Going Beyond Ecommerce Chargeback Insurance

If you’re an online merchant struggling with an influx of chargebacks eating into your profit, the concept of chargeback insurance might sound like the perfect solution for you. But that may not be the case. The perceived insurance umbrella may not keep you from getting wet.

Think of an auto insurance policy – with limitations. Like one that doesn’t cover you if you get hit while parked, or while your car is in storage or if it’s stolen.

But hey, at least you’ve got insurance, right?

Chargeback insurance is more complicated than simply putting in a claim. The specifics of what most policies cover and their limits may make that policy useless to many ecommerce merchants.

To be sure, some merchants can benefit from chargeback insurance. It will cover only certain items that get processed for a chargeback, and only under certain conditions.

“One size fits all” rarely applies to insurance or any kind of protection, other than perhaps a poncho.


And no chargeback insurance policy will provide 100% coverage, just as chargeback prevention specialists cannot eliminate all chargebacks. Some merchants – especially those in a high-risk category – will benefit from insurance if they follow the right procedures.

Providers of chargeback insurance often use a fraud filter which can help identify in advance high-risk transactions that are more likely to result in chargebacks.

When the filter identifies a potentially risky transaction, the merchant can choose whether or not to complete that purchase. Or they can do an increased level of identification validation which may involve several phone calls and requests for replicas of credit card and ID cards, or even calling the insurance company to review an individual order. This can slow the transaction time and potentially upset the client whose identity and validity are being questioned.

But having taken those steps, and fulfilling their requirements according to the insurance policy, the merchant may salvage sales they might have passed on without the safety net of insurance.

Merchants most likely to see a ROI on chargeback insurance are those with average orders of at least $250 to $500 or more, especially the kind of luxury items that can be purchased and resold.

In most cases, chargeback insurance will not cover a chargeback if the item was received broken or never received. It also won’t cover chargebacks rooted in clerical errors such as being overcharged or getting duplicate charges. Nor will it cover delivery of digital goods like game apps, entertainment downloads, e-books or webinars.

In some cases, insurance will cover “friendly fraud,” an instance of a customer trying to get something for nothing. This only happens if the merchant can certify identity validation on the purchase and delivery, and that the item was delivered as promised and in good condition.

If a transaction is covered, the onus is still on the merchant to file a claim within the time allowable to challenge a chargeback, usually 90 days. For many merchants who don’t work with a chargeback representative, they are handled monthly if at all, often written off as part of the cost of doing business. By the time the merchant gets around to filing the insurance claim, and having the insurance company investigate the case, there can often be less than 30 days to resolve the issue.

Of course, while the merchants are looking for a reasonable ROI, so are the insurance companies. If a merchant is paying $1,000 a month for insurance, and averaging $2,000 a month in insurance claims being paid, they can expect to see a significant increase in their policy rates.

Even if insurance is a good fit for some merchants to fight or at least recover chargebacks, they should still consider teaming up with a fraud and chargeback prevention company that will help analyze the “why” not just the “how much” of chargebacks and help them prevent fraud.

More peace of mind and a much higher ROI can be found by dealing with a company that specializes in chargeback prevention as well as representation, and also helps identify the likelihood and causes of fraud.

Don’t wait to find out that what you thought was the perfect fit doesn’t apply in your situation. Whether you have chargeback insurance or are considering it, a chargeback representative can help you find out what insurance does and does not cover.

A good chargeback management specialist will manage monitoring clients’ daily sales, offer reports weekly or even more often and aggressively battle every chargeback regardless of the cause. They will also evaluate the business and recommend ways to limit chargebacks, prepare to battle those that come in, and help merchants learn how to identify potential fraud.

It’s like the merchant now has a custom-fitted raincoat and an oversize umbrella complete with its own weather forecast.

Suresh Daksina is President and Co-Founder of Chargeback Gurus


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