When Amazon announced that it was expanding its requirements for sellers to maintain a product liability insurance policy, the responses ranged from skeptical to outright hostile.
“Do I see it right? I’m going to get forced to get some kind of insurance, or I’ll get in trouble?” one seller wrote in a comment on Amazon’s Seller Central post.
“It totally sounds like what the mafia did, they just called it ‘protection money,’” the seller wrote. “They forced mom and pop stores/business to pay that money, so their buildings didn’t ‘accidentally’ burn down.”
That might be an overstatement of the scope of Amazon’s policy shift. By the letter, as of Sept. 1, Amazon is requiring sellers to take out a product liability insurance policy once they reach $10,000 in sales in one month on Amazon.com. Previously, the requirement had applied only to sellers who met that threshold for three consecutive months.
So the requirement isn’t altogether novel, but Amazon has set up a new program to help sellers find a qualified policy, and is also signaling that it’s going to get tougher on enforcing the insurance mandate.
Amazon did not immediately respond to a request for comment, but an official with Marsh, the insurance broker that’s facilitating the Amazon Insurance Accelerator, explained how the program works.
The Insurance Accelerator aims to “really simplify and I would say almost demystify the insurance process,” Wendee Wood, a managing director in Marsh’s Affinity Practice, said in an interview.
Marsh had been working with Amazon for a few months to set up the program ahead of last month’s announcement, Wood said. At the launch, Marsh had lined up product liability coverage through the insurance providers Chubb, Harborway Insurance underwritten by Spinnaker Insurance Company, Hiscox, Liberty Mutual Insurance, Markel, and Travelers, according to the company.
The terms of those policies vary in the details, but in broad strokes each of them will provide sellers with comparable coverage, Wood said.
Those policies were all crafted to meet Amazon’s criteria for a qualified insurance plan, which includes requirements for minimum liability limits and a measure of the financial stability of the insurer.
“Part of our goal in this is to make certain that the carriers available through the Accelerator are financially sound,” Wood said. “The carriers need to have a minimum financial rating.”
Amazon is permitting sellers to obtain insurance through a provider outside the Accelerator, but Wood acknowledges that, in practice, it would be a challenge for the typical seller to ensure that the policy meets all of Amazon’s criteria and secure a competitive rate.
“It’s super important that if they don’t go through the Accelerator they do their due diligence,” she said.
The rates are a central part of the pitch for the Accelerator. Every policy varies, but the vast majority of sellers Wood has seen obtain insurance through the program are paying premiums of less than $1,000 a year, commonly in the neighborhood of $500 to $750, she said.
“Most of the sellers that we see coming through the experience are ending up in what we call the minimum premium stage,” she said. “It’s really affordable coverage for the protection they receive.”
Of course, some sellers are grumbling that Amazon is imposing the insurance mandate at all, though many were either unaware that the requirement had already been in place for sellers above the $10,000/three-consecutive-month threshold, or had simply opted not to purchase insurance or had taken out a low-quality plan with limited coverage.
“What we’re finding out is that many of the sellers had not purchased insurance previously,” Wood said. “They may not have had a full understanding of what their risk was as a small business owner.”
For its part, Amazon is promising to pay legitimate product liability claims up to $1,000 filed against sellers who have a qualified insurance policy through its A to z Guarantee program. Amazon says that 80% of the product liability claims it sees are under $1,000.
Those situations can arise when Amazon fields customer complaints and then notifies the seller if a product liability claim is filed. Amazon offers a thinly veiled threat to sellers who ignore a claim.
“If a seller does not respond to a claim, Amazon will step in to directly address the immediate customer concern, bear the cost ourselves, and separately pursue the seller,” the company says.
Amazon’s insurance requirement applies globally to all sellers who meet the monthly threshold of $10,000 in sales in a month. At its launch, the Insurance Accelerator is only available to sellers in the United States and China, though it is expected to expand to other countries.
Sellers who opt not to purchase insurance but meet the $10,000 sales mark might find their days on the platform numbered. Wood directed questions about enforcement to Amazon, but suggested that the company is serious about policing its marketplace to ensure higher-volume sellers are adequately insured.
“Amazon will work with the seller to enforce the coverage requirement,” Wood said.