Let’s Talk about Insurance…

There is nothing we’d all rather do less than take a deep dive into our insurance policies. But if there ever was a time when it was important to understand what our policies do cover and, even more importantly, what they may not cover, it is now.

It’s very common for insurance policies to exclude dishonest acts of carriers and/or third parties. With the surge in fraudulent pickups, fraudulent carriers, and double brokering, it’s become a hot topic for everyone involved in the transportation process. Everyone is thinking about ways to protect themselves and how to limit their exposure to fraudulent acts and the subsequent losses of cargo. Part of that risk mitigation strategy should include understanding how your insurance policy will (or will not) respond to the growing variety of fraudulent schemes being perpetrated.

If your policy excludes Dishonest Acts of a Carrier/Third-Party or Double Brokering, then the coverage question is pretty straightforward. However, it becomes more difficult to know if your policy will respond when a specific exclusion does not exist. If it sounds counterintuitive, it sort of is. Welcome to the complicated world of insurance policy language.

If your policy does not have these specific exclusions, it is crucial to pay attention to your policy wording. Many freight broker insurance policies state that coverage will apply to property entrusted to “an authorized Motor Carrier that you have hired.” If freight is intercepted and picked up by a fraudulent carrier, then your policy will not respond. Your policy may not specifically exclude Dishonest Acts of a Third Party, but the fraudster is not an authorized motor carrier, and you did not hire them. Some policies may indicate that property is covered “while in the due course of transit.” If a carrier you hired unknowingly double brokers the load to a fraudulent carrier who then disappears with the load, your policy may not respond because the property was taken out of the due course of transit. A good insurance broker should take the time to help you understand the nuances of your policy language.

Unfortunately, there isn’t one magical answer, but the entire logistics industry needs to work together, be transparent, and communicate. Your insurance broker should be your risk management partner, and it’s important to work with them to make sure you’re covered in the ways you need to be. Have a conversation with them about your policy and take an active role in your coverage. Are you covered for fraudulent acts of carriers and/or third parties? If not, can you add that coverage? Are there exclusions on your policy for double or cobrokering? Is there a type of coverage you should have that you don’t currently? The best time to make sure you’re properly covered is before you have a claim. Insurance companies really are there to pay your claims, not deny them. However, they can’t pay a claim if there is no coverage in the policy. Therefore, it is critical to make sure there is proper coverage in place to respond to a claim before one happens. This is why it is key to rely on your insurance broker to be a partner with you in the process.

We all know that fraud and theft have been in the news more frequently and are happening at an increasingly alarming rate. Did you know, though, that according to CargoNet, cargo theft was up 57 percent in 2023 compared to 2022? And the average shipment value per event increased by nearly $100,000 to $260,703 as thieves targeted higher value shipments? This highlights the need for everyone to be vigilant and protect themselves. The thieves continue to evolve and get smarter, so we need to as well. The FMCSA is setting up a registration fraud team as well as implementing some IT changes on their end to try and help do their part. We all need to do our part in any way we can — it is a true everyone problem, and it needs to be a true team effort.

There were a lot of fantastic panels at the TIA annual conference this year that discussed different ways of vetting carriers, different strategies for combating double brokering, best practices for hiring newer carriers, and data-driven IT solutions that would assist with all of that. As the fraud problem grows, there seems to be more of a willingness across the board to discuss it and try and come up with ways to combat it. It’s a step in the right direction, where the issue is front and center and is being discussed as something that must be solved together.

Aside from your partnership with your insurance broker, having solid relationships with shippers, brokers, carriers and transportation attorneys is crucial. Making sure we know who we are all doing business with goes a long way. We really are all in this together and need to work as a team to combat the bad actors. It’s crucial to work closely and be in constant communication with all members of your supply chain.

Two words have been repeated a few times in this article — team and partner. This truly is a challenge we must all face together to achieve any success in reducing the prevalence of fraud in the industry. Please look to your insurance broker as a player in that process and work together. They can help protect you while we work together through this unprecedented time. Ask the questions, understand your coverage and see if you have gaps that need to be filled. Understand what will happen if you have a claim for dishonest acts of a third party. This is a challenge we can face together.