every time you file a claim.

I add insurance for packages over $100. Just got denied for more than $600 by USPS because they said it was delivered. I called and the woman said it doesn’t show delivered on her end; it’s a bot reading the initial claim, so I need to appeal because the bot misread the forms I uploaded.

There’s no “mistake” there. They probably do that on purpose in hopes that you give up and they don’t have to pay the claim.

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Simple for us, we self insure. We set our prices to provide a high enough margin to cover the losses.

I don’t want to deal with claims at $10 or even $200. We do use Sig-Con on larger orders.

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Sig con is completely different, that’s actually useful for making sure it doesn’t get porch pirated, and also discourages false INR claims.

Personally when I self fulfilled, almost all items went to business addresses, so I only did sig con for items > $1000.

Another thing I did for high value items was print the shipping label twice and put it on both sides of the box. One of the top reasons for items being lost is the label coming off or being rendered unreadable.

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Great idea!

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All insurance is a rip off, Until it’s not.

I find there is a risk assessment that needs to be done. When we used Amazon shipping they lost 5K worth of orders. Fortunately that was covered by them as Amazon orders.

USPS seems to never reimburse lately, they go hammers to hell to find the package and deliver it. This has happened 3x to us since using Ground advantage.

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Sorry we don’t have experience with this, as we have never had this happen in over ~10,000 shipments.

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We had 3 packages go out the same day USPS Ground Advantage in mid September. All 3 had no scan after the first local USPS distribution center scan. On the 5th day after shipping, we requested email updates on the shipments. On the 8th day after shipping, we filed an inquiry on each of the packages. Within 3 days, we had 3 different USPS post offices contact us and made a notation in the system linking the 3 tracking numbers as missing. On the 15th day after shipping, we filed claims on all 3 packages. It took a week but USPS did pay on all 3 packages.

Over the years, we have had a couple that were denied after being delivered the day after the claim was filed. All of the rest have been paid. We follow the above process and normally get claims paid when we open them with USPS.

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