The Must-Have Insurance for Brokers: Contingent Auto Liability

  By: Roanoke Group

THE LIABILITY LANDSCAPE for the trade and transportation industry is changing. Carrier accidents on the road resulting in bodily injury and property damage (BIPD) claims pose a real financial threat to brokers, forwarders, and other transportation intermediaries. Recently, the number of large trucks involved in fatal crashes and the resulting jury awards have skyrocketed. Inconsistent application of the law has put the burden of these “nuclear verdicts” on not just the carriers but also the broker-forwarders responsible for hiring the carriers.

Contingent Auto Liability Coverage

When innocent citizens are injured or killed in a trucking accident, the liability assigned to the broker-forwarder may be broader than Contingent Auto Liability (CAL) is intended to address. Because the carrier who physically operates the motor vehicle is first in line for third-party BIPD claims, the intermediary’s exposure is considered contingent. CAL is intended to defend the intermediary against allegations of responsibility. However, when these claims play out in court, the broker-forwarders are often held accountable based on vicarious liability or negligent carrier selection.

Best Practices to Protect Your Business

CAL insurance is vitally important for every transportation intermediary who arranges for the movement of cargo by truck, and there are a few strategies broker-forwarders can employ to secure this coverage:

1. Establish a relationship with an experienced insurance broker specialized in transportation and logistics. The intricate, everchanging landscape of this industry requires an expert to identify exposures, explore risk transfer solutions with appropriate insurance companies, and present effective solutions.
2. Develop a consistent, repeatable process for carrier vetting. The insurance companies that do offer CAL coverage have implemented stringent underwriting guidelines to manage exposures and losses. They will expect a vetting strategy that includes verification of the carrier’s authority, SAFER score and valid insurance.
3. Review and hone marketing materials. Underwriters review the intermediary’s website and published documents to ensure broker-forwarders represent themselves as intermediaries. Any implication that the intermediary may be operating assets or taking a broader role in the transportation activity are red flags which may result in declination.
4. Conduct an audit of all contracts including your own terms and conditions and review the relationships and agreements between all involved parties. A transportation intermediary needs published “Terms & Conditions of Service” (Ts & Cs) which are effectively communicated to their clients to define the intermediary’s role in the process and outline the parties responsible for cargo damage, third-party bodily injury and property damage. When clients require agreement to terms outside the broker-forwarder’s Ts & Cs, the intermediary should utilize a standard broker/client contract format. These agreements are available to TIA members free of charge, and many legal professionals also provide these forms as part of their service.

Please contact us at 1-800-ROANOKE (866-934-8174) or via email at

infospot @roanokegroup.com for a comprehensive risk consult.

Disclaimer: The descriptions of coverage described above are generalized and are subject to the specific policy’s terms, conditions and exclusions. For full coverage details, please refer to the actual policy forms. This content is not an offer of insurance, nor does it provide insurance coverage to the reader.

 

The topic of uninsured cargo seems to rear its ugly head a lot, especially when incidents of extreme weather or other unplanned interventions hit the headlines. Many loads are not insured because the shipper either doesn’t understand the coverage they need, or else they do but that coverage proves too difficult to obtain. When travelling from point A to point B, a shipment may come across all kinds of jeopardy. For example, containers can fall off a ship due to bad storms. As a shipper, if this happens and you have liability cover in place, you may receive compensation to cover the loss of the container itself. But if the cargo inside is uninsured when the container falls off, you’re likely to have a sizeable problem, particularly if you’ve just lost a vintage Ferrari or the entire contents of someone’s house.

When Redkik founder Chris Kalinski was working as a shipper, one of his bugbears was arranging insurance for his loads. This led to the German-born, US-domiciled, businessman founding a company that aims to take the pain out of the insurance procurement process. Start-up insurance tech company Redkik enables shippers to insure their cargo instantaneously at the click of a button, a great leap from the hoops they have traditionally been used to jumping through.

Kalinski takes up the story: “I started a telematics company in 2005 doing primarily refrigerated temperature monitoring and refrigerator tracking. At that time, we were the first on the market; it wasn’t common like it is now. We were heavily focused on pharmaceutical transportation. Pharmaceuticals are a very specialized, highly regulated business, and very focused, so when we sold it to Orbcomm in 2014, I stayed on as a VP and ran the refrigerated vertical.”

“Then, somehow, I found myself buying 25 refrigerated trailers and starting a trucking fleet as a freight forwarder. That was my first run-in with purchasing insurance. I saw first-hand that buying insurance for trucking fleets is a cumbersome process and takes a long time. It’s always 20 questions, and it’s all based on historical performance, not on anything forward looking. You had to take the quotes at face value and just do and pay whatever the insurer asked.”

“When we scheduled shipments out of our warehouse, I needed at least a week – maybe two – before the cargo left our warehouse to call my insurance agent and get a one-off quote, in order to protect my customer. And it was hugely expensive. The other challenge was that we had to buy our total insurance portfolio upfront. We had 25 refrigerated trailers, and I had the pleasure of signing a cheque for $1.2 million before I could start trucking and solidify customers for revenue to offset that cost.”

Despite these frustrations, the business quickly became one of the bigger pharmaceutical distribution businesses on the US east coast. Using the knowledge of logistics and shipping he had acquired over the years, Kalinski left three and a half years or so later to join the marine cargo innovation team at reinsurance giant Munich Re as its in-house IoT consultant. That move turned the shipper into the insurer, and he was tasked with looking at the cargo market to see if it could be reinvented based on sensors, a seemingly perfect marriage of his former life and his current one.

“We went through an exercise to really analyze the market, asking ‘what does cargo look like today and what should it look like tomorrow?’ With my experience from the trucking side and sensor side, we came up with a parametric triggered product that we envisioned, wrote the technology spec for, built and then rolled it out in three years. That was great, but it taught me primarily that the cargo distribution market is really antiquated. Approximately half of all cargo shipped globally is uninsured.”

Transactional Insurance

This led Kalinski to wonder why the process of obtaining cargo insurance isn’t transactional in a sector where everything else is transactional. “I’m paying the driver by the mile, I’m paying for the truck by the mile, I’m paying for fuel by the mile, I’m paying unloading costs, loading costs, things like that, all on a transactional basis. The entire trucking industry is run on per-mile cost, except insurance. The insurance calculation is projected, meaning I won’t know until the end of the year whether the fleet actually drove the number of miles that I expected it to do and that my insurance costs were calculated correctly.”

Kalinski came up with an idea whereby data from various sources is congregated and accessed whenever a customer is seeking a quote for insurance. In a process familiar to anyone who has purchased insurance at the same time as buying an airline ticket, a price is calculated based on variable factors including value of load, distance to be travelled, weather, congestion, predicted arrival time, or incidence of theft in certain locations. In the case of the latter, the software would incentivize the shipper with a slightly lower insurance cost in order to avoid that route.

Kalinski says: “Another obvious thing is if we know there are going to be storms up and down the coast, we say you can ship today but we know that the storm will have passed next week and when everything is back to normal it’s going to cost you x percent less. We’re adding new data sources every day. So, by design it is evolving and getting smarter every day. A risk score of 14% probability of loss today may not be 14% next week. That’s the inherent dynamic that we’ve built into the back end.”

Another capability Redkik can offer is incentivizing shippers with lower insurance costs to choose routes that use less carbon. If the shipment is time-critical, it goes on an airplane. But if it’s not, it can go on a truck, or a boat and its insurance costs will be lower.

In practice, a shipper can receive an insurance quote instantaneously. Redkik’s API sees all the info that has just been entered in order to organize the shipment, and automatically within 500 milliseconds feeds back an insurance quote, that can be purchased at the click of a button. Once you click the button, you will get an email with all of the policy documents, the certificate of insurance, and anything else that you may need.

The rolling out of the Redkik solution didn’t come without its challenges. For example, putting large-scale contracts together with insurance companies takes a long time. “They’re traditional businesses, and they move notoriously slow, which clashes hard with the speed a startup moves at. So, we’re trying to find a happy medium to get it done. But other than that, I think we’re getting ready to see what the adaptation and conversion rates look like on the integrations, which should be really interesting. We should then be able to start putting customized insurance programs together for trade lanes or commodities that currently cannot get insured.”

So, what is the fun side of the business? “How well adapted my thought processes are to the needs of insurance carriers. That’s amazed me. I thought from the get-go, I’m never going to be able to convince insurance carriers to go along with this. But the response has been overwhelmingly positive. There was not one single meeting that we had with an insurance carrier where they said, this is not interesting for us.”

With an eye on the future, Kalinski says the next big thing could be replicating the solution for motor truck liability. “If my insurance cost per mile is 50 cents based on a fleet of 20 trailers driving 2 million miles a year, that’s ok. But if I can’t get drivers or loads or something else happens, and the fleet happens to only drive a million miles, then the insurance cost per mile is not 50 cents, it’s a dollar and the entire calculation goes out the window. That’s problematic for smaller carriers and especially for those growing a business aggressively that are in a somewhat volatile state. COVID showed us that all of the predictions were completely out of whack. So, if we would be able to transactionalize liability and cargo costs on a per-mile basis, that would be extremely helpful for all of the freight forwarders.”

The big insurers see Redkik’s solution as a win-win; with the guesswork effectively removed from the calculation, their coverage more accurately reflects the risk, whilst the shipper will also be more incentivized to purchase insurance now that the process has been simplified. “So far, the reception from the industry has been really, really positive,” concludes Kalinski. “We’re trying to be the best partner we can to all the insurance companies and then doing a whole mass of integrations into 3PLs, 4PLs and shipper systems. If we can help make that process easier for a large percentage of the shipments, then that’s a good goal.”

www.redkik.com

Source:  Logistics Business Magazine.

By: James Francis, Avalon Risk Management

In case you missed our Annual Bond Webinar hosted by TIA in August, the following is a recap of some of the claim topics covered during the webinar. MAP-21 has been in effect since October 2013 and requires property brokers to be licensed with the Federal Motor Carrier Safety Administration (FMCSA) and establish proof of financial responsibility in the form of a bond or trust fund agreement. A property broker can fulfil this requirement by obtaining a BMC-84 bond or BMC-85 trust fund agreement.

The TIA Bond Program

TIA offers the FMCSA mandated $75,000 Bond (BMC-84) to qualifying property brokers and domestic freight forwarders. In addition, TIA members can obtain bonds with higher limits in the amounts of $100,000 or $250,000. Avalon handles all claims that are submitted in accordance with MAP-21 regulations.

The bond is in place to protect carriers against broker insolvency and a broker’s failure to pay freight charges owed to the carrier for services rendered. The bond is in place only to cover unpaid freight charges and is not able to cover lost or damaged goods, or damage to property. Under MAP-21 regulations, the surety must respond to the claim on or before the 30th day on which the notice is received. 

What happens if a claim is filed against your bond?

If a claim is filed, we will notify you of the open claim. You are given the opportunity to pay the claim or provide a written dispute. If payment has been made or is pending, we will request proof of payment. If there is a dispute over the invoice, the dispute should be supported with agreed upon terms of a rate confirmation or a broker-carrier agreement.

Broker Insolvency

If claims are unresolved after 30 days, the surety must investigate the broker for suspected insolvency.
Insolvent brokers are published for 60 days on our website, in accordance with 49 USC 13906, as amended by Map-21, Division C, Subtitle I, Section 32918.

Payment of claims

According to the regulations passed by MAP–21, the surety may only pay a claim if one of three conditions are met:
(i) subject to the review by the surety provider, the broker consents to the payment.
(ii) in any case in which the broker does not respond to adequate notice to address the validity of the claim, the surety provider determines that the claim is valid; or iii) the claim is not resolved within a reasonable period of time following a reasonable attempt by the claimant to resolve the claim under clauses (i) and (ii), and the claim is reduced to a judgment against the broker.

The surety must pay all valid claims received before or during the 60-day advertising period. After the advertising period has concluded, the surety will review all remaining valid claims received. Payment will be made in whole if total claims are under the bond amount. However, if total claims received are over the bond amount, the surety will issue payment on a pro-rata basis. In the event that the surety issues payment from the bond, the broker is responsible for reimbursement to the surety for any claim payments.

Exclusions

There are instances where a claim may not be considered valid. There are three main exemptions found under 49 USC 14705:
• Claims must be submitted to the surety within 18 months of the shipment pickup date. If a claim is submitted to the surety beyond the 18-month statute of limitations, we are unable to accept the claim.
• The bond cannot cover claims containing exempt commodities. If a shipment contains exempt commodities, mostly produce, agricultural commodities, dairy, and poultry, the claim is exempt from coverage.
• If a shipment does not cross a state or federal line at any point during the shipment, it is exempt from coverage

For a comprehensive list of commodities that are considered exempt, please visit

https://www.fmcsa.dot.gov/sites/fmcsa.dot.gov/files/docs/Administrative_Ruling_119.pdf

Additionally, if the claimant does not have active carrier authority at the time of the shipment, the claim is not considered valid. A motor carrier must be licensed with the FMCSA and have active motor carrier authority at the time that the shipment took place.

Lastly, if a claimant is not a motor carrier or shipper operating as a motor carrier, we cannot accept the claim. The bond language states that the bond is for the benefit of motor carriers and shippers by way of motor carrier. If a claimant is not operating in the capacity of a motor carrier, they are not considered a valid party to the bond.

Best Practices

• Have clearly defined terms and conditions in any contract with carriers.
• Acknowledge receipt of clam as soon as possible and forward to the appropriate party for a response.
• The surety only has 30 days to respond. If there is a dispute, provide information on the dispute as soon as possible for the surety to make a decision and resolve the claim.
• To aid a disputed claim, provide the Broker- Carrier Agreement on file with the carrier and reference any terms of the agreement that support your dispute.
• Since the surety only has 30 days to respond, the sooner you can provide information on your dispute, the sooner we can issue a decision and resolve the claim.

Claim Trends

• A deduction was made against the carrier for late delivery or missed appointments.
• The carrier billed unapproved accessorial charges.
• A deduction was made against the carrier for noncompliance with tracking requirements.
• There is an unresolved damage claim against the carrier and an offset has been placed against them.

Having a bond through the TIA Bond Program allows you the peace of mind that claims are not automatically paid and are handled in accordance with MAP-21.
For more information on the application process, please visit www.tianet.org/tiabond.

If you have any questions regarding claims against your bond or MAP-21 regulations, you may contact the TIA claims department at (847) 235-6283 or via email at claims@tiasuretyclaims.com

We hope you benefited from our Annual Bond Webinar hosted by TIA. In case you missed it, the following is a recap of some of the claims topics covered during the webinar.

MAP-21 has been in effect since October 2013 and requires property brokers to be licensed with the Federal Motor Carrier Safety Administration (FMCSA) and establish proof of financial responsibility in the form of a bond or trust fund agreement. A property broker can fulfil this requirement by obtaining a BMC-84 bond or BMC-85 trust fund agreement.

The TIA Bond Program

TIA offers the FMCSA mandated $75,000 to qualifying property brokers and domestic freight forwarders. In addition, TIA members can obtain bonds with higher limits in the amounts of $100,000 or $250,000 and Avalon handles all claims that are submitted in accordance with MAP-21 regulations.

The bond is in place to protect carriers against broker insolvency and a broker’s failure to pay freight charges owed to the carrier for services rendered. The bond is in place only to cover unpaid freight charges and is not able to cover lost or damaged goods, or damage to property. Under MAP-21 regulations, the surety must respond to the claim on or before the 30th day on which the notice is received.

What happens if a claim is filed against your bond?

If a claim is filed, we will notify you of the open claim. You are given the opportunity to pay the claim or provide a written dispute. If payment has been made or is pending, we will request proof of payment. If there is a dispute over the invoice, the dispute should be supported with agreed upon terms of a rate confirmation or a broker-carrier agreement.

Broker Insolvency
If claims are unresolved after 30 days, the surety must investigate the broker for suspected insolvency.
Insolvent brokers are published for 60 days on our website, in accordance with 49 USC 13906, as amended by Map-21, Division C, Subtitle I, Section 32918.

Payment of claims
According to the regulations passed by MAP–21, the surety may only pay a claim if one of three conditions are met:
(i) subject to the review by the surety provider, the broker consents to the payment;
(ii) in any case in which the broker does not respond to adequate notice to address the validity of the claim, the surety provider determines that the claim is valid; or, (iii) the claim is not resolved within a reasonable period of time following a reasonable attempt by the claimant to resolve the claim under clauses (i) and (ii), and the claim is reduced to a judgment against the broker.

The surety must pay all valid claims received before or during the 60-day advertising period. After the advertising period has concluded, the surety will review all remaining valid claims received. Payment will be made in whole if total claims are under the bond amount. However, if total claims received are over the bond amount, the surety will issue payment on a pro-rata basis. In the event that the surety issues payment from the bond, the broker is responsible for reimbursement to the surety for any claim payments.

Exclusions
There are instances where a claim may not be considered valid. There are three main exemptions found under 49 USC 14705:
• Claims must be submitted to the surety within 18 months of the shipment pickup date. If a claim is submitted to the surety beyond the 18 month statute of limitations, we are unable to accept the claim.
• The bond cannot cover claims containing exempt commodities. If a shipment contains exempt commodities, mostly produce, agricultural commodities, dairy, and poultry, the claim is exempt from coverage.
• If a shipment does not cross a state or federal line at any point during the shipment, it is exempt from coverage

For a comprehensive list of commodities that are considered exempt, please visit https://www.fmcsa.dot.gov/sites/fmcsa.dot.gov/files/docs/Administrative_Ruling_119.pdf. 

Additionally, if the claimant does not have active carrier authority at the time of the shipment, the claim is not considered valid. A motor carrier must be licensed with the FMCSA and have active motor carrier authority at the time that the shipment took place.

Lastly, if a claimant is not a motor carrier or shipper operating as a motor carrier, we cannot accept the claim. The bond language states that the bond is for the benefit of motor carriers and shippers by way of motor carrier. If a claimant is not operating in the capacity of a motor carrier, they are not considered a valid party to the bond.

Best Practices
• Have clearly defined terms and conditions in any contract with carriers.
• Acknowledge receipt of clam as soon as possible and forward to the appropriate party for a response.
• The surety only has 30 days to respond. If there is a dispute, provide information on the dispute as soon as possible for the surety to make a decision and resolve the claim.
• To aid a disputed claim, provide the Broker- Carrier Agreement on file with the carrier and reference any terms of the agreement that support your dispute.
• Since the surety only has 30 days to respond, the sooner you can provide information on your dispute, the sooner we can issue a decision and resolve the claim.

Claim Trends

An analysis of our claims data indicates an increasing number of claims received for the following reasons:
• A deduction was made against the carrier for late delivery or missed appointments.
• The carrier billed unapproved accessorial charges.
• A deduction was made against the carrier for noncompliance with tracking requirements.
• There is an unresolved damage claim against the carrier and an offset has been placed against them.

Having a bond through the TIA Bond Program allows you the peace of mind that claims are not automatically paid and are handled in accordance with MAP-21.
For more information on the application process, please visit https://www.tianet.org/tiabond/.

If you have any questions regarding claims against your bond or MAP-21 regulations, you may contact the TIA claims department at (847) 235-6283 or via email at claims@tiasuretyclaims.com .

Author: James Francis, Avalon Surety Claims Lead, Education Dept.

Insurance in the 3PL space has evolved over the past decade. Does it sound backwards that exciting innovations in this arena have led to wariness among insurance providers, supported by an unprecedented cadence of claims? Innovation should be enthralling, though it has caused some big pivots for insurance providers of 3PLs.

What this means is that a traditionally static industry has become fluid in order to accommodate the changing landscape of risk management. It has been highly publicized that freight brokers and their insurance partners are being named in lawsuits and claims in which they may not even be liable. Freight brokers are easy targets in litigation being directly involved with a majority of the over-the-road shipments in the US. This necessitates their having to respond to claims which is a financial burden on both brokers and insurance companies.

Even the ways in which a 3PL may be found liable have shifted, causing insurance markets to have to pay out on a broader variety of claims situations or deny their trusting clients’ claims altogether. These changes and innovations have reformed the ways in which insurance providers are willing to work with clients, and have even changed the roster of insurance providers willing to write 3PL coverages – companies keep bowing out altogether.

Where did it start? With the misconceptions of insurance agencies.

Like with any trend generating revenue, property/ casualty insurance agencies who didn’t have a firm grasp on transportation risk jumped at the thought of 3PLs being lucrative clients. Several of these markets jumped head first into the logistics pool customizing coverages which sound like logistical coverages, but don’t necessarily respond as described. Think of an experienced market writing a true Contingent Cargo form versus a less experienced but eager market writing a Contingent Property in Transit Floater coverage. Their Floater coverage may be seen as more of a business personal property coverage for goods in transit, but isn’t created to necessarily respond in the same fashion or cover the full value of brokered goods. In a land grab, many of these inexperienced in transportation markets wrote coverage for as many 3PLs as possible without having seen true loss history or knowing the premium to claims ratio they would experience.

Cue reality – policies designed by emulating true logistical coverages had to decide how they would respond to the variety of claims which were being filed against freight brokers. Workers Compensation markets struggled to reconcile an employee who works out of an office but is closely connected to over the road truckers. As claims began to stack up, some markets took major losses at a higher frequency than anticipated. These losses would impact their pricing for the core business outside of transportation as well, raising their premiums across the board. This unappetizing loss ratio was becoming a common occurrence as freight brokers were increasingly looped into nuclear verdict cases which have put both transportation companies and their insurance providers in the most challenging situations.

On the other side of the coin, some markets decided to limit their liability and cost by exercising an OPTION to defend their 3PL clients instead of a DUTY to defend clients in the event of a claim, which is now more common. Freight Brokers could see that many of these insurance markets didn’t offer true protection in their policies and claims were getting denied at a high frequency.

What was the result of clients feeling misled by weak coverages and standard property/ casualty insurance companies being in over their skis on claims? An exodus of insurance markets able to write these coverages. In the past seven years, numerous reputable insurance markets have pulled out of the 3PL game and each time they do, other agencies are either strengthened in absorbing their clients or weakened in dealing with more losses and then having to sell at higher premiums to offset said losses.

There are fewer insurance companies writing coverage for the modern 3PL and it may be speculated that another few insurance markets could be dropping out of writing coverage in the coming years. The direct response to the limited number of insurance companies currently playing ball and their higher number of losses is increased premiums across the board.

Freight brokers have asked, “If I have no losses and my revenue hasn’t increased, why are some markets quoting higher prices than last year?”

While most insurance quotes will be rated on the gross freight receipts of a 3PL, the sheer volume of losses has raised the rate at which many 3PLs will be rated. This means that even if the same GFRs are maintained year over year, losses on cargo could raise every company’s cargo premium across the board in a certain market.

Does this mean that the freight broker insurance landscape is becoming monopolistic with fewer major players?

Not necessarily, and with good news attached. Most of the market leaders who have pulled to the top of insurance underwriting are specialized in their approaches to risk management. As with evolution, the strongest are forefront and able to absorb the large cadence of claims and continue to support their transportation clients. We are seeing the strongest and most innovative coverages on everything from usage-based cargo solutions to auto liability limits of coverage extending higher than were previously attainable for the price. Even if insureds only have their pick of the 4 – 7 top insurance markets, their broker/agents have the task of knowing coverages and market highlights in order to assign clients the best markets for their needs.

What we may see is a deeper loyalty to insurance markets from their clients and agents. Doing right by a client is as effective as ever in winning and keeping business. Conversely, those same insurance markets doing wrong by clients could lead to fewer submissions, binds, and less financial stability. There are exciting times ahead as insurance continues to pace with the innovation of 3PLs. Risk may be evolving, but risk management is making leaps and bounds to predict the coming trends in what was once seen as a more static industry. Finding the right broker/agent to help navigate the changing landscape is crucial now more than ever to ensure a 3PL isn’t getting an “off the rack” policy which may look great on a COI but has so many exclusions it excuses itself from many claims situations.

Reliance Partners is the nation’s fastest-growing and most diverse insurance brokerage with a sole focus on the logistics and transportation space. Their Logistics Team writes coverage for 50 of the top 100 freight brokerages in the country as well as that of the ambitious new venture and everything in between. Reliance leverages its relationships with the top insurance markets to find the best coverage for each 3PL client. Graham Gonzales manages Reliance Partners’ non-insurance partnerships and is a licensed insurance agent for the modern 3PL.

Marketplace- Reliance Partners