Nov. 19 2013 09:16 AM

Purchasing package insurance from a third party insurer is an inexpensive way to protect you from lost or damaged shipments. Nevertheless, some prospects say that they don't buy shipping insurance and are self-insuring. Cost is cited as the rationale, even though third-party insurer premiums are often up to 85% less than indemnity coverage sold by the major carriers. On a strict premium to historical claims basis and ignoring the unidentified risk, it's easy to see their thinking. However, on a cost, goodwill plus claims basis, much of the "savings' by self-insuring can prove illusionary. Here's why:

1. Package insurance takes away ALL of the shippers risk, with certainty. The insured is protected against any future loss of a magnitude up to the insurance package limit. While history may be a predictor, it is not a guarantee of future loss in terms of magnitude or frequency. This risk does not often go into the shippers' calculus

2. Cost of processing a claim. Handling a claim is time consuming and many shippers are not ready to do a thorough or complete job to protect themselves. They will often simply replace the goods without proper investigation and are therefore exposed to fraudulent claims. The self-insured shipper must have clerical people administer this process, investigate, take up the time of shipping personnel and deal with the claimant. In addition, there is the second cost of pulling, picking, packing, replacing and shipping the order. These costs cannot be dismissed because they are a major part of the self insure calculus.

3. Cost of replacement goods. If your goods have a high margin, where you are a manufacturer doing retail e-commerce, then your cost of goods is relatively low. If, however, you are a distributor, third party retailer or reseller, you work off of tighter margins and the loss of the good shipped can be more significant. Package insurance generally covers you at your retail price plus shipping, insuring both your goods and profit

4. Focus on more profit making activities. The time your salesperson or CSR spends on a claim is time taken away from lead generation, sale closing and keeping the customer satisfied. Package insurance relieves them of this burden, allowing them to focus on building your business.

5. Protect yourself from fraudulent claims. Professional fraudsters bilk unsuspecting shippers on fraudulent claims. Third-party insurers employ experienced claims processors who are up on the latest trends in fraud and as such, pay out on only fully documented claims. Claims in regard to premium drives the premium price, so lower claims history drives a lower commission.

6. Third party shipping insurance is up to 85% cheaper than indemnity offered by your carrier.Indemnity means the carrier will cover you for your actual loss. Often, this is your cost of goods but not your profit. They may insist on paying just refurbishment cost Insurance covers your entire loss at customer invoice value. Thus, the high carrier price of indemnity, with a sometimes lesser benefit, dissuades people from purchasing insurance.

7. Insurance makes for a risk free transaction for your customers. Having no risk, your customers will trust your company more and have peace of mind. It is a commitment on your part to high customer satisfaction and eliminates one barrier to purchase. Your customers appreciate this, resulting in sales and more frequent purchases, while helping to build your brand equity by increasing customer loyalty.
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