Recent trucking market conditions have made it harder for carriers to turn profits as carrier costs continue to rise, but rates are not following the same trend. Some carriers have had to take freight at a loss to keep trucks running.
When it comes to major expenses for carriers, the top four are fuel costs, truck/trailer lease payments, repair and maintenance, and insurance premiums. According to an American Transportation Research Institute survey that looked at 2023 costs compared to 2022 costs for carriers, truck insurance premiums were up 12.5% on average compared to 2022.
With insurance being a massive part of a carrier’s operating budget, it raises questions, like what exactly is carrier insurance, and what are the benefits and pitfalls of different policies?
Andrew Haun, SVP of Sales, Strategic Accounts at Reliance Partners said, “At its most basic form cargo insurance is insurance that protects goods or the property of others while being transported. Carriers need insurance because while the cargo is under their care, it’s their responsibility. For example a 10-unit trucking company could be responsible for $1 million in property of others at any given time.”
The Federal Motor Carrier Safety Administration requires motor carriers to hold a minimum of $750,000 of liability insurance, which isn’t applicable to cargo insurance, in order to attain authority to operate on the roads. Certain states have their own minimums for companies doing business or domiciles in the state.
The standard coverage form is perfect for most drivers, but there is a whole host of specialized insurance policies for different types of freight. Haun says, “[Specialized cargo] is generally covered under endorsement to the standard cargo coverage form. Many of these have additional liability requirements and equipment restrictions. Examples would be the following:
perishable goods, high-value items, hazardous materials, heavy machinery and equipment, oversize/overdimensional, live animals, bulk cargo, items hauled in dump trucks, specialized vehicles and moving operations.”
Insurance exists to protect everyone involved if there is an accident, damage or some other serious situation. When there isn’t insurance or a proper level of coverage in place, not only is that carrier, driver, shipper, receiver or broker on the hook financially, but it can also damage the reputation of a reliable and trusted carrier.
It may seem straightforward that carriers need to get carrier insurance, but there’s more to it than that. Where a carrier procures cargo insurance can matter as much as the actual valuation of the policy itself.
When it comes to where to get a policy and why it matters, Haun says, “I’d say that the number one thing is speed of claim adjustment. Making the broker whole so that the shipper/receiver is whole as soon as possible is generally the best course of action as maintaining a good relationship in this space is crucial to future benefit. Second is that the motor carrier isn’t coming out of pocket further to make any party whole. I find that a lot of young motor carriers do not value the total spend/coverage ratio enough. They often look for the best price as primary and coverage secondary. The whole reason you’re purchasing this coverage is so that you don’t have to fork out your own hard-earned dollars to make somebody whole.”
One claim for damaged cargo could be $100,000, a sum most carriers don’t have lying around. It’s a huge risk for a carrier to be expected to pay out a large sum of money and also repair any damage to the company’s own property on top of the claim payout. One claim could potentially wipe out a small to medium-size carrier.
Cargo theft is on the rise as well, and the increase in theft claims is one of the top reasons for insurance rate increases, compared to claims as a result of natural disasters or other issues. The problem has progressed so dramatically that it’s causing some insurers to exclude it from policies.
Haun adds: “Due to the increase in theft, many insurance carriers are excluding theft on their standard policy form. This is something that an agent should make the motor carrier aware of and should absolutely be recommended to be purchased back and added on to the policy. Most damages are covered under standard cargo forms, as long as the specific commodity exposures have been discussed, underwritten and included in the policy form. Every cargo policy should be tailored to each individual motor carrier.”
Not every carrier will have the same policy or the same requirements. For example, a carrier that hauls dry van cargo and heavy machinery will have different needs and policies than a carrier that hauls primarily dry van cargo. While there is a basic policy that can cover most carriers, it still isn’t a one-size-fits-all situation.
As for why natural disasters aren’t a bigger problem for carriers insurance, Haun says, “Natural disasters are another story. Due to the Carmack Amendment, which was introduced as part of the Interstate Commerce Act of 1906, the insured (motor carrier) is absolutely liable for all losses, except for 5 causes: act of god, public enemy, shipper error, quarantine, or inherent vice.”
