The answer is simple- all gross revenues billed by the broker under their authority during the policy effective dates. Note our coverage is designed to cover all brokerage operations per the policy form subject to the terms, conditions, warranties and exclusions.

While the answer is simple, the explanation is not. Freight Brokers typically bill gross billings to the shipper, pay the carrier and have net income (typically between 15-20% of the total freight bill). In an effort to lower their premiums, we sometimes see agents and insureds providing us with net revenue. That is not acceptable to any insurance company we do business with, nor is the revenue defined as net revenue. In these cases, an ugly audit additional premium occurs and can leave all parties unhappy. That said, the gross revenue requirement is a black and white issue to all insurance companies and any deviation is a non-starter overall.

Note it is not that the insurance company is trying to gouge any insured; moreover, current rating is based on the loss cost of gross revenues.

Other considerations:

• Affiliate operations- A freight broker insured will often have an affiliate trucking operation that they broker loads to (we discourage this type of operation because it exposes two operations (the freight broker and the carrier) when the shipper could be doing business just directly with the carrier. Most insurance companies exclude freight brokerage losses to the affiliate operations so they do not stack limits with the carrier’s policy. While we can sometimes get this coverage added at an additional premium, it is mostly excluded. While many agents and insureds would like to exclude affiliated revenue to lower the premium, the rate offered is discounted for this exposure- and therefore the gross revenue is used as defined in the policy. It is also much easier to audit the financials based on gross revenue.
• Non-transportation exposures- Note sometimes a broker will provide non-transportation services ( carrier bill auditing work as an example. The agent and insured will sometimes want to exclude this income as well. Again that is unacceptable to the insurance companies- and the freight broker can as easily be sued for non-transportation exposures as transportation exposures.

So please understand that in all cases, the insurance company has rated the policy on gross revenues- and will look to be paid on gross revenues multiplied by the policy rate.

That said, they can provide important, effective education to these very freight brokers and to the stakeholder industries that serve freight brokers. To this end, they brought up an article that piqued our interest, and we felt it is worth sharing. It is on the rather dry subject of record keeping (Big Yawn…)

Why is this important? Because at the end of the day, it can save a freight brokers’ bacon, and without adhering to both requirements and best practices, can conversely cause irreparable harm to a freight broker’s livelihood.  So, we are approaching this in 2 ways:

• What record keeping is required by the Federal Motor Carrier Safety Administration (FMCSA)?
• And absent regulation, what are record keeping best practices for third party bodily injury claims and cargo claims?

What is required by the FMCSA?

Brokers have to keep a record of every transaction for 3 years, including:

• The name and address of the consignor
• The name and address of the originating common carrier
• Bill of lading ( or related documentation)
• Amount of brokerage compensation and the name of the payer ( typically the shipper)
• Freight charges and date carrier was paid

For insurance agents working brokerage business, you can size up a broker quickly by checking to see if they have this information. That said, Transportation Management Software (TMS) typically will handle all these functions. It should not be a big deal–but it is required.

Interestingly, for freight brokerage claims, there are virtually no requirements for record keeping by the FMCSA. Yet for obvious reasons, having an organized, systematic approach can be very helpful to freight brokers, their insurance companies and defense counsel. Before we go through the list, it might be worth knowing what we ask from our adjustors for every single claim we get.

Here it is:

• Claims details
• Certificate of Insurance from the Carrier
• Broker Carrier Agreement the insured has with the Carrier
• Carrier Name and MC/DOT #s showing their operating authority
• Carrier vetting information showing how the insured qualified their carrier for use.
• Any communication from the carrier’s insurance company.

Note while this has nothing to do specifically with a broker’s record keeping, it does have a great deal to do with the operational best practices of a broker- which is in conjunction with record keeping best practices. So what is needed for third party bodily injury claims and what is needed for cargo claims?

The Bodily Injury Catastrophe Claim:

• Claims Details
• The Police Report
• Any photos
• Any media
• Transcript of statement with the carrier
• Carrier’s Insurance Company Contact information
• Copy of Carrier’s Insurance Acknowledgement

In obtaining the aforementioned information, it can be more important to make sure you keep low profile. Why? Since freight brokers are not legally liable by authority, it is the carrier’s and carrier’s insurance’s responsibility to defend and indemnify. Raising the freight broker’s profile by demanding a lot of information in a loss, can tether a freight broker to a suit- and raises the prospect for inclusion.

Your claims adjustor, defense counsel and lawyer should be your guide as to what you information and when you need it. Ask Them First!

The Cargo Claim

Here is what is needed:

• Claims Details
• The Police Report ( may not be one)
• Any photos
• Any media ( may not be any)
• Transcript of statement with the carrier
• Carrier’s Insurance Company Contact information
• Copy of Carrier’s Insurance Acknowledgement
• Copy of Shipper contract applicable to the loss ( may not be one)
• Proof the shipper or consignee filed the claim against the carrier to prove damages

Note that you can see some similar claims information record keeping needs between the bodily injury claim and the cargo claim. But it is worth noting they serve two completely different interests. In bodily injury claims, everyone is on the same page. That is, let’s avert any and all liability as much as we can.

Conversely, with cargo claims, it is the freight broker’s customer. He may want to have the insurance company pay the loss (with the carrier or carrier insurance failure to do same), while the insurance company may want to limit any and all liability. That makes record keeping more important as all insurance policies have terms, conditions, warranties, and exclusions which need to be addressed before acceptance or denial of a claim and this makes record keeping more important.

In summary, you and your freight broker should understand the FMCSA record keeping requirements, but also create a standard for record keeping best practices in claims. It will make the freight broker and their insurance companies do their job better.