Many motor carriers and their risk advisers underestimate the risks that accompany transporting cargo. A lot of their focus is spent on covering the risks and exposures that relate to the truck and trailer, which are important because they can cost hundreds of thousands of dollars, but cargo losses can have even bigger — and longer-lasting — consequences.

In my decades of managing and insuring transportation risks, I have seen all kinds of claims. One of the worst losses for motor carriers, however, is uninsured or underinsured cargo. The reason can be explained through what I call the three “R’s”:

Revenue. Most truckers make their money by hauling raw materials and/or finished goods for shipper customers. When a cargo loss occurs, that is a direct impact on the first “R”: motor carriers’ revenue. Collecting insurance for the loss can offset much of that cost, if the coverage is aligned with the cargo exposure. But there is a secondary form of loss: damage to the shipper customer’s confidence in the motor carrier. That brings us to the second “R.”

Reputation. Can any motor carrier afford harm to its reputation? General and specialized freight trucking (NAICS 484) is a competitive business. According to the Bureau of Labor Statistics, at the end of 2017 there were 128,811 trucking transportation businesses in the United States. If a shipper customer has a bad experience due to cargo loss, it might think twice about giving the motor carrier more business. Or it might insist on additional protections in its contract, if the shipper even entertains renewing the contract. In the trucking world, word tends to get around, and other shippers might be reluctant to hire a motor carrier after a bad cargo loss. Reputational damage can haunt a trucking business for a long time, making it difficult to grow revenue. Which brings us to the third “R.”

Retained risk. The nature of risk and exposure means that whatever risks a business or individual does not transfer, it retains. In the context of a cargo claim, retained risk can force a motor carrier out of business, unless it’s prepared to pay for uninsured losses.

Here is an example: a motor carrier transporting new automobiles has a rollover that damages some but not all of the autos. The shipper customer declares a constructive total loss because it cannot sell the damaged new autos. If the motor carrier’s cargo policy doesn’t provide full coverage for constructive total loss, the shipper customer will look to the trucking firm for the difference. Depending on the value of the cargo, that difference could be a huge financial burden.

Another way that motor carriers retain risk and exposure is through their contracts with shipper customers. Contractual liability can increase the motor carrier’s exposure significantly. Motor carriers, and their agents and brokers, need to review the contractual obligations and align the insurance program accordingly, or the motor carrier may have big coverage gaps. A stand-alone inland marine policy, crafted by expert underwriters experienced in transportation risks, offers advantages that bundled coverages simply cannot. Inland marine is a coverage that truly faces the customer.

Tokio Marine America has deep understanding of transportation logistics and cargo risks. We help manage motor carriers’ risks through our expertise and proprietary needed coverages, including shippers’ interest with constructive total loss.

If you’re a motor carrier, talk to us about the risks and exposures in your transportation business. If you’re an agent or broker, we invite you to learn how Tokio Marine America can make a difference and help protect your clients’ reputations. Please visit our product page.

About Author

David Lee,
Former Director, Inland Marine at Tokio Marine America
David Lee is the former Director of Inland Marine Transportation for Tokio Marine America. His insurance career spanned nearly four decades with experience in commercial insurance underwriting, MGU program management, and specialty insurance brokerage.

About Tokio Marine America

As part of our commercial inland marine product offering, the transportation industry is well served by unmatched financial strength, dedicated underwriting experts, and a suite of flexible and proprietary insurance products that can be tailored to fit your needs.

With over a 100-year history in the U.S., Tokio Marine America (TMA) offers tailored products to a diverse range of customers – from small to large-sized global businesses seeking traditional multi-line coverage, to larger private and public companies requiring full risk management solutions. Our commitment to providing the highest level of service is paramount. More than 93% of our customers recommend TMA based on our superior claims service. TMA is one of only three insurers with an A++ (Superior) XV rating from A.M. Best. With a solid foundation of financial stability, our strength lies in understanding your business and working in partnership to exceed your expectations.

By offering fully integrated solutions to meet our customer’s needs, we endeavor to deliver ANSHIN – safety, security and peace of mind to all our customers.

Tokio Marine America (TMA) is the marketing name for Tokio Marine America Insurance Company (TMAIC).