I continue to get calls from good folks that simply do not understand what truck brokers are and what insurance they need. While I have addressed this in a more simplistic basis in the past, I thought it made sense to revisit the world of truck brokers. So here you go:
According to industry sources, there are over 16,000 truck brokers. A truck broker is in essence a freight intermediary- linking the shipper to the carrier. Unlike a trucker, they own no assets involved in the transit of freight. What most people do not realize is how many different parties can be involved in the overall transportation of freight- otherwise known as the supply chain.
To illustrate how convoluted the supply chain can get with regard to freight in the supply chain, let’s look at an example. Transit of freight could have an ocean liner dropping a container to a third party logistics operation (3PL)-who has it transported by rail to a yard- whereupon a freight forwarder takes it on- and finds another broker -who has the carrier relationships- who in turn finds the trucker to get the freight to its final destination.
Where insurance kicks in is relative to understanding the liability during transit. The legal liability that is assumed arises from the bill of lading or tariff along with the contractual liability and legal precedents of tort liability. Today, the insurance on truck brokers is a fledgling work in progress. Many folks confuse a truck broker with a freight forwarder (a freight forwarder is licensed as a motor carrier while a truck broker is not). There are many more truck brokers going into business today than freight forwarders and 3PLs due to the more economical nature of operating as truck broker with just a phone and software- and not assuming a greater legal liability that freight forwarders and 3PLs have and do assume. From a casualty perspective the auto is construed to have the largest exposure while the GL is mostly construed to be a premises exposure- if that. I have never seen a GL loss on a truck broker and candidly have only seen 1 loss for GL for a trucker in my over 25 years in the business. The reason for this is that an auto liability policy ( the motor carrier form) covers the ownership, maintenance and use so it picks up most exposures. Other casualty losses involve professional liability which covers financial loss due to errors and omissions- a growing product.
The cargo insurance demand is probably the second most important insurance and is written on a contingent cargo basis. What is especially odd about this is that statutorially the truck broker has, as an intermediary, no insurable interest in the cargo. However, does that mean the truck broker is not legally responsible for cargo loss anyway? The answer is no in that they sign agreements with shippers that require insurance, require full indemnification, and require waiver of subrogation. While the casualty insurance previously mentioned offers the biggest source of balance sheet protection, the most important insurance to a truck broker is contingent cargo- as the truck broker needs to protect his end client- the shipper. Without that protection, usually a truck broker is unable to obtain freight from that shipper.
Truck brokers come in many shapes and sizes and it is important to understand what they are from bottom to top. Currently truck brokers exist on two bases- one as a standalone operation autonomous to any other transportation operation and secondly as an adjunct to a trucker’s operation. (There are also freight forwarders and 3PLs that have brokerage operations but I do not wish to address that here.) With the recession just over and truck utilization at an all-time high, a trucker would rather be in control of a shipper by having a brokerage operation to assist when all their power units are dedicated and already out on the road.
With respect to insurance, the truck broker operating autonomously is a fairly easy operation to underwrite. A truck broker operating in conjunction with a trucker can have separate authority or have authority in conjunction with a trucker’s existing common and/or contract carrier status. Most truck liability writers have disdain for operations with brokerage authority as they view it as providing coverage for trip leasing.
From an insurance buyer perspective, truck brokers also come in various shape and sizes. To get their authority from the Federal Motor Carrier Safety Administration, truck brokers have to provide a bond of $75,000. This is a pretty easy process but it means a truck broker has to pay to play. From there we see five types of insurance prospects:
♦ New Truck Broker Operations- no sophistication- only buying insurance for what the shipper requires. Seldom have a broker carrier agreement. Usually only buy contingent cargo although more and more are being required to have contingent auto, contingent cargo, and general liability
♦ Small truck brokerage operation in conjunction with a trucker- minimal revenue- only buying contingent cargo as well but like new operations are being requested to have coverage for the contingent auto, the contingent cargo and the GL.
♦ New Operations having experience and sophistication- employing best practices- want all coverages and expect high growth- have both an existing shipper and carrier network- work with industry standard broker carrier agreements.
♦ Seasoned Operations but no carrier agreement and no best practices- these are “country “ operations that do not have broker carrier agreements or industry best practices but have operated well within their environment. They are irritated as their shipping customers have been demanding insurance and end up buying contingent auto, contingent cargo, and general liability.
♦ Seasoned operations having experience and sophistication –employing best practices- want all coverages and best coverage and expect growth- employ great broker carrier contracts.
The broker carrier contract is a fairly big deal when underwriting truck brokers and a constant work in progress. When we underwrite the contingent cargo, we look for essentially 3 things in the broker carrier contract: indemnification, insurance limits mandated, and that the carrier is responsible for all losses. From a broker liability context, there is a need to have the broker carrier contract coincide with operational best practices and insurance underwriting requirements. Additionally, in any case where the broker can remove liability by requiring the carrier to name the broker as an additional insurable, our desire for writing coverage increases (note most trucking insurance companies do not want to name brokers as additional insureds but we see that changing.)
From an insurance distribution perspective, most insurance agents and MGA’s have no clue about truck brokers and the insurances needed. While some trucking agents are getting better and better, they do not write enough of it to show any proficiency. GTU is able to show proficiency with a daily understanding of the business and how it is evolving.
♦ Surety (previously discussed)
♦ Contingent Cargo
♦ Contingent Auto or Broker Liability- the fastest growing demand is for this product
♦ General Liability- no one provides contractual and that is what they are looking for
♦ E & O- greater interest is in this product- a really necessary product
♦ Property- primarily limited contents
♦ XS- more and more are asking for higher limits
Note there is vast interest in Cargo Identity Theft which we provide on a sublimit basis to some of the contingent cargo policies we write.
I hope this helps you have a better comfort of what truck brokers are, what insurance they need, and information that help you be more relevant/provide a value added to your client- the truck broker.