The Role of Freight Insurance for Freight Brokers

Businesses that arrange shipments between carriers and shippers are protected by freight broker insurance, which is important for the transportation sector. In the United States, proper insurance coverage is required due to the rules and threats connected with freight agency.

As a freight broker, you play an important role in connecting the shipper and the transportation business. You help the shipper and the motor carrier to transport the products, handling each part from the first pickup to the last drop-off to guarantee your client’s parcel gets there safely.

In addition to simplifying the process and removing difficulties to provide high-quality service, you also represent your client’s interests in the case of an issue. When items become damaged in transportation, you work with your shipping partners to solve the issue and, if necessary, pay for it.

Freight Insurance

As the world economy becomes more interconnected and more cargo is shipped than ever before, freight insurance also known as cargo insurance, goods in transit insurance, and/or cargo and storage insurance. It is becoming more and more crucial and is now a must. While technology is developing at an increased rate and tasks like tracking and communications are carried out in real-time, the modes of transportation have not changed much over time.

Why Do You Need Freight Brokers Insurance?

Usually, your shipping company takes no responsibility for the property being transported. But, depending on the trading, a freight agent may be responsible for the careless actions of a transport company or its truck drivers. Additional hazards may arise if you supply driving equipment or play a key role in managing the delivery of products. It is important to get freight brokers’ coverage for this reason. As mentioned in a case against the shipping company, it protects you and your clients from paying court costs, legal fees, and judgements.

Get Your Own Freight Insurance Coverage

Having your own freight insurance coverage is the only way to manage your risks as a logistics service provider. Companies like:

• Exporters
• Importers
• Charterers
• Logistics companies
• Freight forwarders
• Transportation brokers
• Customs brokers
• Manufacturers
• Distributors

Carriers have limited liability exposures due to their responsibility for insuring freight to a maximum often below the value of the freight being shipped. They are also excused from all liability in certain situations, such as natural difficulties and work shortage, depending on authority and the carrier’s insurance policy.

Purchasing your own freight insurance is essential for several reasons.

1. First, it ensures that disputes are resolved in your favor, as freight insurance policies written for other parties, such as trucking, logistics, and transportation companies, may not cover your company’s assets.
2. Second, you have no control over the deductible and other policy terms, and dealing with insurance companies in different countries, time zones, and languages can be challenging.
3. Third, as demand increases, more freight is spending more time in storage, which is uninsured due to carrier negligence. If freight arrives damaged, spoiled, or deficient, the purchaser may refuse to pay, leaving you with the loss or a costly legal battle.

Finally, investors, including banks, may insist on freight insurance coverage to protect their investments.

Primary Coverage Types

The following coverages are frequently included in a standard freight broker insurance:

1. Commercial General Liability

This insurance coverage protects you from claims resulting from your company’s actions that cause third parties to suffer personal harm or harm to their property. Coverage for complete operations or delivered items may also fall under this category.

2. Professional Liability Insurance

Professional Liability Insurance even when you’ve done everything you can, followed all the rules, and tried your hardest. Sometimes things don’t work out as planned, and when an error or mistake causes your customer to suffer a financial loss, freight brokers’ professional liability insurance can help. Mis-delivery, poor communication, careless hiring, injustice, and other issues are examples of professional liability risks.

3. Primary Truck Broker Liability:

For freight brokers, main truck broker liability insurance is designed to cover their principal auto responsibility. It covers property damage or physical harm taken by the ownership and usage of a motor carrier’s vehicle because of the insured’s work as a transportation broker. It is difficult to get this coverage form, and only the best brokerage and 3PL businesses with a strong track record and risk management can get it. 

Factors that Affect Your Freight Insurance Premiums

These are some of the factors that are considered when determining your rates for freight insurance:

1. Value of freight being shipped
2. Type of freight being shipped
3. Freight origin, destination, voyage and means of conveyance
4. Coverage limit and deductible
5. Insurance history (your record of insurance claims)
6. Number of years in business

Factors Impacting the Cost of Freight Broker Insurance

Like any insurance coverage, freight broker insurance is influenced by a number of factors, such as:

1. The weight and quantity of shipments handled, the number of clients a brokerage takes on, and other factors all contribute to the chances of risk, which in turn affects price.
2. The cost of insurance coverage differs greatly depending on the kind of product. This is due to the fact that some kinds of products are costly, delicate, uncommon, or risky than others.
3. Before providing a quotation, carriers always take into account a client’s assessments of risks and previous losses. Freight brokerages who have a track record of missing or damaged shipments can have a tougher time obtaining coverage and they will have to pay extra.
4. The origin and destination of the shipments also affect the cost. For instance, shipping abroad increases the risk of loss or damage from some weather conditions or any technical issues.

Risks your Freight Broker Business Could Face

Following are the risks that freight broker business could face:

1. A complex shipment that must go through many international borders is planned by you. It is extremely time-sensitive, and if customs delay it because of inaccurate documents, it won’t arrive on schedule. The receiving company take on you for the costs of the delay since it caused their production facility to be forced to close.
2. When a cargo is stolen in travel, your business is held responsible due to the shipping route and partners selected.
3. When a hacker gains access to your system, they can target the products in route by using your clients’ shipping information.

Freight Broker Insurance Recommendations

The freight broker bond, also known as the BMC-84 bond, is a type of insurance that protects customers (shippers and motor carriers) from error acts committed by the broker. The freight broker, who purchases the bond, is the principal on the BMC-84 bond.

The Federal Motor Carrier Safety Administration (FMCSA) licenses freight brokers as transportation experts, and the FMCSA vouches for the brokers they issue licenses to. The FMCSA recognizes that brokers can commit fraud against shippers and motor carriers, so all brokers must purchase a surety bond to protect them. The broker purchases the freight broker surety bond to protect the shipper and motor carrier companies in the following situations:

1. Payments are not made or are incorrectly disputed
2. Funds are stolen
3. Contract motor carriers are replaced with less expensive carriers

This sounds like an errors policy. But there is one important distinction: a freight broker surety bond provides financial recourse for intentional illegal acts. E&O insurance covers random errors and the FMCSA and the Federal government require brokers to have a freight broker bond.

Secure your Future

Insurance is crucial in the freight industry, not just a regulatory requirement but also a safeguard against risks and uncertainties associated with goods transportation.

Whether you’re a freight broker or a carrier, choosing the TEU Global can protect your business from financial ruin and legal liabilities. Understanding different types of insurance, such as contingent cargo, motor truck cargo, general liability, and E&O insurance, allows you to create a risk management strategy that suits your needs.

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