Chargeback InsuranceKnow When Insurance Helps... & When It Doesn't

How to Choose the Best Chargeback Insurance Option for Your Business

Every merchant wants a surefire method to prevent revenue loss from chargebacks. Each dispute filed against you is an expensive, time-consuming headache that can wreak havoc on your finances. So, who wouldn’t love to have a comprehensive chargeback insurance policy that works the same way as fire, collision, or flood insurance?

Well, the good news is that this insurance does exist. You can get a policy that will insulate your business against chargeback losses. However, it may not work exactly as you imagine it.

What is Chargeback Insurance?

Chargeback Insurance

[noun]/chahrj • bak • in • SHo͝o • rəns/

Chargeback insurance is a policy that protects merchants from costs related to credit card fraud, or instances in which a credit card was used by someone other than the card carrier to make a fraudulent purchase. The policy covers a merchant’s liability for any claims arising from these transactions.

Chargeback insurance is meant to protect against cases of criminal fraud. In effect, it’s a policy that will guarantee you against losses resulting from criminal fraud chargebacks.

If a fraudster manages to use stolen cardholder information to carry out an attack against you, the cardholder would be entitled to file a chargeback. The chargeback insurance would then cover the loss so that you don’t have to pay for the fraud incident.

How Does Chargeback Insurance Work?

Let’s say a cardholder disputes a charge, claiming one of the following is true:

• The purchase was made using a lost or stolen credit card.
• The purchase was made using a fake or counterfeit credit card and account number.
• A fraudster edited the shipping information after the purchase was completed.
• A valid signature was never provided for the purchase.

The policy provider may reimburse you for the cost of the merchandise and/or your lost revenue resulting from the chargeback. The specific conditions of your chargeback insurance policy determine what protections and reimbursements you receive.

Just keep in mind that chargeback insurance isn’t a 100% guarantee against disputes. Even with insurance against chargebacks, your provider will require you to conduct due diligence to prevent fraud whenever possible. This ties in with the provider you partner with to secure chargeback insurance.

The effectiveness of chargeback insurance hinges on the details of your specific policy. With a multitude of insurance providers out there, it's important to know that the nuances of these policies can vary widely from one to another. 

What is Covered by Chargeback Insurance?

Chargeback insurance specifically protects you from chargebacks that originate with fraud and those that stem from system errors or other incidents that are outside of your control. There are some stipulations, but we’ll get into those in a bit. 

For now, here’s what is generally covered by your chargeback insurance policy. For insurance to apply, all the following conditions must be true:

What Isn’t Covered By Chargeback Insurance?

While chargeback insurance sounds like a safety net for businesses grappling with fraud, it's not a catch-all solution. Coverage may also vary according to vertical, scale, and other factors outside of your control. This is why understanding what isn't typically covered is just as important as knowing what is. 

Here are a few common limitations and exclusions of chargeback insurance:

Chargeback Insurance Options: A Quick Survey of the Market

Many fraud management vendors offer some form of chargeback protection in their merchant services platforms (usually for an additional fee). Verifi and Ethoca, for example, both offer fairly comprehensive chargeback alerts coverage.

They aren’t the only options out there, though. Examples of payment processors with some form of chargeback insurance offerings include:

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Built-in solutions are the most convenient, but sometimes, you need more targeted coverage. A number of fraud management service providers operate using a “chargeback guarantee” ( or “CBG”) model. This means that if a fraud solution provider screens and then recommends you accept a transaction, but that transaction results in a chargeback due to third-party fraud, the provider will cover the chargeback costs.

It’s important to fully weigh your options. The promise of comprehensive coverage is often greater than the return. And, as we’ll see below, knowing when chargeback insurance makes sense — and when it doesn’t — can save you a lot of money.

Other Issues to Consider

Chargeback insurance can be a great asset. However, there are several reasons why it should not be your primary solution for chargeback prevention:

Chargeback Prevention is the Best Insurance

Chargeback insurance isn’t a bad idea. However, preventing disputes from becoming chargebacks should be your top priority. Chargeback prevention tools are still your best bet here. As long as banks tend to regard chargebacks as a particular sort of ‘gray area,’ disputes are going to stick around for the long haul.

Keeping that in mind, make sure you and your employees fully understand and appreciate the process and its triggers. Here are just a few chargeback prevention tips you should incorporate into your chargeback strategy:

• Investigate suspicious orders before you fulfill them.
• Make sure your contact information is easy to find.
• Provide outstanding customer service, from purchase through item delivery.
• Make your shop policies crystal clear and highly visible.

Too many things can affect the outcome of a given dispute. Spending time and money on half-hearted protection schemes will not prove as effective as you would like. Instead, you should be focused on growing your business. That’s where we come in.

The fully-customized, turnkey, end-to-end chargeback solutions offered by Chargebacks911® can take chargebacks off your plate, delivering a guaranteed ROI. Prevent chargebacks. Recover revenue. Contact us today to learn more.