I work as an accountant at a small German fashion company, looking after customers and also dealing with insurance. In our company, you pay the suppliers who produce your designs approximately six months to a year in advance. As a company, you pay in advance and then have to hope that the goods sell according to the order volume. It's entirely possible that if the return rate is high and refunds are higher than income, you'll run into financial difficulties. There's no insurance for that; it's a business risk. Depending on the severity, such a situation can actually lead to insolvency. Salaries, taxes, social security contributions, customs duties, etc., all cost money on an ongoing basis. For example, as a business owner, you can protect your customers with trade credit insurance, which pays a maximum of 80% of the claim for non-paying customers. However, such insurance policies charge enormous sums, which also have to be paid on an ongoing basis. People underestimate the costs involved. First, salaries must be secured before customers can be repaid.
However, I don't know which insurance would cover poor production and high returns. If the supplier isn't aware of any fault, they won't refund your prepaid order. I think the suppliers have to make improvements first before they have to pay anything back. However, that also delays production by several months, and the company can't sell any goods. Consequently, no money comes in, and customers then want to be paid back for returns.