Amazon’s customer-centric focus may have contributed to its status as the undisputed leader in digital retail. But that focus can come at a price for sellers.
Amazon’s A-to-Z guarantee was initially designed to help protect customers in instances of late order fulfillment and product defects. And it’s been a key selling point for over twenty years. Nor are full refunds exclusive to Amazon Marketplace. It’s been estimated that up to 30 percent of all online purchases are eventually returned—and with no small number of retailers including shipping in the full refund process, the end cost can affect third-party sales as much as it affects a seller’s reputation.
But the major complaint many sellers have about Amazon’s returns policy isn’t necessarily a question of having to refund late or damaged items. It’s the fact that buyers can frequently request a return based on any reason whatsoever, even if they simply changed their mind about a purchase. And it’s resulted in a costly and recurring amount of fraudulent returns, particularly for sellers who find themselves at the mercy of Amazon policies; regardless of its shameless abuse by opportunistic sellers.
Recently, Amazon implemented new changes in their A to Z guarantee policy which are scheduled to go into effect on September 1st. And these changes will have a dramatic effect for third-party sellers. Before you unknowingly find yourself facing any number of restrictions as a result, here’s what you should know.
Product Damages, Liability and Amazon
The issue of product liability has been a long-standing thorn in the side of Marketplace sellers. That’s primarily due to a relative lack of clarity in official policy, which clearly states that Amazon is only responsible for replacing defective items. It doesn’t indicate that Amazon can be held legally or criminally liable for any damages which may occur. Instead, Amazon has historically been eager to pass the blame directly on to both manufacturers and third-party sellers.
Yet a number of high profile lawsuits have changed that over the past two years, culminating in California Act HB 3262—a proposed statewide bill which would hold online marketplaces (in particular, Amazon) strictly liable for any damages caused by defective products at the same level as a brick and mortar retailer. If passed, the bill would be just one of several that could change the face of online retail for good.
Amazon is fully aware of the increased scrutiny they’re facing from both the public and federal regulatory agencies over the past two years. But while modern product liability law is applicable at any stage in the distribution chain, Amazon has recently updated their policy regarding personal injury claims to reflect their own accountability.
As of September 1st, Amazon will establish a process of mediation between sellers and buyers for damages caused by defective products. Using both internal services and independent third-party adjusters, Amazon will review and validate any legitimate claims by reimbursing customers up to $1,000 at no cost to sellers who are covered by commercial liability insurance. While the majority of personal injury claims from buyers are reportedly under that limit, sellers are encouraged to work directly with both their insurance providers and customers for any claim exceeding the $1,000 threshold. Amazon reserves the right to to intervene and pay additional claims for higher amounts if a seller is unresponsive or rejects a valid claim. But the legitimacy of each claim is subject to their own discretion, regardless of the actual amount.
Any financial compensation can only include medical expenses, property damage and lost wages. It doesn’t include litigation fees, punitive damages or business losses during the claims process—all of which can frequently exceed $1,000 for both retail and B2B sellers. But sellers who aren’t currently insured may find themselves facing even greater restrictions as a result of additional changes to Amazon’s A-to-Z guarantee policy.
Product Liability Insurance and Selling on Amazon
Unlike Amazon’s previous policy which maintained that three consecutive months of gross sales of $10,000 or higher warranted commercial liability insurance coverage, new changes to the A-to-Z policy now explicitly states that sellers with gross proceeds of that amount in any given month must obtain insurance at their own cost with limits of at least $1 Million, naming Amazon as an additional insured party. And sellers who fail to meet this requirement may be subject to listing restrictions and potential suspension. Commercial liability insurance is by and large based on the estimated annual revenue as well as monetary limits covered, with claim frequency and higher sales typically driving the cost of premiums. One of the more frequent assumptions is that the monthly cost of liability insurance averages roughly $0.25 cents for every $100 in revenue, or roughly $325 a year under Amazon’s new threshold. For many sellers, meeting $10,000 a month in sales isn’t particularly rare. But the actual cost of liability insurance for vendors and sellers has been known to vary tremendously, not least of which can be the result of potential risks and hazards in product lines as well as precedence in civil suits. Nor is there any shortage of providers whose coverage is minimal at best and corrupt at worst.
To help sellers meet new requirements as well as provide a reliable insurance resource, Amazon recently launched Amazon Insurance Accelerator—a network of vetted and partnered insurers who will evaluate third party sellers and provide competitive offerings based on both sales and their own specific needs. The cost of participating in the Insurance Accelerator program is entirely free, with sellers under no obligation to opt in.
With Amazon continuing to face mounting pressure from consumers over business practice accountability, third-party sellers will continue to share some of that burden. And while Amazon continues to improve the frequently awkward lines of communication between sellers and buyers, it’s critical that sellers remain aware of how changes in policy can affect their business. Product liability isn’t merely confined to manufacturers. There’s a long-standing history of brick and commerce retailers and distributors facing criminal prosecution stemming from consumer injuries and damages. With digital commerce rapidly becoming standard in retail, making certain you’re absolutely clear on legal repercussions as well as official platform policies is fundamental. If a liability lawsuit can happen to Amazon, it can happen to you. But with enough precaution and protective measures, your own liability can be minimal. Just make certain your future on Amazon isn’t.
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