What is freight insurance and why is it important?

Recent conditions in the trucking market have made it more difficult for carriers to make a profit as costs for carriers continue to rise, but rates are not following the same trend. Some carriers have had to purchase freight at a loss to keep trucks running.

When it comes to the top expenses for carriers, the top four are fuel costs, truck/trailer lease payments, repairs and maintenance, and insurance premiums. Truck insurance premiums averaged 12.5% ​​higher than 2022, according to a study by the American Transportation Research Institute that looked at 2023 costs compared to 2022 costs for carriers.

Because insurance makes up a large portion of a carrier’s operating budget, this raises questions such as what exactly is transportation insurance and what are the benefits and pitfalls of different policies?

Andrew Haun, SVP Sales, Strategic Accounts at Reliance Partners said: “At its most basic, freight insurance is insurance that protects the goods or property of others while they are in transit. Carriers need insurance because as long as the cargo is in their care, it is their responsibility. For example, a 10-unit trucking company could be responsible for $1 million worth of other people’s property at any given time.”

The Federal Motor Carrier Safety Administration requires motor carriers to maintain a minimum of $750,000 in liability insurancewhich does not apply to freight insurance, to obtain authority to operate on the road. Certain states have their own minimums for companies doing business or located in the state.

The standard coverage form is perfect for most drivers, but there are a whole range of specialized insurance policies for different types of freight. Haun says, “(Specialized freight) is generally subject to the approval of the standard freight coverage form. Many of these have additional liability requirements and equipment limitations. Examples include the following:

perishable goods, high value items, hazardous materials, heavy machinery and equipment, oversized/over dimensional, live animals, bulk goods, items transported in dump trucks, specialized vehicles and moving operations.”

Insurance exists to protect everyone involved in the event of an accident, damage or other serious situation. Without insurance or an appropriate level of coverage, that carrier, driver, shipper, consignee or broker is not only on the hook financially, but it can also damage the reputation of a reliable and trusted carrier.

It may seem simple that carriers need to take out transportation insurance, but there is more to it. When a carrier purchases cargo insurance, it can be just as important as the actual value of the policy itself.

When it comes to where to get a policy and why it matters, Haun says, “I would say the most important thing is the speed of the claim adjustment. It is generally the best way to make the broker healthy so that the sender/receiver is healed as quickly as possible, as maintaining a good relationship in this area is crucial for future benefit. Secondly, the car carrier does not come out of its own pocket to complete a party. I notice that many young motor carriers do not sufficiently appreciate the total spending-coverage ratio. They often look for the best price as primary and coverage as secondary. The whole reason you buy this coverage is so you don’t have to spend your own hard-earned dollars to get someone healthy.

One claim for damaged freight can reach $100,000, an amount most carriers don’t have around. It is a huge risk if a carrier is expected to pay out a large sum of money and repair any damage to the company’s own property in addition to compensation. One claim could potentially wipe out a small to medium-sized airline.

Cargo theft is also on the rise, and the increase in the number of theft claims is one of them main reasons for increases in insurance rates, compared to claims resulting from natural disasters or other problems. The problem has developed so dramatically that some insurers have excluded it from their policies.

Haun adds: “Due to the increase in theft, many insurers are excluding theft on their standard policy forms. This is something that an agent should make the motor carrier aware of and should absolutely recommend repurchasing and adding to the policy. Most damages are covered under standard freight forms, as long as the specific commodity exposure is discussed, endorsed and included in the policy form. Any freight policy must be tailored to each individual motor carrier.”

Not every carrier will have the same policies or requirements. For example, a carrier that transports dry freight and heavy machinery will have different needs and policies than a carrier that transports primarily dry freight. While there is a basic policy that covers most carriers, it is still not a one-size-fits-all situation.

As for why natural disasters aren’t a bigger problem for carrier insurance, Haun says, “Natural disasters are a different story. As a result of the Carmack Amendment, introduced as part of the Interstate Commerce Act of 1906, the insured (motor carrier) is absolutely liable for all losses except for five causes: act of God, public enemy, shipper’s fault, quarantine, or inherent vice .”

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