In recent months, state regulators have begun challenging programs that promise reimbursement for property damage or shipping losses but may be operating as unauthorized insurance products. In one high-profile example, a state bureau of insurance questioned whether a platform’s “host damage protection” program — which promises participants up to $3 million in reimbursement — is really a guarantee or an insurance product requiring licensure. The platform says it’s the former; regulators appear to believe it’s the latter.

The question regulators are asking — whether a product is really insurance based on how it functions, not just what it is called — is the same question that has been raised across the broader "protection" economy for years. Shipping protection is one of the clearest places where that question matters, and one of the places where merchants and logistics operators often have the least visibility into the risk they may already be carrying.

The label doesn't determine the legal category

When a customer pays a separate fee in exchange for protection against a loss outside anyone's control, like a stolen package or a shipment damaged in transit, that arrangement can be treated as insurance in many states, depending on how it is structured and which exemptions may apply. A product does not become non-insurance simply because it is called a "protection plan," a "guarantee," or a "tech-enabled solution."

That is the core problem in this market. Some shipping protection programs are run through licensed insurance structures, with a real insurer assuming the risk. Others rely on unlicensed third-party apps, merchant-managed claims processes, or DIY reimbursement models that may resemble insurance without being set up as one. The label on the checkout page does not determine the legal category.

Calling the product a "warranty," a "protection plan," “self-insurance,” or a "guarantee" doesn't resolve the underlying structure. This is exactly the argument regulators have made in recent enforcement actions: who is taking the risk, who is deciding claims, and whether the structure aligns with insurance law. If it walks like insurance and functions like insurance, the fact that it is branded as a guarantee does not necessarily settle the issue.

Guarantee: A promise by one party to fulfill an obligation or ensure a result, often backing someone else’s performance or payment.

Insurance: A risk transfer contract where an insurer agrees to compensate for covered losses in exchange for a premium.

Regulators and courts have put the market on notice

The National Association of Insurance Commissioners issued a consumer alert in July 2024 specifically warning against unlicensed entities selling package protection coverage. The Oklahoma Insurance Department and Utah Insurance Department have each published state-level warnings. Oklahoma's guidance is direct: "Legitimate shipping insurance providers will be licensed companies or producers."

Enforcement has already reached this space. In 2023, a state insurance department required a major platform to secure a surplus lines policy through a licensed broker, imposed a $20,000 fine, and mandated a review of all past claims for improper denials. Other states appear to be taking the same approach, making clear they expect platforms operating these programs to either become licensed or engage a licensed carrier to underwrite the product.

The consequences aren't limited to regulatory action. In recent months, proposed class actions have been filed against shipping protection providers alleging that their products constitute unlicensed insurance under state law. These lawsuits argue that consumers who paid for the product received no protection backed by the guarantees state law provides to policyholders of licensed insurers. These cases are still pending, so the claims are only allegations at this stage, but they show the same underlying issue showing up in shipping protection: a product may be marketed as convenience or peace of mind, while plaintiffs and regulators question whether it is actually insurance.

The merchant bears the risk, not the app

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When a merchant embeds unlicensed shipping protection in their platform, the regulatory and legal exposure in some cases belongs to the merchant, not the app or technology provider.

For merchants and logistics operators who have embedded unlicensed shipping protection into their platforms, the mechanism of exposure deserves to be understood clearly. If a state insurance department determines that an unlicensed insurance transaction occurred, the exposure usually lands on the entity offering or distributing the product. That may be the merchant, the platform, or the app provider, depending on how the program is set up and who is actually controlling the risk transfer and claims process. In other words, the legal risk does not disappear just because a third party built the software.

That is why recent enforcement actions matter beyond any single industry vertical. Regulators are not saying every reimbursement program is illegal. They are asking whether specific structures are really insurance products, regardless of the label attached to them. Merchants running embedded shipping protection should assume regulators may ask the same question about their checkout flow.

California consumer protection attorneys have specifically noted that unlicensed shipping insurance offerings can serve as the basis for civil lawsuits under the California Unfair Competition Law, with per-transaction exposure for each consumer who paid for the product. For a program that has processed thousands of transactions, that math gets uncomfortable quickly.

What compliance looks like

The compliant structure isn't complicated, but it needs to be real. It requires a licensed insurance producer, an actual insurance policy, and a licensed insurer standing behind the risk. That may include a licensed producer, a surplus lines placement, or another properly structured arrangement, depending on the state and the product.

The first step to compliance is simple. The NAIC maintains a public licensee lookup that allows anyone to confirm whether a provider is licensed in their state. That is a lot easier than discovering the problem after a regulator, plaintiff's attorney, or consumer complaint has already turned it into a legal issue.

What this means for merchants

For 3PLs, logistics providers, and marketplace operators building embedded insurance into their platforms, the takeaway is straightforward. The fact that enforcement has been uneven doesn't mean the exposure isn't real. Recent regulatory actions and class action filings are useful reminders that regulators and plaintiffs' attorneys do get there eventually. A well-known brand name offers no protection from the underlying legal argument.

Cabrella is a licensed shipping insurance provider. The programs we build with partners are backed by an actual insurance policy, administered by licensed adjusters, and structured to hold up to the kind of regulatory scrutiny now being applied across the industry. That's not a differentiator we invented. It's what the law requires — and what a surprising number of programs in this space don't actually deliver. Cabrella is not a law firm. You should consult a licensed attorney in your state for additional information about legal requirements that apply to your business.

If you're building an embedded shipping insurance program, or reconsidering one you're running, we're happy to walk through what compliance looks like in practice.