In an environment where rates are so low that carriers are struggling to turn a profit, cost-cutting measures are vital. Only not every cost should be cut. Insurance, while one of the higher costs for motor carriers and freight brokers, is the one thing that can protect a company from massive loss. Jessie Merritt, Reliance Partners’ executive vice president of sales, was on a recent episode of WHAT THE Truck?!? to break down the importance of insurance and knowing what is covered under a current policy.
“One of the most important things to consider when it comes to scaling and growing a [trucking] company or freight brokerage is that it’s critical that your claims get paid,” Merritt said. “There is no right or wrong way to buy insurance as long as you know what you’re buying and you know what’s covered.”
For example, most motor carrier policies have a towing supplement, which typically falls under physical damage. This supplement typically covers about $10,000-$15,000 in tow truck services. It’s not out of the ordinary for a wrecker service to charge more than that depending on distance traveled, any additional vehicles needed, the state the accident occurs in and a multitude of other factors. So a tow could open the carrier up to a sizable loss without proper coverage.
Most carriers have a stronger understanding than freight brokers of what their insurance covers. More recently, though, freight brokers have started carrying their own insurance so they don’t have to rely on just the carrier’s insurance.
Merritt breaks down the three most common insurance policies for brokers. “Contingent cargo is only going to pay its contingent upon the failure of the motor carrier’s coverage. It will take awhile to get a denial from their insurance, which will take awhile for the shipper to be made whole. It’s a challenge if the shipper can’t wait a while for payment. The second type is cargo legal liability. It will pay if you’re legally liable for the cargo, [through a] written contract or verbal agreement. The third is shipper’s interest. If the shipper has an interest in the claim being paid, it will be paid. Know what you bought and what the common exclusions are.”
When theft or loss occurs, it’s important to cooperate with local authorities even though the volume of claims and thefts is overwhelming to law enforcement. It’s crucial that carriers and brokers have information ready for the police report, and if stolen or lost cargo is found, it’s of utmost importance to go get it as there isn’t space for the police to hold it.
What can fleets do to mitigate costs? According to Merritt, there are a few options for motor carriers. It could be, “take on a deductible or a retention depending on size. Look at all insurance policies to see if you feel like you’re getting a fair shake in the marketplace, and make sure your agent is going out to market and getting you competitive rates. On the liability side, make sure your house is in order with safety scores and inspections. Safety scores have a big bearing on insurance premiums as well as claim history.”
With the rise of cargo theft in various forms, it’s more prevalent now that brokers and motor carriers have more sustainable insurance coverage. Insurance companies are in business to be profitable, and the theft trend is having a negative impact on the insurance industry – to the extent that their losses over time are going to prompt some to restrict coverage.