There are several reasons a delivery can end in a reported failure:

• It could have been stolen 
• It could have been damaged in transit 
• It could have been lost or delivered to the wrong address
• It could have been successfully delivered, but the customer is engaging in delivery fraud

Many e-commerce businesses rely on shipping insurance to protect against losses like these. However, this approach may not be the most effective solution for dealing with these problems.What is Shipping Insurance?Shipping insurance protects shippers from financial losses related to stolen, lost, or damaged shipped packages. It generally covers the cost of the package and the associated shipping costs. Some carriers provide shipping insurance services where the merchant pays for the cost of the insurance. Some merchants use specific shipping insurance companies where the customer pays for the additional insurance on their order. For the purposes of this discussion, we will be referencing the latter, in which the customer pays an additional premium, usually a few dollars, enabled through a widget at checkout.  

‍Where Shipping Insurance Falls Short

‍While shipping insurance can provide some financial protection, it often falls short in several key areas:

1. Negative customer experience: Insurance doesn't address the frustration and inconvenience customers face when their packages are stolen or lost. Also, requiring customers to pay for issues that they may never experience is not a great brand experience. 48% of customers abandon carts during checkout due to extra costs and fees, which includes shipping insurance.
2. Cost inefficiency: Insurance premiums can significantly eat into profit margins. The associated costs covered through shipping insurance usually don’t cover all of the related costs for an item not received or damaged claim. 
3. Lengthy claims process: Filing and processing insurance claims can be time-consuming and bureaucratic, diverting resources from core business activities.
4. Adverse Selection: A common risk in insuring anything is adverse selection - the tendency for bad risks to buy more insurance than good risks. Simply put, you need healthy people to buy health insurance to make the system work. There is the same risk here, and outside of an auto-opt in, which may damage your customer relationship, there isn’t a great way to get good risks to opt in. 
5. Root cause neglect: Relying on insurance can lead to complacency in addressing the underlying causes of fulfillment failures.

What are Better Alternatives?Instead of depending solely on shipping insurance, businesses should focus on proactive strategies to prevent theft and fraud:

• Implement robust tracking systems and delivery confirmation processes
• Partner with reliable shipping carriers and fulfillment services
• Offer alternative delivery options, such as lockers or in-store pickup
• Leverage data analytics to identify and mitigate risky shipments 

By addressing the root causes of fulfillment failures, businesses can improve customer satisfaction, reduce costs, and build a more resilient supply chain.

‍Conclusion

‍Shipping insurance is reactive. Merchants should be proactive about combatting shipping issues. A real solution to the problem is more straightforward. Prevent the issues from happening in the first place. This option saves merchants money, time, and retains customers by not pushing the cost of the problem onto them. Merchants want and need to get to the root of the problem of fulfillment issues. Deliverlitics is using machine learning models to help get to the root of the problem - check it out here.