Logistics insurance – is it right for you?

Operating a transport or logistics business can be complex enough, but add insurance to the mix and it can seem impossible.

Do you have logistics insurance at all? If so, how confident are you about your logistics insurance, and are you sure it is keeping pace with the increasingly diversifying world of logistics?

There is no such thing as a typical logistics organisation

Whilst logistics operations vary more from each other than almost any other business sector, there are some typical cover requirements, namely:

  • Liability for lost/damaged cargo
  • Liability for errors/omissions (including delays and unauthorised or failed delivery)
  • Third party liability
  • Cover for regulatory breaches (customs problems, pollution or safety at work issues – this is an essential cover for 3PL operators who are reliant on client information about cargos)
  • Cover for disposal costs after accidents including quarantine/disinfection/pollution controls where required
  • Defence costs – vital where third parties are involved and supply chain issues may require sophisticated investigation to establish responsibility for loss/damage/regulation breach.

However, the exact scope of each organisation, its client base, its geographic location and the regulatory regime covering its logistics mean that even within such typical requirements there can be substantial variations of risk.

Think of logistics as service provision

It’s easier to assess the quality and scope of any logistics insurance you buy if you think of everything you provide as a service rather than a core part of your business offering. This allows you to ensure you’ve purchased a policy to cover you for each specific service you’re providing although the downside of this can be that you end up with a collection of policies, sometimes overlapping, rather than a single, straightforward policy provision.

The baseline for logistics insurance

Common policy elements for transport, warehousing and distribution services include Commercial General Liability which insures your headquarters against risk, alongside an Errors and Omissions policy element which protects you from any professional liability you experience in working with customers.

Logistics Insurance for Hauliers

Hauliers may have a vehicle cargo policy (called the MTC or motor truck cargo policy in the USA) which covers goods lost or damaged on vehicles during transit. This has become an increasingly necessary policy add-on for HGV drivers working in Europe as damaged cargos are sometimes the result of attempted migrant boardings.

Insurance for warehousing services

Many CGL policies don’t provide cover for warehouse operations and it’s important to look out for 3PL services that offer a CCC cover – a policy that covers goods in the warehouse operator’s care custody and control. This may also be available through seeking an extension to an open cargo policy, this is a policy that covers cargo owners for losses to goods during transit.

The benefits and risks of a comprehensive logistics policy

Specialist insurers are starting to offer single policies that intend to cover every risk that an operator faces. The benefits of these policies are clear – they are comprehensive and because they run annually, they never leave the operator without the necessary cover. The downsides are also clear – comprehensive policies may be more expensive than insuring for risk on a case by case basis and there may still be gaps in cover if an operator is involved in areas that don’t appear as covered risks. Such areas – which are increasingly being sought by customers – as labelling and vendor management would not be covered under the comprehensive logistics insurance policies currently available on the market.  

Bespoke logistics insurance

It’s more common for an insurer to offer a tailored policy which meets the needs of the operation being insured. For example, an air freight company may also be involved in freight forwarding, have an element of road haulage and will very likely be a tank or container operator and a trailer operator. A tailored policy will cover each of these areas and ensure there are no gaps in the liability cover. The downside of tailored policies is that they do require the logistics operator to recognise and report changes to business performance and can still lead to ‘add on’ policies if a specific cargo is being handled or a particular regulatory regime needs to be met.

ELD in the USA a new challenge to logistics insurance.

In the USA, the electronic logging device (ELD) mandate is expected to become law in December 2017. This means that between December 17 and April 18 vehicles that don’t comply with the ELD will be fined but after April 1st 2018, those vehicles may be compulsorily removed from service. This has important ramifications for logistics operators whose vehicles travel to the USA but also for those based in the USA who may find that affordable insurance becomes more difficult to obtain if they have a vehicle that is forced out of service as a result of ELD. ELD is likely to spread as an enforcement mechanism fairly rapidly and will, therefore, have an impact on hauliers and freight forwarders who will find themselves involved in retrofitting vehicles with ELD as each new territory insists upon it. Insurance provision will inevitably follow regulation, creating a further cost for logistics providers.

Artificial intelligence as a premium reducer

Whilst it might not be anybody’s first thought, investing in AI is likely to reduce logistics insurance premiums over the next five years. As the cost of components such as AI sensors go down and as cloud computing brings data storage within reach of even the smallest of logistics companies, AI is likely to feature strongly in logistics in the next decade. Insurers are already offering lower premiums to organisations using AI in their supply chains to handle inventory and orders and this is likely to extend into reductions in cost where AI is used to predict demand, coordinate transportation choices and even to manage vehicle maintenance systems.

We specialise in sourcing professional warehouse space and warehouse services across the UK. We work closely with reliable logistics companies, to improve businesses efficiency. If you require our assistance in locating the best facilities and services available to you, simply contact us today.

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