Chargeback Insurance – Do You Need It?

Are you fed up with chargebacks and looking for chargeback insurance? While chargebacks can cause headaches and frustrations, there might be a better approach than chargeback insurance. This article will explain what chargeback insurance is, whether you should get it, and also give you some ideas as to who sells it.

Key Takeaways

  • Chargeback insurance isn’t always needed
  • Chargeback insurance can work well when paired with other forms of chargeback management, but it shouldn’t be your only form
  • Chargeback insurance doesn’t prevent chargebacks from occurring
  • Chargeback insurance doesn’t cover friendly fraud

What Is Chargeback Insurance?

Chargeback insurance is a policy that provides financial protection to merchants against losses resulting from criminal chargebacks. This type of insurance only protects merchants from chargebacks made from stolen credit or debit cards.

Chargeback insurance guarantees you against the losses from true fraud. Whether or not a specific merchant should get chargeback insurance depends solely on their chargeback management strategy and the analytics of their chargebacks.

It can be worth implementing if you experience true fraud more than friendly fraud.

How Does Chargeback Insurance Work

Below are the scenarios in which chargeback insurance can assist during true fraud, assuming the cardholder disputes a charge with the following claims:

  • The transaction was made via a stolen or lost credit card
  • The purchase was made using a fake credit card with your account numbers
  • Shipping information was edited after the purchase was completed – so the customer never received the goods
  • There was never a valid signature upon purchase/checkout

If one of these claims is made, you might be entitled to reimbursement via your policy provider. The specific terms vary depending on what your chargeback insurance policy states in terms of service.

While chargeback insurance is meant to help you in the case of true fraud, it’s never guaranteed, as the policy provider could determine that it was friendly fraud and not true fraud.

Most fraud chargeback prevention companies tie insurance into a tool that analyzes/approves the transactions they’re made. Then, when transactions become criminal fraud, you are reimbursed automatically.

Options For Chargeback Insurance

Chargeback insurance is offered through the most significant vendors, Verifi and Ethoca; however, some chargeback insurance/protection is also offered through Shopify, Paypal, and Stripe.

Shopify Chargeback Protection

When your Shopify chargebacks get out of hand, Shopify chargeback insurance might be an intelligent decision. It comes as built-in chargeback protections offered directly from the Shopify platform.

Paypal Chargeback Protection

Paypal’s chargeback protection covers physical goods with proof of delivery and digital goods in the United States.

Stripe Chargeback Protection

Stripe has a specific policy offered to all merchants for an additional .4% per transaction.

Cons Of Chargeback Insurance

There are two significant cons that most chargeback management companies will mention. For starters, chargeback insurance always errs on caution, resulting in substantial declines.

In a way, compare this to an insurance company that looks at every angle to try and avoid paying the claim that was made. While chargeback insurance providers don’t try to get out of paying you, the incentive is similar.

In efforts to reduce the claims that they pay out, the chargeback insurance providers will reject far more transactions.

What Does Chargeback Insurance Cover?

Chargeback insurance covers criminal fraud disputes. If your business has an unusual amount of criminal fraud, preventative measures typically need to be put into place ASAP.

Does Everyone Need Chargeback Insurance?

The short answer is no; only some merchants need chargeback insurance. Chargeback protection is meant to protect the merchant once the chargeback has been initiated. If you have a chargeback problem, you need solutions that prevent the chargebacks from occurring in the first place.

Alternatives To Chargeback Insurance

Various ways can prove far more effective than chargeback insurance for merchants. We recommend the following to hit the brakes on your chargebacks:

  • Chargeback prevention alerts
  • Chargeback management
  • Chargeback analysis

At CB-ALERT, we take care of all these and take an in-depth look at exactly what will move the needle for your business.

Why Focusing On Chargeback Prevention Is The Best Chargeback Insurance

Chargeback prevention is the process of 

Chargeback prevention drastically reduces chargebacks for merchants in every industry. Chargeback prevention measures typically delay the chargeback process, giving the merchant time to respond to the claim. The chargeback is stopped when the merchant can either refund the customer or resolve the dispute.

Chargeback prevention deal with the problem before it occurs, whereas chargeback insurance deals with the issue after the fact, which often results in a negative ROI for the merchant.

A few measures of chargeback prevention include:

While we can take care of your chargeback prevention strategy for you, here are some quick tips:

  • Always investigate suspicious orders before fulfillment
  • Make your refund policy crystal clear
  • Implement customer services 24/7
  • Make contact information crystal clear

Does Chargeback Insurance Offer Enough Protection Against Chargebacks?

The simple answer is no; chargeback insurance does not offer nearly enough protection against chargebacks. 

Chargeback insurance is designed to provide coverage for consumers who experience fraudulent or unauthorized transactions on their credit cards. While it can offer some protection to consumers, here’s a list of reasons why it’s not always enough:

  • Limitations on what is covered: Chargeback insurance typically covers specific types of fraudulent transactions, such as unauthorized charges or identity theft.
  • Caps on reimbursement: Chargeback insurance policies often limit the maximum amount of reimbursement per claim or policy period. This means the customer won’t always be fully reimbursed.

It’s essential for consumers to carefully review the terms and conditions of chargeback insurance policies to understand the extent of coverage provided and any limitations or exclusions. 

Let CB-ALERT Handle Your Chargeback Management To Reduce Chargebacks

If you’re looking to change your chargeback situation for the better drastically, find out what CB-ALERT can do for your business.

We have seen thousands of times that we can help our clients by setting them up with a full chargeback suite that focuses on chargeback prevention, analysis, and chargeback representment. 

We can take your business to the next level and help you decide whether or not you need to implement chargeback insurance.

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