E-COMMERCE INSURANCE TECHNICAL OVERVIEW
Merchants use e-commerce insurance to cover their losses on orders that are fraudulent. Key considerations when implementing or buying this functionality include:
Are all goods and services covered by the policy?
What is the notification process?
What types of information need to be collected and provided for a claim?
Does the policy require that the merchant perform collection activities?
How will future premiums be affected by losses?
HOW DOES IT WORK?
Merchants will enter into an agreement with an underwriter that will require them to pay a preset basis point rate for each order they desire to have insured. Merchants will probably be required to have certain fraud-prevention techniques in place. These could be based on the standard association fraud tools, such as AVS and card security schemes, but could also include the use of hot lists, fraud-screening services and/or the use of financial limits. Typically these policies will classify merchants by levels of risk based on the cost of their goods sold, the type of goods sold, and the fraud-prevention tools in place.
HOW DO YOU USE THE RESULTS?
The best practice with e-commerce insurance is to combine it with a broader strategy in which you use the insurance for those orders you would normally review, or on those orders that are in the gray area (i.e., not really good, but not really bad). The intent again is to automate the process, so this assumes if a merchant takes out insurance on all orders they would normally review that they aren’t reviewing these orders now that they have insurance.
DID YOU KNOW
eCommerce Insurance covers losses on approved orders that are fraudulent, but the provider has the final say in what orders are covered.
Insurance has been around for a long time, and e-commerce insurance certainly does work. However, like any other form of insurance, these companies are in business to make money, so their costs can be extensive and the orders that are covered may be limited.
eCommerce insurance can be very costly for what you get. It may require you to set up elaborate fraud-prevention techniques on top of the insurance. It can also affect sales conversion by forcing you to only accept orders that are on the bottom of the risk pile. For example, you can only accept orders when AVS is a full match.
THE FRAUD PRACTICE
KEY NOTES
Alternative Solutions - Merchants can find this service available as an outsourced service, or as a software application that can be implemented in-house. The actual cost to purchase the software is fairly low (it costs a couple of thousand dollars to purchase). Merchants will have to pay annual maintenance on the software and will have to make changes to their front-end e-commerce engines.
Building this In-House - N/A
Estimates Costs - Typically these services are offered on a basis points system. You will be required to pay a half to five basis points for the insurance on each order you want covered.
Sample Vendors - N/A