Ad Valorem Insurance: Make the Right Choice for Your E-commerce!

How is my package insured? Do I need to take out additional insurance for my goods? Value of the goods, the weight of the parcel, cost of the insurance... these are all parameters to take into account before subscribing to additional insurance. Sometimes it is more profitable to lose products than to insure them.

Julie Ribeiro
Created
May 6, 2021
Modified
May 12, 2021

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Once your orders are paid and prepared, they will be delivered to your customers by carriers. There are many of them, and each one has its own characteristics: DHL, Colissimo, Mondial Relay... But sometimes your parcels can get lost or damaged in the transport process. 

At that moment, many questions arise: What will happen? Will I be compensated? Do I need to take out additional insurance?

In this article, we will see what options are available to you in the event that a carrier loses or damages one of your packages.

How do carrier offsets work?

Conditions:

From the moment the package is picked up from the warehouse until it is dropped off at your customer's home, it is the carriers' responsibility. That is to say, if something happens to your package, a system of compensation is set up. 

Transport indemnities are governed by international conventions such as those of Montreal for air transport or Geneva for road transport. There are many of them in order to protect both the carriers and the final customers.

More simply, these texts require carriers to compensate their customers if the package does not arrive or arrives damaged. And these compensations are calculated on the weight of the package and not on its value. 

In France, the decrees impose the following indemnities:

  • For parcels of less than 3 tons: maximum 33€/kg without exceeding 1,000€ per parcel;
  • For packages over 3 tons: maximum 20€/kg without exceeding 3,200€ per package. 

Limitations:

The law: 

Although carriers are obliged to compensate their customers, there are limits to such compensation, as the laws are mostly in favor of the carriers.

While respecting the maximum amounts imposed by the decrees and conventions, carriers are free to set compensation as they wish. For example, the limit for packages under 3 tons is 33€/kg. Let's compare the compensation policy of 3 different carriers:

  • La Poste compensates its customers up to 23€/kilo with a 690€ maximum for parcels under 30kg 
  • Mondial Relay compensates its customers with a flat rate of 25€ per package
  • Relais colis, like Mondial Relay, compensates its customers at a flat rate of 20€ per parcel

The amount of compensation varies from one carrier to another. 

The exemptions: 

The compensation policies, like any other policy, include exemptions; that is to say that there are situations that mean the customer will not be compensated.Here are the 3 conditions: 

  • Force Majeure: i.e., if one or more unforeseeable events occur (weather, political events...) 
  • Defects specific to the goods transported: this mainly concerns sensitive goods (food, cosmetics, etc.), which may be altered by storage conditions prior to transport
  • The fault of the shipper: the package is damaged due to a problem related to the shipment (packaging problem, bad packing...)
  • Unexplained disappearance: the package is marked as delivered and the customer claims not to have received it.

To be noted: In case of gross negligence of the carrier, the shipper may benefit from a de-capping of liability. 

Bigblue tips: Suggest delivery against signature 

Delivery against signature is a solution that ensures that the package will be given only in exchange for your customer's signature. This delivery option will provide additional security for your packages. 

Ad Valorem insurance:

What is Ad Valorem insurance?

“Ad Valorem" insurance, which means "according to value," is an insurance policy for the transport of goods. 

Unlike carrier's compensations, it covers the transported goods on the basis of the real value declared by the shipper (or "loader") at the departure of the goods. This means that if your product is worth 50€, it will be reimbursed for 50€. 

Ad Valorem insurance is not mandatory and can be taken out for all means of transport (land, sea, air, or river) with the transport companies or your logistics provider.

Why should you buy it?

We have seen above that the carriers compensate the loss of parcels according to the weight of the parcel and that the Ad Valorem insurance allows you to insure your product at its real value. It seems that this insurance is essential for your e-commerce. But it is not necessarily profitable after a quick calculation. 

Let's take 2 different situations to better understand.  

Example 1: 

Let's take an e-merchant who sells an expensive but very light product like a watch.The information is as follows:

  • The value of this watch is 199€
  • The weight of the package is 200g 
  • His carrier compensates lost or stolen packages at 25€/kg
  • The value of the Ad Valorem insurance is 2€.

Let's say he makes 500 orders in a month and that 2% (i.e., 10) of the packages are lost or damaged: 

  • If the Ad Valorem insurance is not subscribed: the carrier will compensate the e-merchant up to 50€ (for all the lost goods) 
  • If the Ad Valorem insurance is subscribed: the e-merchant will pay 2€ more per order, i.e., 1000€ of insurance but will be completely refunded for the 1,990€ of missing goods.

In this case, the Ad Valorem insurance is beneficial for your finances 

Example 2: 

Photo by Shopify Partners from Burst

Let's take an e-merchant who sells a light and inexpensive product like jeans. The information is as follows: 

  • The value of the product is 35€.
  • The weight of the package is 1kg
  • His carrier also compensates for lost or damaged packages at 25€/kg
  • The value of the Ad Valorem insurance is 2€.

Let's say he makes 500 orders in a month and that 2% (i.e., 10) of the packages are lost or damaged:

  • If the Ad Valorem insurance is not subscribed: the carrier will compensate the e-merchant up to 250€ (for all the lost goods) 
  • If the Ad Valorem insurance is subscribed: the e-merchant will pay 2€ more per order, i.e., 1,000€ of insurance for a refund of 350€ for this 2% of loss.

Without insurance, the e-merchant would have been reimbursed €250, and with the insurance in addition to the loss of his goods, the insurance would have cost him more than the final reimbursement. 

Please note: the price of the Ad Valorem insurance per order is not fixed and depends on your carrier, destination, and the price of your cart.

So or a low-value package, it's not really cost-effective to insure each of your shipped packages at X price.

It is up to you to make a quick calculation between the amount paid to the insurance and the loss in value of some of your products.

In brief …

Losing a parcel because of a carrier can be a real loss of profit for your e-commerce and is what can push you to think that it is necessary to take out Ad Valorem insurance. 

It is important to make the calculation between the value of your product, the weight, and the cost of the insurance for it. It is very often more profitable to count on the indemnities of the carriers than on a complete refund of the value of your product.

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