If you’re an Amazon seller who has managed to skate by without product liability insurance, that may not be the case for much longer.
Last month, Amazon announced a new policy requiring sellers who have made at least $10k in sales for any given month to carry product liability insurance. The new policy, which went into effect September 1, 2021, left sellers scrambling to find a provider on such short notice.
Naturally, the change also brought about a host of questions regarding product liability insurance and how to remain compliant with Amazon’s latest requirements. In this article, we’ll go over everything you need to know, starting with the basics.
What is Product Liability Insurance?
Product liability insurance protects your business in the event that a product you sold causes bodily harm and/or property damage.
For example, let’s say you sell space heaters. A manufacturing defect in one of the heaters causes a customer’s house to catch on fire. The customer sues you as a result. If you have product liability insurance, your policy will help cover the following costs:
- Legal fees
- Medical bills
- Judgements or settlements
If you don’t have product liability insurance, these costs come out of your own pocket—a huge risk that most sellers can’t afford to take on.
Why Does Amazon Require Sellers to Carry Product Liability Insurance?
It all boils down to risk.
Amazon doesn’t want to get sued anymore than you do. Requiring sellers to carry insurance is one way they mitigate that risk.
As EcomCrew reports, “Amazon has been named in thousands of product liability lawsuits, but courts have historically ruled that Amazon is not liable for the products sold from its merchants. However, recently, courts have started to declare that Amazon could be liable, specifically in 2020 when the California Court of Appeals stated in Bolger v. Amazon.com that Amazon could be strictly liable for an allegedly defective battery manufactured by a third party and sold on its website.”
What Are the Coverage Requirements?
Below is a list of Amazon’s coverage requirements, as posted in Seller Central under “Business Insurance”:
- Policy limits must be at least $1 million per occurrence and in aggregate, covering all liabilities caused by or occurring in conjunction with the operation of your business, including products, products/completed operations and bodily injury;
- Policy type can be either commercial general, umbrella, or excess liability insurance and must be written on an occurrence basis;
- Your insurance provider must have global claim handling capability and a financial rating of S&P A- and/or AM Best A- or better (if S&P or AM best is not valid or used in the country where you are required to obtain insurance, a local equivalent is allowed);
- Your insurance provider must give Amazon at least 30 days’ notice of cancellation, modification or nonrenewal;
- The policy must name ” Amazon.com Services LLC., and its affiliates and assignees” as additional insureds;
- The deductible for any policy(ies) must not be greater than $10,000 and any deductible amount must be listed on the certificate(s) of insurance;
- The policy must cover all sales from products you have listed on the Amazon website;
- Your insured name must match the “legal entity” name you provided to Amazon (To view your legal entity name, see your Account Info page);
- The policy must be completed in its entirety and signed; and
- The policy must be valid for at least 60 days from the date of submission.
Is the $1M Minimum Enough Coverage?
Maybe, maybe not. There are a variety of factors that go into risk assessment, including what you sell, how much of it you sell, along how it is stored and shipped. Your broker and/or carrier can make coverage recommendations based on your unique circumstances.
How Much Is It Going to Cost Me?
According to EcommerceBytes, while every policy varies, the vast majority of sellers can obtain fully compliant product liability insurance for less than $1,000 a year. Realistically, you’re probably looking at somewhere between $500 to $750. It depends on the types of products you sell, however. Anything that someone can ingest, or apply to their skin, is naturally going to cost more because it has more potential to do damage or hurt someone.
What Happens If I Don’t Get Insurance?
History tells us that the likelihood of a seller getting busted for not having coverage is slim to none. After all, it’s not like it’s the first time Amazon has required sellers to carry insurance.
For several years now, insurance has been mandatory for sellers who have made at least $10k in sales for three consecutive months, but that rule was seldom ever enforced. However, that was then and this is now.
The new rule, which requires any seller who has made at least $10k in any given month to carry insurance, signals that the company is looking to crack down.
As far as repercussions go, there are several punitive actions Amazon can take against sellers who flout its policy. The company could always suspend the offending seller’s account, which seems to be their go-to penalty. They could also withhold disbursements or ban reoffenders.
Again, it’s all about risk mitigation. Are you willing to put your entire business operation on the line over an insurance policy that’s only going to cost you about $750 per year?
Do I Need More Than One Insurance Policy If I Operate Multiple Brands/Accounts?
No. If you have numerous brands/accounts that are held under the same corporate umbrella, a single policy is fine so long as it covers all of your inventory. That being said, you’ll need to list all the brands along with the corporation on the certificate of insurance. You may also have to upload your certificate to each separate account.
Will My Policy Cover All Platforms (Shopify, eBay, etc)?
If you have to get insurance, you might as well make sure all your bases are covered while you’re at it. The right insurance will offer multi-channel protection for every e-commerce platform you use (including your own website).
Which Insurance Provider Should I Go With?
Obviously, not all insurance providers are the same, and you’ll need to ensure that the plan you select meets Amazon’s criteria. But with so many options available, where does one even begin?!
We recommend starting with Amazon’s Insurance Accelerator, which is available directly through Seller Central. The program is designed to speed up the selection process by giving sellers access to a network of pre-approved insurance providers, all of which have been thoroughly vetted by Amazon. It’s the quickest and easiest way to get competitive quotes.
At the time of this writing, Insurance Accelerator is only available to sellers in the U.S. and China, though it is expected to expand to other countries soon.
I’m Not in China or the U.S. How Do I Get Insurance?
Just because you’re not in China or the U.S. that doesn’t mean you’re off the hook. Remember: the new requirement applies to ANY seller who has made at least $10k in sales for any given month.
Since Insurance Accelerator isn’t available to you, you’ll have to find an insurance provider in your region that is capable of handling global claims.
Any time Amazon issues a new requirement, it elicits a collective groan from sellers. And that’s understandable to some extent. But in this particular case, it’s actually a very reasonable policy that is in the seller’s best interest. Sure, you may have to shell out some extra cash for coverage, but that’s nothing compared to the cost-saving benefits you may end up needing down the road.
Think about it this way: should you ever find yourself at the center of a lawsuit (knock on wood), you’re going to be REALLY glad that you have insurance.