Choosing the Right Insurance for your Brokerage

July 14, 2022
Cassandra Gaines
Jamie Cannon (Reliance Partners)

The process of initiating a new brokerage can be overwhelming and lead to a lengthy list of questions regarding insurance as well. Is an insurance company the same as an insurance broker? What policies should you buy as a new broker? What area of the business will result in the most claims?  

We met with Jamie Cannon from Reliance Partners to discuss insurance and answer the most frequent questions for new brokers. This article will help you beat the insurance confusion and decide what is best for your brokerage.

What is an insurance company?

An insurance company creates insurance products to mitigate risks and receives payment of premiums in return. Another term for an insurance company is an “insurer” or “underwriter.”

Most Popular Insurance Companies

  • Beazley
  • Hudson
  • Travelers
  • TT Club  
  • Allianz

What is an insurance broker?

Insurance brokers source the best policies from all types of insurance companies. Based on your needs and revenue, your insurance broker will try to find the right insurance company with the right policies for your business. Insurance brokers also can shop a variety of coverage options when your policy comes up for renewal to ensure you continue to receive the best coverage at the most competitive pricing terms, year after year.

Insurance brokers will make a major impact on your business. They have the knowledge and experience to guide you in critical situations, making them incredible partners for your company.

Why use an experienced transportation insurance broker?

  • Experts in the insurance industry
  • Vast knowledge of the companies that are part of the insurance industry
  • Find the right price for insurance services
  • Identify companies you should also partner with, depending on your needs

What should you buy for coverage as a new brokerage?

1. ICC Broker Bond

Surety bonds are required by the FMCSA and most motor carriers and customers will require evidence of the broker’s surety bond. There are two types of bonds available, BCM-84 and BCM-85. Discuss with the insurance broker which bond would be the best for you.

2. Contingent Auto Liability

This type of insurance is typically designed to cover the liability of a freight broker from an auto liability claim on a contingent basis. The motor carrier’s insurance is in place as the primary coverage and contingent auto liability is present to pick up a valid claim within the scope of the policy that a motor carrier’s policy does not cover or if the motor carrier’s insurer becomes insolvent (within the terms of the policy).

There may be other conditions that must also be present or satisfied for the coverage to kick in. Policies may be written on both an aggregate and a per-occurrence basis. The defense may or may not be covered depending on how the form is written and whether the defense is inside or outside the policy limits. There may also be no defense coverage if the trucking company provides defense. Understanding your policy and asking questions before you bind coverage is best. Punitive and exemplary damages are typically excluded.

Coverage can often be written to limits of $15 million-$25 million before needing to get additional limits from an excess market.

3. Truck Broker Liability or Third-Party Liability Insurance

Truck Broker Liability insurance is typically a broader form of coverage than Contingent Auto Liability. There is also a variation of this form called Third-Party Liability insurance that is similar. Truck Broker Liability insurance is typically written to provide coverage for bodily injury and/or property damage arising from the freight broker’s operations as a transportation property broker. This can also be a packaged policy written along with General Liability in some instances.

The coverage is for the freight brokerage and is not to be considered excess coverage over the motor carrier or intended to cover the shipper in any capacity. Every policy can be written differently so it is imperative that you understand how a policy might respond to a particular language or contracts with motor carriers and shippers. It can also be written per occurrence or taken together, but most commonly is per occurrence.

Defense can also be inside or outside the limit and will respond only if the freight brokerage is a party and deemed liable. It will not assume responsibility for the liability of the motor carrier or the shipper’s actions. It is intended only to cover the freight broker. Punitive and exemplary damages may be excluded altogether or may excluded be on a state-to-state basis depending on the policy coverage.

Coverage is typically available for $1 million-$5 million before needing to get additional limits from an excess market.

4. Cargo (Contingent or Primary)

Motor Truck Cargo Insurance is a requirement for any freight broker and there are several different options available in the marketplace. For many years there was only one coverage option available (Contingent Cargo). Contingent Cargo is designed to cover the freight broker on a contingent basis for cargo damage or loss.

This means that claims are typically filed first with the motor carrier in an attempt to recover. It is commonplace to see these claims denied based on exclusions that may be present in the motor carrier’s policy. There are many types of contingent cargo forms with various exclusions including “follow form” policies. This means that if the trucking company has a policy exclusion, then so does the freight broker. It is especially important that a freight broker understands what is covered if they utilize Contingent Cargo forms.

The industry has evolved over the past few years and there is now a first-dollar product available for cargo insurance that is based on legal liability and can even be broadened beyond the legal liability trigger to cover a much wider range of cargo claims including items such as Driver Negligence. Driver negligence is always excluded under Contingent Cargo but is typically covered under Primary Motor Truck Cargo irrespective of the motor carrier’s insurance if it is a covered commodity. The forms typically sold on a first-dollar basis are extremely broad and provide coverage for a wide range of perils.

5. General Liability

General liability considers accidents that may happen on your company premises, for example, a vendor or customer visits your office and there is a “trip and fall accident”.

6. Errors and Omissions Insurance (Professional Liability)

E&O considers errors an employee may have when setting up a shipment. If the employee’s error results in a loss to a customer or a third party.

7. Cyber Liability

The cyber liability threat continues to grow every day and transportation businesses can be prominent targets based on the substantial amounts of information that are stored electronically and in the cloud. Many CRMs can contain a large volume of information on shippers, motor carriers, and customer data. In addition, sensitive pricing and payment information can be stored on these different customer and company platforms. It is imperative that companies strongly examine their cyber risk and insure them accordingly.

The loss of third-party information and sensitive information can trigger costly repercussions for the freight broker. The sheer number of transactions on some freight broker platforms can be thousands of transactions per day and all it takes is potentially one employee to make one mistake to put the whole organization at risk. Reliance offers comprehensive third-party and first-party insurance solutions for cyber risk in the transportation marketplace.

Where will you see the most claims; in which policies?

Contingent cargo coverage

These claims are usually filed with the insurer when the shipment is damaged, lost, or stolen and the motor carrier does not have insurance and the freight broker has a legal liability to pay for the damaged or lost shipment.

Pro tip: If you have a shipment that is high-value, food, or a commodity often targeted by thieves, before dispatch, verify with the carrier’s insurance agent that the shipment/commodity is included in the carrier’s cargo policy. In most cases, food, electronics, and other items are included, but there are some which are excluded. Also, ask about any major exclusions.

E&O insurance

This type of claim is placed when there is a mistake made by an employee who is arranging the shipment. For example, if the cargo was refrigerated and the temperature was improperly communicated to the carrier or missing, and as a result, the goods are damaged. Such coverage heavily depends on the terms of the policy, but this general description helps provide an understanding of the policy.

Insurance does not have to be complicated. Partnering with suitable insurance brokers will help you understand everything that you need to know about insurance, thus helping you avoid any issues with your customers, shippers, and motor carriers. Choosing an insurance partner that specializes in Freight Broker/ 3PL coverages with team members experienced with your needs as a broker can help your team focus on growth instead of insurance issues.