Why E-Commerce Insurance Matters for Online Sellers in Canada

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While that’s encouraging news, many Canadian online sellers who do not have a physical brick-and-mortar retail store may think selling products online is low risk. These assumptions are common among Canadian online sellers, but they are incorrect and frequently lead to uncovered liability claims.

A customized online retail insurance policy – also called e-commerce insurance – is designed to cover a broad range of risks that online sellers and retailers selling goods online face, including common risks such as product liability, cyber liability, and general liability.

If you sell online in Canada, this is what you should know before something goes wrong:

What Is Online Business Insurance for Retailers and Online Sellers in Canada?

Online business insurance is insurance that’s designed for retailers operating online and independent e-commerce sellers using third-party marketplaces such as Shopify, Amazon, Etsy, and their own websites. 

It’s designed to financially protect online sellers and retailers if something goes wrong with the products they sell, leading to a customer being injured, their property being damaged, or their confidential information being compromised in a cyber incident, such as a data breach.

Comprehensive online retail or e-commerce insurance is not a single policy; it includes a bundle of coverages that match how your online store operates and the liability risks you face as a business owner.

The specific type of customized coverage your online store requires to adequately protect your finances varies by:

• The types of products you sell
• Where those products are sourced from
• The sales channels you use (your business’s website, online marketplaces, social media)
• Your online business’s size and annual revenue
• Your location

Do Online Sellers in Canada Really Need Business Insurance?

There may be skepticism around whether or not an online seller really needs liability insurance. For example, some common misconceptions include:

• I run my business from home and have home insurance
• I only sell a few products online as a side hustle
• The marketplaces I use already protect me

However, any retailer or independent online seller selling goods could be sued by a customer if a product they purchased from you causes them physical or financial harm. The reality is:

• Homeowner insurance typically doesn’t cover commercial activities or provide product liability coverage.
• It doesn’t matter if you only sell a few goods online as a side hustle; you are still liable for any product you manufacture, distribute, or sell.
• Third-party marketplaces do not assume liability for the products you sell online. Some marketplaces, such as Amazon Canada, apply to certain seller accounts once monthly revenue thresholds are met.

Furthermore, proving you have valid liability insurance is usually required by product suppliers and manufacturers, payment processors you use to accept digital payments, and by landlords or commercial property owners of storage facilities where your inventory is stored.

Key Takeaways for Canadian Online Sellers

• Selling online is not low risk
• You can be liable even if you don’t manufacture the product
• Marketplaces do not assume responsibility for your products
• Cyber incidents are one of the fastest-growing risks
• E-commerce insurance is often affordable for small businesses>

Common Risks Faced by Online Retail Businesses

Among the most common liability risks online sellers and retailers face are:

Product-Related Claims

Injuries or property damage to customers caused by products you sell – even if the products are sourced from third parties – can result in expensive claims or legal action against you.

Example: A customer is injured when an electronics product purchased from your online store malfunctions. Even though you didn’t manufacture it, your business is sued for medical costs and damages.

Customer Lawsuits and Legal Defence Costs

Allegations or claims related to your online advertising, product descriptions, and delivery disputes can escalate from complaints to legal action against your small business. Even if a lawsuit brought against you is deemed to have no merit, the cost to defend yourself legally can skyrocket quickly.

Example: A customer claims your product description was misleading and files a lawsuit. Even if the case is dismissed, legal defence costs quickly add up.

Cyber and Data Risks

Selling products online, maintaining a website, using email and social media, storing customer information in cloud storage, and accepting digital payments all pose significant cyber and data liability risks.

A data breach or cyber hack that compromises and exposes confidential data can lead to lawsuits, fines, and a loss of trust, potentially shuttering your online business.

Example: Your website is hacked, exposing customer payment data, forcing you to notify customers, hire cybersecurity experts, and respond to legal claims.

Shipping, Returns, and Inventory Losses

The products you sell that are lost, stolen, or damaged during shipping, customer fulfillment disputes or delivery- and return-related issues that may arise, and inventory held in storage that is damaged or stolen can all negatively impact your bottom line.

Example: Inventory is damaged in storage, and multiple orders are lost during shipping, resulting in refunds, chargebacks, and lost income.

Comprehensive e-commerce liability insurance is designed to cover such scenarios and protect an online seller’s finances and reputation.

What Does Online Retail Insurance in Canada Typically Include?

An online retail insurance or e-commerce insurance policy may include the following types of coverage:

Product Liability Insurance

Product liability insurance covers customer claims alleging property damage or bodily injury caused by a product you manufacture, distribute, or sell.

It protects your business from damage from design, manufacturing, or marketing defects, such as incorrect labelling and safety warnings.

Note: Product liability insurance may be included with a general liability insurance policy or purchased as standalone protection.

General Liability Insurance
General liability insurance covers third-party bodily injury and property damage that occurs on your premises, or that is caused by your operations resulting from negligence or unexpected accidents.

If you’re sued, general liability insurance may cover compensatory damages awarded against you and your legal defence expenses.

Cyber Liability Insurance
Cyber liability insurance covers cybersecurity risks related to your technology systems, software, and customer data.

This coverage can be added to an existing policy or purchased as standalone coverage. It’s designed to help online retailers and sellers respond to and recover from a cyberattack or data breach.

Following a cyber incident or breach, it provides funds to cover:

• Legal advice, notification fees, crisis management services, and credit monitoring expenses
• Repairs and restoration of damaged software systems
• Losses sustained due to a system outage caused by a cyberattack or breach

Business Contents Insurance

Often included along with a commercial property policy or available as a standalone coverage, business contents insurance covers the cost of repairing or replacing computers, office furniture and equipment, inventory or merchandise, and fixtures and fittings from loss or damage due to fire, internal water damage, theft, vandalism, or natural disasters.

For home-based online sellers without commercial property coverage, business contents insurance is highly recommended protection.

Optional coverages for online sellers or retailers to consider adding to their overall policies might include:

Commercial Property Insurance
If you store your inventory in a leased commercial space or store and operate your business from home, commercial property insurance is necessary to cover damages and losses to that property that are caused by fire, internal water damage, natural disasters, theft, and vandalism.

Commercial property insurance typically includes a sub-coverage known as business contents insurance to repair or replace your business contents (furniture, equipment, electronics, inventory) following an insurable incident, such as a burst water pipe that causes damage.

Business Interruption Insurance
Business interruption coverage (also called business income coverage) is designed to reimburse your net income lost following an insured event, such as fire damage.

It may also cover your business’s overhead costs, employee wages, and other expenses associated with temporarily closing your business, like paying utility bills.

Note: You must have commercial property insurance to purchase business interruption coverage.

Errors and Omissions (E&O) Insurance
Also known as professional liability insurance, E&O insurance is critical for online sellers of digital products, such as software and digital subscriptions. It’s also necessary protection for any service-based business.

E&O insurance is designed to cover claims and allegations of:

• • Professional negligence
  • Faulty or substandard work
  • Failing to deliver a service as promised
  • Misrepresentation
  • Misconduct
  • Defamation (libel, slander)

If you’re uncertain what your e-commerce insurance policy should include, speak to a licensed Zensurance broker who can advise you on what your policy should contain and the coverage limits your small business requires to be fully protected.

How Much Does Online Retail Insurance Cost in Canada?

Insurance providers assess risk to determine the cost of a policy using the following key factors:

• Your location
• The types of products you sell and where they’re sourced from
• The sales channels you use (your business’s website, online marketplaces, social media)
• Your online business’s size and annual revenue
• The value of your inventory
• Whether you sell products to customers outside of Canada
• The types of insurance coverages you choose and their coverage limits
• The number of employees you have (if applicable)
• What cybersecurity measures you have in place
• Your business insurance claim history

For an independent online seller or sole proprietor, the starting cost for a $1 million general liability insurance policy is approximately $300 to $500 annually.

For most Canadian online sellers, e-commerce insurance is affordable and costs less than a single customer lawsuit.

Frequently Asked Questions About Online Retail Insurance in Canada

Below are some of the most frequently asked questions about online retail insurance in Canada:

Do online sellers in Canada legally need insurance?

Most online businesses and independent sellers in Canada are not legally required to carry insurance, but many third-party marketplaces, payment processors, wholesalers, and landlords require proof of coverage. Insurance also protects you financially if a customer sues or your website is hacked.

Does product liability insurance cover products sold internationally?

Yes, many online sellers insurance policies can cover international sales, but coverage limits and exclusions vary. If you sell to the U.S. or overseas, let a broker know and confirm that cross-border product liability is included in your policy.

Does cyber insurance cover hacked websites and stolen customer data?

Yes. Cyber insurance for online retailers typically covers data breaches, ransomware attacks, phishing, and other cyber incidents that interrupt your business and compromise confidential information.

Is product liability insurance necessary for dropshipping businesses?

Yes. Even if you never touch the product, you can still be held legally responsible for injuries or damages caused by items sold through your online store. Product liability insurance is necessary for dropshippers operating in or from Canada.

How to Protect Your Online Retail Business

E-commerce insurance is vital for Canadian online sellers, whether you operate a full-time online store or a small side hustle. From product liability and cyber protection to inventory and income coverage, the right online business insurance helps protect your finances, customers, and long-term success.

You serve your customers online, now let us do the same for your online store by helping you get the customized, low-cost coverage you need to safeguard your finances and reputation quickly and easily.

Complete our online application in under five minutes for a free quote.

Our licensed brokers specialize in e-commerce and online sellers insurance across Canada. Let our team find the right coverage for your operations from one of more than 50 insurers, answer your questions, and tailor the policy to suit your needs and budget.