Everyone is aware that cargo is the lifeline of the trucking industry. With that said, you may not be aware how theft impacts the industry. It’s estimated that theft causes $22.6 billion in losses alone each year.
The average loss was $64,000 per theft, and without freight insurance, this level of a loss could bankrupt a small owner-operator.
Freight insurance, or cargo insurance, helps protect against these potential losses.
What is Freight Insurance?
If you’re on-the-fence and unsure if you need insurance, take this advice: If you’re hauling valuable goods, you need insurance. Carriers will provide some coverage, but you’ll want even more insurance as a safeguard.
When you have your own freight insurance, the policy will provide you with more protection than a carrier’s policy. Shippers will absorb all of the costs when cargo is lost, and if you’re an owner operator or run your own fleet, you may have to absorb the costs of lost insurance.
Carriers may also limit their liability in situations that are considered an “act of God.”
Businesses that are shipping goods will want to have their own policy to limit their exposure to lost cargo.
Freight Insurance vs Liability
Freight insurance and carrier liability are slightly different. When you have freight insurance, you’re going to have insurance that is greater than your standard carrier policy. The standard policies do not account for the freight’s value, so it’s possible that some, but not all, of the freight will be adequately insured.
The blanket policy may offer you a flat amount of coverage, or the coverage may be on a sliding scale, which has some adjustment for the value of the cargo.
Carrier liability is going to be a specific amount based on the commodity type that is being transported. The way that the value is calculated is based on per pound, and the protection may be for less than the total amount of the cargo.
Carrier liability requires that the carrier be at fault for the lost cargo.
Weather conditions or even inadequate packing or loading of the goods would not be covered by the insurance policy. Damage to the goods will have to be noted on the delivery receipt. Otherwise, carrier liability insurance will not cover any losses.
Freight insurance covers about 70% of all losses, but about 30% of freight lost will not be covered due to exclusions and other policy-related issues
The type of insurance will vary, and with a varying insurance type, you may be dealing with:
- All risks
- Broad form
- Motor truck freight
- Legal liability
And while the name of these policies may differ, one thing remains the same: all policies will not offer 100% protection.
Insurers can deny a claim on the simple basis that the dock yard was not listed on the policy.
Cargo Insurance Rates
Different freight insurance companies will charge different rates, but the main factor that goes into freight insurance is the actual cargo being hauled. The higher the price of the cargo, the greater the risk for the insurance company.
You’ll pay higher premiums because of these higher risks.
Partial loads will often cost $50 to $100 per shipment to insure. Rates are often based on a percentage of the freight’s total value. Coverage is also often just a percentage of the total shipments total value.
Rates will also be determined by:
- Items being shipped. Items that are easily stolen, such as luxury items or phones, may cause the rate to go up.
- Loss history is another major factor. Risk management is a top priority to an insurer, and if you have a long history of cargo loss, your premiums will be higher.
- Shipping routes will also be considered. When goods are being shipped to the top of an icy mountain or in a remote area or an area that is known for high levels of theft, this will increase your policy’s rate, too.
There are also a slew of different insurance types, including:
- Contingency cargo insurance
- Warehouse-to-warehouse coverage
- General area coverage
- Free from particular area coverage
- All-risk cargo insurance
- Single coverage
- Open coverage
- Insurance of cost of goods
Each insurance type has its own benefits and drawbacks, so it’s important to sit down with an insurance agent and discuss your options. There will also be questionable gaps in your insurance, and you can uncover these gaps by discussing them with your insurer.
The good news is that the buyer or seller of the freight will likely have the freight insured.
You’ll need to ask the insurance provider who is responsible for the freight, and you’ll also want to talk to your dispatch or manager to find out what level of insurance they have.
It’s possible that you may not need cargo insurance, but you don’t want to find out that you’re liable for damaged or stolen cargo after an incident occurs.
Sit down with an insurance agent and see what your current insurance covers and what’s not covered under your policy. A full understanding of your coverage will allow you to have a better understanding of what gaps in your insurance exist and if you need freight insurance.
Insurance of cost of goods only will be a good policy option to consider. These policies will cover total or partial loss of goods, and this will cover the entirety of the items lost.
Keep in mind that the cargo is covered, but the shipping charges are not covered in this case.
You can also take out insurance on the shipping charges, and this would be one way to make the seller or buyer of the goods “whole.”
Insurance is an added protection for a trucking company, owner-operator and anyone that ships goods. If you have gaps in your insurance policy that will not cover the cost of lost cargo or damaged goods, freight insurance may help you avoid a potential liability disaster.
Every insurance company is different, so shop around and see how a potential company calculates premiums, what you can do to lower premiums and which company offers the best insurance coverage for your needs.
If you are just starting your career as a freight broker, you will want to build some relationships with different insurance agents to learn more about how you can save on your and your clients shipments. You may even be able to combine policies to save money on premiums.