The ongoing coronavirus epidemic has fueled the need for insurance of different essential and non-essential products, and gift cards are one of them. Uncertainty towards the business operation of retailers due to lockdown and economic turmoil is creating scope for gift card insurance. Retailers are focusing to mitigate the risk associated with gift cards; therefore, it is expected that the collaboration between retailers and insurance companies will rise over the years.
Though this trend is limited to certain markets, it does address some of the key issues impacting the gift card industry. It remains to be seen if this can evolve as a global trend from a medium to long term point of view.
The demand for gift card insurance is rising
Globally, gift cards have emerged as a great way to reward friends, family members, and or reimburse customers. Gift cards have become increasingly popular as it allows the gift card holder the freedom to choose and spend on what they need.
However, unlike physical assets such as cash, gift cards are also vulnerable to theft, lost, misplaced, and destruction. Additionally, every year many gift cards expire due to time restriction. Moreover, given in the present socio-economic turmoil, due to COVID-19, the uncertainty towards gift card redemption is becoming a rising concern, particularly in offline mode.
As a precautionary step to prevent the spread of the virus, the nationwide lockdown has emerged as a primary option all over the world. However, the fear of stores not opening any time soon and losing the money stored in these gift cards is discouraging consumer’s sentiment towards gift cards. Therefore, these factors together are creating the demand for gift card insurance.
Insurance companies are gearing up to tap the market
Economic slowdown due to COVID-19 is largely affecting retailers. Low footfall and restriction on delivering non-essential items are affecting these retailers and it is becoming difficult to stay afloat. Therefore, retailers are encouraging consumers to buy gift cards that they can easily redeem after the stores reopen. However, uncertainty about the lockdown period and their existence have put on a question mark on the gift cards they are issuing. To capitalize on the trend, insurance companies are showing interest in sharing the risk associated with these gift cards.
In April 2020, Erie Insurance, a US-based insurer has extended its coverage to gift card/certificate reimbursement for its homeowners’ policies. The new scheme, which came into effect on May 1, is for policyholders based in Virginia, without any extra cost. According to the company, a policyholder can reimburse up to US$ 250 per card they have purchased from independently-owned and local retailers and if they close their operation within a year from the date of purchase of the gift card.
Retailers should add insurance to reassure customers buying gift cards
Gift cards are one of the easiest ways for retailers to gain profit and customer loyalty. Therefore, the retailer’s concentration on the gift card segment will remain high. However, retailers are primarily lacking to provide any assurance to cardholders from any uncertain business or economic activity from which customers can lose the amount stored in the gift card. For instance, the uncertainty arising in business performance due to ongoing coronavirus pandemic.
To encourage customers for buying gift cards, retailers need to share the risk associated with it. It is expected that retailers will be involved in building partnerships with insurance companies to offer insurance for their gift cards in the short to medium term.
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