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Consumer Insurance Can Save Shoppers from Floods of Fake Gadgets

To boost sales and assuage fears about shoddy goods, Chinese e-tailers let consumers insure their online purchases.
November 14, 2016

Alibaba Group’s Singles Day online shopping festival is a 24-hour spree full of tantalizing deals on electronics, clothing, and cosmetics. It’s been held annually on November 11 since 2009. Shoppers place pre-orders on the eBay-like shopping platform weeks before the big day and eagerly await the official opening at midnight. This year’s event fell last Friday and posted a record 120.7 billion yuan (nearly $18 billion) worth of sales, a 32 percent increase from 2015, itself a record-setter.

But big sales numbers also bring more potential for unexpected returns and logistical problems. And for consumers in an e-commerce scene that is often plagued by counterfeit products and disputes, there are more worries that what arrives in the mail won’t be exactly what they saw on the Web page.

A new industry has emerged to address the lack of trust between online retailers and buyers: online shopping insurance. With premiums ranging from a few cents to a couple of bucks, a variety of policies now cover the costs of online shopping mishaps including return shipping, and offer money-back guarantees for damaged goods or cosmetics that give you allergies.

Preparing online orders for shipping during China's record-setting Singles Day retail holiday on November 11.

Like insurance claims, “unexpected returns have certain probabilities too, so we thought about whether we could reduce disputes using the principles of insurance,” says Yueping Liang, director of the insurance business unit at Ant Financial, a leading online financial services company related to Alibaba Group. Liang says online small and micro businesses have embraced the idea of shopping insurance: over four million sellers on Tmall.com, an e-commerce site operated by Alibaba Group, now give buyers the option of purchasing these policies.

While industrywide data is not available, over 300 million users have purchased different types of consumer insurance policies from the nine insurance companies currently working with Ant Financial. The number of consumer insurance products sold on Ant Financial’s platform is growing fast.

Seeking to boost sales and build trust with buyers, many online retailers offered complimentary consumer insurance during this year’s shopping day.

And consumers are taking them up on it. “It gives me peace of mind,” says Shuang Xiao, 27, who works at the life insurance division of a large state-owned insurance company. A week before Singles Day, she saved a pair of shoes in her wish list on Tmall.com. At midnight on November 11, she placed the order and opted for free consumer insurance provided by the seller. If after they arrive she decides to return them, she’ll get 12 yuan ($1.76) from the insurance company to cover the return shipping.

Xiao says even if the seller didn’t offer it, she would have paid the 5-yuan ($0.73) premium herself anyway. Given the steep discount, she says, she’s not sure whether the shoes are of good quality. The 5-yuan premium gives her the freedom to bet on a deal.

Unlike her own life insurance clientele, who are mostly in their 40s or older, a lot of people who buy consumer insurance are like herself: young and constantly scouring the Web for discounts, which can lead to purchasing substandard goods. Indeed, among the over 300 million consumer insurance users on Ant Financial’s platform, nearly 200 million are 31 or younger.

“This is consumption with Chinese characteristics,” says Shenglin Ben, dean of the Academy of Internet Finance at Zhejiang University. “In an environment with not enough trust, consumer insurance can eliminate people’s concerns.” When buying things online feels safer, more people will do so, he says.

Though optimistic about consumer insurance as a business model and as a way to broaden access to insurance products, Ben notes that perhaps not having to rely on it is better. When China’s credit system improves, he predicts, the demand for this type of insurance product will decline.

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