What Types of Insurance do Freight Brokers Need?

Serving a client in the freight brokerage industry is tough as an insurance provider. The role of a freight broker puts them in a unique position of neither producer, shipper, nor recipient of the goods being sent. The role is acting as an intermediary to transport shipments from point A to point B, and within this position, there are many risks, including:

• Missed shipping deadlines
• Stolen goods
• Breached client data

Freight broker insurance is necessary to protect clients from liability and financial loss during these incidents. This coverage is aimed at safeguarding the investment freight brokerages make to build their businesses.

Why Freight Brokers Need Specialty Insurance

Freight brokers have many moving pieces on the board that aren’t controlled by the brokerage. The more independent factors involved in a business transaction, the more room for error. This is why cargo insurance for freight to brokers is essential to protect against:

• Liability and financial loss: Even though your client’s brokerage didn’t ship or receive the cargo, they facilitated the shipping process and, in this way, are liable for the incidents involved. Freight broker insurance provides financial support with legal fees and other financial losses due to this liability.
• Regulation and contract compliance issues: If the shipping or receiving of the cargo organized by a freight broker breaches compliance regulations, these insurance products protect against loss.

Along with this protection, having the appropriate insurance products in place builds trust with clients of the freight brokerage, and their partners. This is why they’ll look for an insurance rep with products designed for the freight industry over traditional insurers.

Factors Impacting the Cost of Freight Broker Insurance

Like all insurance coverage, there are many factors impacting the cost of freight broker insurance, including:

• Size and scope of the brokerage: The number of clients a brokerage takes on, as well as the weight and number of shipments managed all count toward the potential for risk, which in turn impacts cost.
• Types of cargo handled: The type of cargo makes a big difference in the cost of insurance coverage. This is because some types of cargo are more expensive, delicate, rare, or dangerous than other types of cargo. Transporting live animals, for example, has far more risks involved than transporting rice or flour.
• Claims history and risk profile: Insurers always consider previous claims and risk assessments of a client before offering a quote. Freight brokerages with a history of lost or damaged shipments may find it harder to find coverage and will therefore pay more.
• Geographic areas served: Where the shipments come from and heading to make a difference to cost as well. Shipping overseas, for example, leaves more room for loss or damage due to storms or technical malfunctions.

Types of Insurance to Consider for Freight Brokers

Insurance needs fluctuate for freight brokers, and no two brokerages or shipments are completely alike. For this reason and more, it’s important that freight broker insurance is tailored to the specific needs of each individual company. Some of the types of coverage you may find under this umbrella include:

Contingent Cargo Insurance

Any contingent insurance is meant to provide protection in the absence of other coverage. In the case of contingent cargo insurance, freight brokerages are protected in the event that primary insurance fails or client interests fall outside the realm of a standard shipment.

Professional Liability Insurance

General liability protection only goes so far, but it doesn’t protect against assertions of negligence, mistakes, or malpractice. Professional liability insurance covers freight brokers against errors and omissions that may occur while arranging shippers and receivers for clients or while shipments are in transit.

Third-Party Liability/Contingent Auto Insurance

As intermediaries, freight brokers deal with third parties to their initial clients all the time. This includes accidents involving third parties during the transport of goods. Third-party liability or contingent auto insurance covers the gaps in standard auto and business insurance your freight brokerage client has. This comprehensive coverage is necessary for businesses dealing with so many active participants.

General Liability Insurance

General liability insurance protects in incidents of injuries or damaged goods due to your client’s freight brokerage. Whether someone slips on the floor of their warehouse, or a customer’s order is damaged in transit, general liability covers costs of medical or legal fees in business-related claims.

Workers’ Compensation Insurance

When an employee is injured at work or falls ill due to workplace factors, workers’ compensation insurance helps provide payment for them and their families to cover lost wages and medical costs. Many countries and all states except Texas require workers’ compensation coverage for businesses to operate legally.

Clients Who Need Freight Broker Insurance

Freight broker insurance is a must-have for freight brokers and all of their operations. It’s also useful for shippers who need insurance while partnering with brokerage firms and logistic companies to protect against operational risks. Any business that uses a freight brokerage may also benefit from some or all of the coverage types outlined under the scope of the freight insurance umbrella.

Common Coverage Exclusions

While freight brokerage insurance covers a wide range of risks, there are some exclusions to these policies, including:

• Intentional misconduct
• Loss due to market
• Losses caused by war or terrorism

Within the scope of individual policies including general liability, professional liability, third-party liability, contingent cargo, or workers’ compensation, other exclusions may apply. As an insurance agent, it’s your job to determine what protection gaps exist in your client’s policy and let them know, or fill them when possible, with alternative insurance products. An insurance wholesaler can help with this.

Unique Considerations for Freight Broker Insurance

Managing cargo insurance for freight brokers comes with a unique set of challenges. Cargo can go missing or miss deadlines, vehicles can get into auto or marine accidents, and none of it is personally managed by the brokerage but can still fall under their responsibility as the facilitator of these transportation interactions.

There are hard-to-place risks that are sometimes difficult to identify and manage within this field. Working with a knowledgeable insurance wholesaler with connections to underwriters offers your best chance at building reliable full-coverage products for these niche clients.

Contact Novatae to Learn More About Freight Broker Insurance

Freight brokers face a unique set of needs in terms of insurance protection. Neither shippers nor receivers, these companies deal with many independent participants as an intermediary between parties. With no two brokerages being exactly alike, insurance coverage needs to be tailored to meet the needs of each freight company.

Novatae is a wholesale insurance retailer. They source and underwrite policies not always available through standard insurance firms. When your client requires niche coverage, a wholesaler like Novatae can find a product to fit the risk. If you’re looking to source insurance for freight brokers’ needs, you can contact us here.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.