Lost/Damaged Packages & Insurance Claims

[delcorsets]

Over the years this is something that has always puzzled me... I'd really appreciate to hear from others about how you deal with lost or damaged shipments and insurance claims that go along with them..

My scenario goes something like this...

- Seller buys item for $500 cost, and sells the item to customer for $1000.
- Seller buys insurance from shipping carrier for retail value ($1000.)
- Package is lost or damaged during transit
- Shipping carrier requires "sender" to file the claim
- Maximum value of claim ($1000) is used to reimburse the customer.
- Seller is out the the sale and the $500 cost of the item.


It seems that the seller ALWAYS loses, even with purchased insurance, unless I'm missing something very simple...

If the customer chose to accept a replacement for the lost or damaged item, then the seller could break even by re-buying the product and re-shipping it to the customer, but in most cases I've ever dealt with, the customer is already agitated and simply wants a refund.

Does anyone have advice or experiences where things actually work out?

[Mark Hood]

I'm not so sure your math is correct.
You've now received a $1000 for the item via the insurance company which means they bought it from you at this point not the customer.

Even if you replace the item then you still have the same $500 profit

I'll add to this that we risk only insuring packages for the cost of them item to save money on the insurance cost.
This means we risk losing a product from our inventory that we could make a profit on but not actual the cost of the item.

[lesliekirk]

Mark, if the customer files the claims, doesn't the customer get the insurance money?

[Mark Hood]

Mark, if the customer files the claims, doesn't the customer get the insurance money?

It's always the shipper (purchaser of the insurance) but if it did work that way you would not have to reimburse the customer at that point.

They can report a missing package but not file an actual claim.

[delcorsets]

Mark,

I've wrestled with this for a while.. it seems like it should work out, but it doesn't... maybe my math/logic is flawed in some way

The insurance company gives me $1000 for the lost item, buying it from me if you will. That money does not end up going to me however, because the item they "bought" was already sold to someone else... that $1000 initially goes to my checking account but then is immediately used to refund the customer who originally paid me for the item. So, they've essentially paid me to reimburse my customer, but the product is still gone.. so I'm out $500.

I'm only on my first cup of coffee, so maybe I'm still not seeing it correctly, but it seems like I lose even if I am awarded the hypothetical full claim (which in real life I actually was not awarded.)

[Mark Hood]

Mark,

I've wrestled with this for a while.. it seems like it should work out, but it doesn't... maybe my math/logic is flawed in some way

The insurance company gives me $1000 for the lost item, buying it from me if you will. That money does not end up going to me however, because the item they "bought" was already sold to someone else... that $1000 initially goes to my checking account but then is immediately used to refund the customer who originally paid me for the item. So, they've essentially paid me to reimburse my customer, but the product is still gone.. so I'm out $500.

I'm only on my first cup of coffee, so maybe I'm still not seeing it correctly, but it seems like I lose even if I am awarded the hypothetical full claim (which in real life I actually was not awarded.)

Let's forget the customer exist at all because you refunded the money. $0 in $0 out

The insurance company gave you $1000 for the item.

[delcorsets]

Let's forget the customer exist at all because you refunded the money. $0 in $0 out

The insurance company gave you $1000 for the item.

Hmmmm... what kind of strange magic is this???? That actually makes sense and now my world is upside-down. I think I'm going to start on my second cup of coffee and re-ponder..

Thanks for your feedback and really obvious answer. ;)

[Bruce - PhosphorMedia]

hmmm...maybe i need a third cup...

you sell a item to customer for 120 (your cost is 100)
you ship it insured for 120.
package is lost, you refund customer 120.
[so far, you are out shipping cost, cause you gave back customers payment]
insurance company gives you 120
[you now probably have shipping covered as well]

[delcorsets]

When it's broken down to a "money-in" and "money-out" level it's much easier to see how it works out.

• Out - $50 COG

• In - $100 customer sale
• Out - $100 customer refund

• In - $100 insurance claim (which should hopefully cover shipping/processing expenses as well as COGS)


I was definitely using a flawed logic in my initial scenario where I was simply envisioning the claim check as the refund or reversal of the customer's payment.

In my real life scenario, the issue was a damage, not a completely lost package. Our shipment was delivered to an incorrect address (an abandoned house) and sat outside in the elements for over 2 weeks before being found. The contents (expensive leather jacket) was ruined by rain and completely covered with mold and mildew. I'm still waiting on the claim resolution - so far I've sent invoices, photos, customer affidavit, and timeline of what occurred. We use ShipWorks insurance (InsureShip) which has been pretty slow and arduous, but I suppose they're probably all like that.

Out of curiosity, I'm wondering how many merchants insure their shipments on a regular basis? All shipments, or only those over a certain value threshold?

Do most merchants charge the customer for optional shipping insurance, work it into the shipping cost, or take it on as part of their own cost?

How often do claims have to be filed? Are the claims usually successful?

[Mark Hood]

hmmm...maybe i need a third cup...

you sell a item to customer for 120 (your cost is 100)
you ship it insured for 120.
package is lost, you refund customer 120.
[so far, you are out shipping cost, cause you gave back customers payment]
insurance company gives you 120
[you now probably have shipping covered as well]

Shipping cost are also always refunded because they are not part of the insured amount.
It's listed as a separate line that you request on the claim form but is also paid.

[Mark Hood]

To answer other questions for what we do.. (sorry not positive how insureShip works)
We insure over $400 but the more important thing that in your case would have possibly fixed the problem is that we also send them signature required.