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Pay-As-You-Sell Insurance for E-commerce Companies

Zopper Team Basics of Insurance January 14th, 2025

Although insurance is a “vital shield” for businesses, only 3% of the 62 million businesses in India have SME insurance. This presents a massive opportunity in the business insurance segment for Indian insurers. However, in the rapidly growing entrepreneurial sector, the needs vary dramatically across businesses and operational models. In the online space, various risks may disproportionately impact certain businesses, while others may not. For instance, during the monsoon, the needs of a cloud kitchen could be far different from those of an online clay cookware seller, although both goods need extensive delivery care. The e-commerce space is so expansive that a one-size-fits-all approach cannot work. The risks range from lost/damaged goods to cyber fraud. Most importantly, the e-commerce sector works with varying volumes of sales throughout the year, which further impacts the coverage needs of online merchants. This is where pay-as-you-sell insurance comes to the rescue.

The Shift from Traditional Insurance

Traditional insurance focuses on a seller’s annual projections and historical sales. It has several drawbacks:

  1. It leaves out a crucial segment – start-ups and small businesses with insufficient resources.

  2. It does not align with the actual business cycle and changing insurance needs, which is high during the festival or e-commerce sale season but low otherwise.

  3. Since sellers pay insurance premiums upfront or bear interest costs in financing the insurance, they are exposed to certain risks:

  • Financial loss due to under-insurance if the business overperforms. This is because, if claims were to be made, only what is projected would be protected, and the rest would remain unsecured.

  • Reduced profits due to over-insurance when the business underperforms since premiums are not based on actual business performance.

Such shortcomings may discourage e-commerce companies from opting for traditional business insurance solutions. Small businesses tend to have cash-flow concerns and manage their funds on a monthly demand basis. Annual insurance policies can prove expensive for them. Did you know that 90% of small business owners are unsure of the adequacy of their insurance? In a world where every customer wants personalised goods and services, e-commerce businesses expect the same from the insurance industry. Insurers need innovative products to offer tailored solutions to online merchants. This is where the pay-as-you-sell insurance (PAYS-insurance) model can be a differentiator.

PAYS Insurance: Model That Adapts to Risks

Much like telematics, which are used for individuals, such as pay-as-you-drive automotive coverage, pay-as-you-sell insurance adapts to the sales of an e-commerce business. It is a dynamic model that allows e-commerce players to choose their payment frequency and associate insurance premiums with sales. Leading insurtech companies in India enable insurers to offer flexible premiums that ensure adequate coverage for e-commerce businesses. This caters to seasonal business cycles, eliminating the risk of under- or over-insurance.

According to 53% of small-business owners, not knowing the kind of insurance they need is a prominent barrier. One can imagine their discomfort with committing to a year-long premium model. Pay-as-you-sell insurance also allows sellers to develop an understanding of how their business performance impacts their protection needs. 

Leverage Insurtech to Offer Flexible E-commerce Insurance

Poised to become a $325 billion industry by 2030, the e-commerce sector has a massive need for coverage. And the pay-as-you-sell insurance approach can be a game-changer in securing the expanding sector. However, fostering a culture of agility in the risky insurance sector can be challenging. Here are the key areas you need to work on to offer PAYS insurance.

Data Analytics and Reporting

The pay-as-you-sell insurance model relies on the abundance of data and the analytics accuracy. It is critical to employ the most cutting-edge data sourcing and analytics tools. For instance, online sellers may have different price points to attract customers from tier-1 through tier-3 cities. While competitive pricing is crucial for the business, it requires more advanced analytics capabilities. Leveraging diverse data points, such as seasonality, variation in sales and prices through business cycles, competition analysis, claims history, credit data, etc. allows you to gauge the financial stability and security needs of the business. These help you assess the risks involved in offering adequate coverage.

Integrations with Popular E-commerce Platforms

E-commerce sellers today pan out from one platform to another to broaden their outreach. To adequately gather data and calculate premiums, your insurtech solution must seamlessly integrate with all popular e-commerce platforms. Open API integrations and cloud-based technology stack allow you to integrate with diverse e-commerce platforms seamlessly. In the increasingly global world, your insurtech solution must also be capable of handling transaction reports in multiple currencies. A multi-currency solution may prove instrumental in maintaining loyalty as the e-commerce business expands beyond the Indian market.

Automated Quote Generation

Seamlessly altering monthly/quarterly premiums in line with sales is key to ensuring the success of pay-as-you-sell insurance. In the intensely competitive insurance market, offering best-in-class quotes is a key differentiator. Tracking a wide variety of products with varying levels of quality is paramount to improving the accuracy of the quotes. That’s not all. Your platform must also allow online merchants to add or remove products from their catalogues at will without lengthy paperwork. It ensures that your clients get adequate coverage and that the associated risk for your company is within tolerable limits. Automating premium quotes with AI-powered underwriting expedites the process, and you can acquire merchants almost instantly. 

Insurance Across the Business Value Chain

Logistics and sourcing are critical aspects of business operations in the e-commerce sector. Offering insurance for non-traditional sources, domestic and international or other small businesses, and underserved gig workers and self-employed individuals is essential to meet the needs of e-commerce businesses. Insurtech solutions enable you to cater to unique business needs.

Securing the Digital Business Ecosystem

The Indian government is planning to build an open network for digital commerce (ONDC) to propel e-commerce growth in India. While the business landscape is rapidly transforming, insurers need to come up to speed with the dynamic protection needs of businesses. Benefits, such as employees, logistics, property, etc., are as crucial to securing e-commerce businesses as traditional assets.  The key is offering flexible solutions that reduce the financial burden on micro, small and medium enterprises without compromising coverage. The bottom line is that premiums must be relative to sales and adapt to business cycles. This helps despite the risk factors remaining the same, as the scope keeps on changing with seasonal business ups and downs.

Pay-as-you-sell insurance is a data-driven model that can help you attract diverse, underserved and unserved online businesses. The key to adapting to the dynamic nature of digital commerce is to partner with an insurtech solutions provider. With deep knowledge of the digital business landscape and their coverage needs, Insurtech companies in India empower insurers to offer adaptive solutions. Insurtech firms provide cutting-edge digital solutions that can be effortlessly integrated with diverse e-commerce platforms to offer flexible insurance solutions tailored to e-commerce merchants’ needs. The added benefit is that insurtech companies ensure compliance with the regulatory guidelines governing the e-commerce ecosystem. Forming a strategic collaboration with an insurtech company offers a competitive advantage in positioning you as the preferred e-commerce insurance partner for all types and sizes of businesses.

Bibliography: (Last Accessed on 24th September, 2024)

  1. https://economictimes.indiatimes.com/small-biz/sme-sector/only-3-of-indias-62-million-business-owners-have-sme-insurance-icici-lombards-anand-singhi/articleshow/111333380.cms?from=mdr 

  2. https://www.forbes.com/advisor/business-insurance/small-business-insurance-statistics/ 

  3. https://finance.yahoo.com/news/most-small-businesses-little-knowledge-130700423.html

  4. https://www.assureful.com/pay-as-you-sell-insurance/ 

  5. https://spottme.com/blog/what-is-pay-as-you-sell-insurance-and-why-do-you-need-it/ 

  6. https://spottme.com/blog/what-is-pay-as-you-sell-insurance-and-why-do-you-need-it/ 

https://www.business-standard.com/industry/news/e-commerce-market-to-hit-325-billion-by-2030-rural-india-to-lead-growth-124042900284_1.html

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