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In recent years, major e-commerce platforms have made shipping insurance a standard offering for sellers, especially during big promotions like the 618 Shopping Festival. While this insurance ostensibly benefits consumers by facilitating easy returns, it has also become a target for fraudsters, creating a black market for exploiting shipping insurance.

The Business Behind "Shipping Insurance"

During the recent 618 Shopping Festival, many e-commerce platforms required participating merchants to offer shipping insurance. Seller Xiao Xiao experienced a surge in return rates, with about one-third of orders resulting in immediate refunds. Fraudsters ordered the cheapest items, utilizing shipping insurance to exploit the system, causing significant losses.

Another seller reported that out of 10,000-20,000 monthly orders, at least 300 were fraudulent, exploiting shipping insurance. Fraudsters use a loophole between the average shipping cost reimbursed by insurance and the actual lower shipping cost to pocket the difference. For example, returning an item from Heilongjiang to Yiwu might get a 13 yuan reimbursement, while only costing 8 yuan to ship, netting a 5 yuan profit per transaction.

Most consumers don't engage in such behavior, as frequent returns are monitored by e-commerce platforms, potentially leading to account restrictions. However, fraudsters use software to create numerous virtual phone numbers for bulk ordering and returns, making detection difficult. This fraudulent activity has become a clandestine industry with online tutorials available.

Legal Perspective

During the 618 Shopping Festival, platforms like Taobao provided nearly 450 million yuan in shipping insurance subsidies to merchants. Despite these efforts, the subsidies are insufficient against large-scale fraud.

Zhao Zhanling Esq., a researcher at China University of Political Science and Law and attorney at Javy Law Firm, explained that fabricating transactions and frequently returning goods to claim insurance is illegal. According to judicial interpretations, insurance fraud involving over 50,000 yuan constitutes a crime.

Zhao emphasized that shipping insurance is not mandatory; consumers and merchants choose to purchase it voluntarily. If e-commerce platforms force purchases, affected parties can report to market regulators.