In today’s fast-paced world of e-commerce and global trade, shipping plays a crucial role for many businesses. Delivering orders safely and on time is key to keeping customers satisfied.

There is always some risk involved in shipping, but insurance can support businesses with risk management. Packages can be delayed, damaged, or lost which can lead to financial losses, strained customer relationships and even damage to your reputation. In retail, failed deliveries are reported to cost businesses an average of £11.60[1].

In this guide, we’ll cover everything you need to know about shipping insurance and if it’s worth exploring for your business. Whether you’re a small e-commerce (B2C) shop sending a few packages a week or a large business (B2B) managing a high volume of orders, understanding how shipping insurance works can help protect your revenue, and keep your customers happy. 

Shipping insurance is calculated based on various company specific criteria. It can depend on the product value, shipment volumes, product type etc. An initial level of liability cover is often provided by the carrier, such as UPS, but this type of protection typically only covers shipments sent via that carrier.

Third-party insurance providers like InsureShield offer more advanced, multi-carrier coverage, with Application Programming Interface (API) capabilities to connect with other platforms. Rates depend on the level of service and coverage required.

At InsureShield, we create policies based on your company’s requirements. Get support with risk management tailored to your business needs.

Here is a step-by-step guide to roughly calculate the cost of loss:

• Work out your direct costs
• • (Lost quantity x unit cost) + replacement fees + delivery fees + customer refunds + fines + staffing costs
• Work out your indirect costs
• • (Lost hours x lost revenue per hour) + Lost future sales + staff admin time + productivity time lost

Total cost of good loss = direct + indirect costs.

When combined, direct and indirect costs can often exceed the value of the shipment itself. That’s where shipping insurance can help protect against unexpected financial losses when things go wrong. Giving you peace of mind over your cashflows.

Direct costs are the immediate, tangible expenses your business incurs when a shipment is lost, stolen, or damaged in transit. These are usually the easiest to identify and calculate, as they directly relate to the physical goods or services involved.

For example, if your shipment of 100 handbags valued at £200 each is lost, the direct cost of goods alone would be £20,000. But that’s just the starting point. You’ll also need to factor in the replacement fees, delivery or re-shipping costs, and any penalties or staff overtime required to manage the fallout.

Direct costs represent the immediate financial impact of the loss that affects your bottom line.

Common examples of direct costs include:

• Value of the goods
• Replacement or reordering costs
• Shipping and handling fees for resending items
• Customer refunds or compensation
• Fines or penalties for missed delivery deadlines
• Staffing and overtime costs to resolve the issue

While direct costs can be calculated on a balance sheet, indirect costs are often hidden. These costs capture the broader business impact that follows a loss, from delayed operations to lost customer loyalty.

If your team spends hours dealing with carrier investigations, insurance claims, customer complaints, and replacement logistics, that’s valuable time lost from day-to-day business. If the end customer decides not to reorder because of a delayed or damaged delivery, that’s future revenue lost. Over time, repeated incidents can erode your brand reputation, making it harder to win or retain customers.

Common examples of indirect costs include:

• Lost future sales from dissatisfied customers
• Operational downtime or productivity loss
• Administrative time spent on claim handling and issue resolution
• Reputational damage impacting customer confidence
• Loss of repeat business or referrals

Many businesses prefer to opt for declared value/carrier liability to protect their goods.

Carrier liability differs from shipping insurance because it is a standard liability coverage offered by the carrier for a shipment, in the event of loss or damage. Excess liability is excess-value coverage (e.g., more than the carrier’s standard liability), up to the cost of the shipment.

When it comes to carrier liability, the responsibility falls on the shipper to prove that the loss or damage occurred while the goods were in the carrier’s control. In most cases when there is an approved claim, a carrier will only reimburse replacement value, not your invoice value.

¹ Loqate. "Average Cost per Failed Delivery in 2020, by Country." Statista, Statista Inc., 1 Mar 2021, https://www.statista.com/statistics/973182/last-mile-delivery-average-cost/

² InsureShield Europe claims data, 2024–2025