If you are new to shipping or in the process of revisiting your shipping costs and programs, it can be a bit overwhelming. Not only do you have to consider upfront costs, shipping services, additional fees, transit times, packaging, and expansion plans but also what happens when your shipment does not arrive to the customer as promised? Let’s explore the most common options and policies for when things go wrong with your shipments to figure out the best way to handle these situations.
Traditionally, some sort of guarantee and insurance is available from the shipment carrier. The guarantee is part of their shipping fee, restricting the carrier from taking a week to deliver the package when the customer pays for 1-day delivery. It also guarantees that the carrier will not damage or lose the package in transit and usually covers around $100 in goods by default.
The insurance is an additional service that is paid for separately from the shipping fees. The cost can vary greatly, depending on the carrier, volume, amount insured, type of goods, and more but it is usually around 2% of the declared value. If something is to go wrong a claim is filed with the carrier, usually by the merchant, and it is reviewed and hopefully reimbursed by the carrier. Often a lot of back and forth will occur to collect the required data and proof of loss. This is usually a lengthy process, as large carriers receive thousands of claims daily and each one has to be investigated and approved before reimbursement is possible.
The problem with this approach mainly stems from the length of time between a shipment mishap to a reimbursement. Customers expect immediate and hands-free reimbursement or resolution if the merchant plans on having a good reputation online. Therefore, waiting for the claim to be processed which could take 3-4 weeks or more is pretty much out of the question. The merchant would need to refund or reship to the customer to ensure they are satisfied and hope that the claim they filed with the carrier weeks (or months) ago gets approved. This can be very risky and costly, not to mention the effect it has on the cash flow of the business.
Insurance is also available through 3rd party underwriters. Only a few providers are available in this category as it is a fairly new space. Every new customer is risk-assessed based on the type of goods, shipping method, perishability, volume, cost, shipment history, and other factors. The pricing may vary depending on the coverage needed and all of the factors mentioned above, but it usually lands at about 3-4% of the product value. If an issue occurs with a shipment the customer or the merchant can file a claim with the insurer and be reimbursed in the form of a reorder or a refund. This process tends to take about one week, which is more feasible than carrier insurance but still causes a delay and sometimes loads of frustration for the customer and merchant.
Most of the insurance companies in this space play a little trick on online merchants by telling them the insurance is free. Free? Well that sounds great, right? Yes, but in the world that we live in nothing is free. Instead of charging the merchant, they simply charge the end customer by inflating the price of goods on their online store with an insurance “product” added at checkout. Pretty slick right?
So the customer pays a 3-4% markup on their order for insurance, the merchant pays the insurance premiums with that revenue, and the insurance company pays out claims if they occur. Ok maybe still sounds good, except most of the money collected from that insurance mark-up is pure profit for the insurance company. So instead of the merchant earning an extra 4% on each order, which their customer is willing to pay clearly, the insurance company is keeping it “in case of emergency”. Our research shows less than 30% of the funds collected for the insurance premiums are actually reimbursed to the merchant. That means the merchant is missing out on 2-3% of their revenue every day, at a time when costs are going up and margins are only getting smaller.
This approach will leave you feeling used, once you figure out the numbers behind the “free” offering. At the end of the day, you and your customer are fighting it out with an insurance company for every claim. You will win some claims after providing proof like pictures, tracking numbers, customer correspondence, or police reports and lose others. It is an uphill battle for which your customers and yourself are paying dearly.
Merchant-provided shipping protection refers to an amount paid by the end customer directly to the merchant to ensure their order is covered in case a loss occurs. This protection and its terms are strictly between the merchant and the customer. The merchant has the power to choose how much the protection costs, what it covers, how claims are handled, and the entire customer experience. Check out ShipAid.com
With this method, the merchant does not have to worry about compiling pictures, emails, and tracking information to file claims only to wait on carriers & other third parties to process and/or get denied. They can review the information provided directly by the customer and determine whether a claim should be approved and for how much or what products to reship. With ShipAid, the merchant is also provided with all of the information they need to make an educated decision on what the best course of action is for any situation. On top of that, up to 93% of the revenue earned by the protection program that the merchant designs goes directly to their pocket. No claims? Hit a lucky streak with shipping? Great, you just earned an extra 4% margin!
The real beauty of this approach is that we combine the best parts of all of the options available. ShipAid provides you the tools to create a protection plan that looks and feels like a sleek 3rd party insurance markup at checkout, except you are in control. You can combine your protection program with Carrier Insurance and file a claim as normal. Using our app you collected the protection revenue for the order ahead of time. That way you can cover the cost of the product and take care of your customer immediately while you wait for the carrier to process the claim. Then the carrier payout on the claim is yours to keep. Maybe you even made a little extra? ;)
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