The Case for Cyber Insurance

In the dynamic and high stakes world of logistics, vulnerabilities can manifest in both unexpected and routine operations. Today’s supply chain is so complex that the many moving parts provide ample opportunity for crime and fraud. It’s a fact that organized groups are hijacking goods in North America with alarming frequency. Cargo theft incidents surged by more than 57% in 2023 alone, tallying reported losses amounting to over $1 billion (and that’s merely what’s been reported). 

The recent surge in cargo fraud and cybercriminal activities means that freight industry stakeholders, especially carriers and brokers, need to assess and manage their risks with the right coverage.

“Both motor carriers and freight brokers need cyber liability insurance, and the policy should include coverage for both financial loss and physical loss of goods,” said Jessie Merritt, Executive Vice President of sales for Reliance Partners. “The digital nature of our current theft environment requires a similar risk management approach.”

The nature of threats that freight companies face is continually evolving, which means that companies need comprehensive coverage strategies to safeguard against financial and reputational damage now more than ever.

“A lot of the claims we see now have an element of cyber crime, whether that’s a Bill of Lading being doctored, a social engineering attempt, or impersonation, like a bad actor posing as a legitimate motor carrier,” Merritt said. 

Today’s criminals are constantly adapting and they are leveraging technology to exploit weak links in the supply chain. Many of them employ tactics such as deep fakes and stolen identities to pose as legitimate entities within the logistics chain, or they purchase small trucking companies and run the freight for a while to learn the lanes, then begin stealing loads once their target begins trusting them. 

“In the freight industry, we used to think of cyber crime as wire fraud or phishing,” Merritt said. “Those issues are still relevant, but the level of attack we see today is different and it’s constant. It’s theft at a massive scale and the broker or carrier’s cyber environment is the most critical entry point,” she said. 

Given the intricate nature of freight fraud, having a comprehensive insurance policy is non-negotiable. At its core, a robust policy helps shield businesses from direct financial losses incurred through deceit and theft while also providing legal and logistical support to restore normalcy and mitigate reputational harm. 

As Merritt says, a lot of protection is afforded by a good cyber policy as long as the insurer will pay some element of property damage in a claim and not just monetary damage.

Freight fraud is a sophisticated form of crime targeting the industry. In one previously reported case, thieves intercepted a refrigerated container, demanding a $40,000 ransom. 

Companies would thus be advised to reassess their policies to make sure they’re suited for modern challenges.

“The theft landscape in the supply chain has evolved drastically,” Merrit said. “We are encouraging our clients to buy coverage in a way that reflects their risk. Rounding out coverage with cyber liability is now necessary to reduce that risk.”

To effectively counter cyber threats and other fraud, freight companies must adopt a multi-layered security strategy. This involves not only purchasing the right insurance coverage but also implementing comprehensive fraud prevention practices. Verifying subcontractor information, ensuring robust cyber security measures, and utilizing technology solutions like real-time location monitoring and identity alerts are some procedures everyone should consider. 

“Carriers and other transportation industry stakeholders are at risk from both straight theft and strategic theft simultaneously, but many cargo insurers exclude cyber events from their policy,” Merritt said. “You absolutely need a specific cyber policy to cover those incidents in today’s climate.”

Freight companies have to stay vigilant against evolving threats in the digital transformation of the supply chain. Comprehensive insurance, tailored to address both cyber threats and traditional physical fraud risks, is just one part of a critical safety net. 

“You need more than just reactive measures,” Merritt said. “You have to have some proactive prevention and comprehensive coverage.” 

Reach out to Reliance Partners today and schedule a call to discuss your specific exposure.