Insurance can be a boring topic for most folks in the freight brokering world, but you shouldn’t overlook it. Insurance is a product that we purchase to offset the risks of doing business in this industry. While all policies aren’t legally required, there’s benefit to knowing what is available and how it can save you from headaches. We recently did an episode on Freight 360 with Melt Godwin of TI Advisors where we discussed the ins and outs of insurance for brokers. Make sure to check that out for a deep dive into this topic. In the meantime, let’s look at some insurance policies and coverage types that you should understand.
Freight Broker Bond
The FMCSA requires all freight brokers to have in place either a freight broker trust fund in the amount of $75,000 or a freight broker bond worth $75,000. This bond requirement was updated from $10,000 effective January 1st, 2013 via The Moving Ahead for Progress in the 21st Century Act (MAP-21), passed by the Obama Administration the year prior. A freight broker bond exists to ensure payment to carriers if a broker fails to meet their payment obligations. The cost of a broker bond depends on a lot of the credit worthiness of the applicant along with a subjective analysis of the applicant’s assets, liabilities, and cash available. Bonds are renewed annually and can cost anywhere from around $1,000 a year to $5,000+ per year. Keep in mind that having a bond doesn’t mean the broker can just refuse payment to a carrier with no recourse. If a motor carrier files a claim on a freight broker bond and is awarded payment from the bond, the broker is then responsible to pay that awarded amount.
A general liability policy, commonly listed as a commercial general liability policy, helps cover costs for items such as bodily injury, property damage, and contractual obligations. The policy covers those costs incurred by the broker, not the carrier. While this policy is not legally required to operate as a freight broker, it is often required by the shipping customers of the broker. Customer contracts (when used) will generally list the required limits.
Contingent Auto Liability and Cargo
Contingent is the key word in these two types of coverage. Having a contingent policy for auto liability or cargo insurance does not add coverage to the motor carrier’s policy. It simply gives the broker a contingency if the carrier’s primary policy has an issue such as cancellation or lapse in coverage during the time of the load. For example, if a carrier fails to pay their insurance premium and the policy is cancelled during the transit time of the load, the contingent policy could kick in. If a carrier’s active primary policy denies payment on a claim due to exclusions on the policy, the contingent policy would not benefit the broker.
Freight brokers cannot hold a primary auto liability policy since they don’t own assets, but they can hold a primary cargo insurance policy. Primary cargo policies can be written to include or exclude almost anything, so it’s crucial to work with your insurance agent to put a policy together that covers the items that you want. It’s even a good idea to ask your agent what your policy doesn’t cover – that’s a creative way of analyzing your personal comfort level when it comes to risk tolerance.
Finding a Creative Solution
When we talked with Melt, he shared a create solution with us that his company came up with in the past. TI Advisors created a product called Combined Transportation & Supply Chain Coverage which is intended to protect against many of the scenarios that common policies don’t. Claims related to improper trailer temperature, broken seals, breach of contract, and even cyber-attacks are covered in this full spectrum product. You can check it out at the link below.
Regardless of the size or age of your brokerage, insurance is going to be something that comes up again and again. You are better off protecting yourself before a problem happens rather than kicking yourself in the butt and wishing you had the coverage before the problem. The next time you talk to your insurance provider, take some time to really understand what you are covered against and what you are ultimately on the hook for.