No one starts a business to think about things like liability insurance, it’s just one of those Must Do tasks to be ticked off your list annually. Unless, of course, your business is insurance, like it is for Spott Insurance. They think about insurance so much – and about how it can be improved – that they’ve created a revolution in Liability Insurance for eCommerce store owners: Pay as you Sell (PAYS).
Spott Insurance is a slightly unusual start-up in the insurance industry. Realizing that the industry had not yet caught up to the reality of eCommerce and its specific needs, they set out to do just that. It’s out of this mindset that PAYS was born.
So What is Pay as you Sell?
As the name suggests, the PAYS liability insurance model pegs the cost of liability insurance premiums to real-time eCommerce sales on a month by month basis, tying payments directly to revenue. If your revenue goes up, your monthly premium will rise – although never above what you would have paid for a standard premium. If your revenue goes down, your monthly premium payment will drop in-line. It really is that simple.
In this way, store owners can make significant savings on their liability insurance premiums with PAYS. Rather than paying the full rate for the whole year, as calculated based on your store’s highest revenue point, they only pay for the coverage they actually use. Let’s take a hypothetical example to see how that would work.
Say you own a seasonal company, selling ice-cream making machines. During June, July and August your sales are 150 units per month, but in November through to February, sales drop down to zero. In the remaining five months, sales average at 75 units per month. A regular insurance policy would charge, say, $300 for the year, which works out at $25 per month. Under PAYS, however, you would pay $25 for June through August, $0 in November through February, and 50% (or $12.50) during the remaining months, to make a total of $137.50 for the year, saving $162.50 over the course of the year.
Why is Pay As You Sell Good for Ecommerce?
The main benefit eCommerce offers to business owners is flexibility. As marketplaces such as Amazon, Etsy and eBay have grown in popularity and size, more and more people are taking advantage of the ability to run a business around other responsibilities such as family, or as a side hustle. Their income is therefore much more likely to be seasonal or variable, with revenue rising and falling throughout the year. A parent with young children might choose to put their business on hold during the summer holidays, for example.
Until now, that flexibility has not been met by the insurance industry. Liability insurance premiums are calculated for the whole year, and revenue is calculated on the basis that it stays steady throughout the year. That can leave eCommerce sellers paying for liability coverage they just don’t need. PAYS, on the other hand, brings that flexibility to insurance. When business is going full steam ahead, payments are in line with a standard policy. When owners choose to step back, or seasonal business drops off, the liability insurance payments drop to match, so they’re never left out of pocket.
PAYS Is Data Driven
Like most things eCommerce, the flexibility comes from taking advantage of the data that’s generated in real time by eCommerce. Analogue businesses predicted future sales levels by looking at past performance, with insurance premiums calculated in the same way. Because guesswork was involved, insurance firms accounted for the risk built into the system by setting liability insurance premiums at a level that covered their risk. That made sense in a world where accounts were kept by hand, and revenue calculated on paper monthly or quarterly.
It doesn’t make sense in today’s digital world in which sales data are available in real time at the click of a button. Store owners know exactly where their sales and revenue levels are day to day, hour to hour, removing the guesswork from premium calculations. It makes sense for that reduction in risk to be passed along from the insurance companies back to the store owners themselves.
Why Pay More Than You Have To?
Ultimately, eCommerce isn’t just a different way of doing business. By moving retail from brick and mortar spaces into the digital world, the way consumers find and browse stores, order, and pay, has completely changed over the last couple of decades. In turn, that digital revolution has already upended industries such as advertising and finance, as players in those industries used the bounty of data generated by eCommerce to widen accessibility and bring prices down for store owners and consumers alike.
In this landscape, it just doesn’t make sense for the insurance industry to be doing things in the same old way as it did before. And just like marketing and finance, it’s only natural that the benefits of going digital be used to make insurance more flexible, easier to access, and cheaper.
Thanks to SPOTT Insurance, with PAYS, liability insurance is now exactly that – more flexible, easier to access and cheaper – and the insurance industry has finally joined in the eCommerce revolution, fully catching up to the modern age. Hallelujah!
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