AT YOUR OWN RISK                                                                    

Courier Insurance In The 90's and Beyond

by Peter Schlactus, CIC, AAI                                        [ Back To Table Of Contents ]

Rampant change continues to preoccupy U.S. messenger/couriers. Consolidation fever grips the industry. Logistics is the new 
buzzword. The rise of E-Mail threatens the industry the way that fax did a few years ago. Couriers are experimenting with new 
services, new ways of running their businesses. In an environment characterized by change and uncertainty, the risks of doing 
business increase substantially.

What specific trends should couriers be aware of? Where are the risks the greatest? Where are they increasing? Are there pockets 
of stability or even areas where risks have decreased? And how can couriers better protect themselves against new risks? What 
risk management strategies will best insure a courier's success in the future?

The fax and electronic mail have had and will continue to have a profound influence on the courier industry. As companies have 
moved to replace business lost to these technologies, there has been a significant shift in what a courier delivers. No longer is a 
simple letter with no intrinsic value the predominate item. Now the emphasis is on larger cargo, as well as small packages and 
special documents. These commodities often have values reaching into the tens of thousands of dollars. It is therefore becoming 
essential for most couriers to obtain quality cargo insurance coverage.

With a wide range of higher valued goods being carried, the limit of insurance and the broadness of coverage has become much 
more important. Today and in the future a courier's insurance policy has to be carefully constructed in light of what you carry, the 
contracts you sign and the declared values you accept.

Soon it will be the norm to protect against the potential for consequential damage as well. An example would be the consequences 
of a bid or court filing not being properly delivered on time. More and more, the documents that couriers do carry are especially 
time sensitive in nature, and any kind of mistake could cost your customers many tens or even hundreds of thousands of dollars.

Of course it can cost more to tailor cargo insurance to a courier's individual needs and add protection against consequential losses- 
or warehousing, for that matter. One solution that is sure to become more prevalent is for a courier to adopt more sophisticated loss 
control measures to contain or reduce the risk of loss to valuable cargo. I see more couriers adding special alarms, locks, or cages 
to at least part of their fleets. Also, dedicated deliveries and the use of two individuals on a vehicle should be considered.

The Trend of Bringing Down Costs

Two other trends should bring costs down. Consolidation is the first and should result in more cost-effective insurance and risk 
management by spreading costs over larger volumes. Many insurers are still wary of couriers, but those that have committed to 
insuring them will often grant lower rates to larger companies.

The second cost cutter will be specialized insurance brokers that are starting to succeed in creating insurance programs exclusively 
for couriers that combine several different coverage's into one package. As a result, couriers can now qualify for the kind of package 
discounts that are routinely offered to other industries.

More couriers are also trying to provide a full range of service. They are creating formal and informal networks to provide back-up 
capacity for local, regional and national service.

The risk here is that the parties involved may or may not adequately address how responsibilities are to be distributed and how risks 
will be shared. Who will be responsible for insurance and in what amounts? Will it depend on who is at fault? What language have 
the lawyers inserted into the contracts? How are subrogation issues to be handled? What does each have in case the others' 
insurance proves invalid or inadequate?

One rotten apple from your staff, however can put a claims monkey on your back for three years.

Couriers should look to advisors who understand the legal issues involved in transportation and storage and overall industry practice.

In addition to forming industry networks, many couriers are seeking to expand their own operations beyond traditional delivery 
services. There is a great interest in warehousing, for example. Storing your customer's goods max, be lucrative, but, it's also very risky.

Warehouses expose concentrated values of goods to fire, flood, and other damage. They invite theft and open the door to mistakes 
in tracking inventory. Whether your warehouse is one room or a major facility, it would be wise to protect yourself from the additional 
liabilities you are assuming. This calls for special warehouse insurance.

Remember, practicing good control techniques and communicating openly with your customers can reduce your risks and make 
insurance more affordable.


A good agent or broker can make a difference by analyzing your claims to identify trends, verifying your insurance company's 
mod calculations and by advising you on what losses might be best to pay out of pocket to not damage your mod.

One rotten apple from your staff', however can put a claims monkey on your back for three years. A courier with honest, conscientious 
and upbeat employees therefore has a unique competitive advantage as compared to another company whose employees may be more 
likely to stage or exaggerate an injury.

There is also a trend where couriers arc buying their vehicles, outright. Again, the drivers are your ambassadors in the community and 
the backbone of your business. Without honest, dedicated, reliable and careful employees, your customers will be less satisfied and 
your claims may increase. When it comes to fleets, it only takes a few claims to send a courier into a less desirable (and more costly) 
class. Assigned risk plans are a last resort, and will not provide the kinds of limits that your customers demand.

In addition, more and more couriers are providing facility management services. This involves leasing people to other businesses to 
act as messengers or run a mailroom. Often the courier buys vehicles or equipment for the contract and place them onsite. Obviously, 
with your people at your customers' worksite all day, the impression they leave becomes even more important.

For a modest price you can screen out undesirable applicants and earn more favorable bonding premiums.

I recommend that you take the following steps to screen the people you may hire as drivers, messengers, and even back staff:

1. Check references. For couriers that deal with financial institutions or carry valuable commodities like computer equipment, you 
should consider taking the extra step of checking an applicant's criminal record. For a modest price you can screen out undesirable 
applicants and earn more favorable bonding premiums.

2. Obtain current Motor vehicle reports when hiring and then update these every six months to a year. These reports will alert you 
to potential problems and disasters. Your agent should be able to help you set realistic standards.

3. Adopt safety standards and procedures. Written safety programs are preferable, if only because insurance companies generally 
will not give you credit for undocumented safety programs. Inspect driver vehicles regularly and provide on-road training when 
taking on new messengers.

I recently asked industry claims specialist Sheila Schlamowitz what she thought was the biggest change she had encountered in 
courier reported losses. She said, "When I first started handling cargo claims eighteen years ago it was practically all I did every day. 
Break-ins and highjackings occurred with alarming frequency, especially in the New York area, where many of my early clients were 

Over time couriers have adopted basic protection measures, such as locked door policies, window guards, padlocks, and two person 
delivery vehicles. Now break-ins are much less frequent and hijacking is a rarity. Interestingly, the biggest improvement has taken 
place in New York.

Unfortunately losses do still occur, and they tend now to be more serious. Couriers are carrying more valuable items than ever before, 
and a significant percentage is what we call "target commodities." In fact, computer equipment now makes up the largest portion of 
my cargo claims.

The Use Of Computers And Courier Losses

Computers have helped couriers better manage the dispatching, and this has helped to defray the number of claims. But, a growing 
number of couriers are using computers to cut down on paper- including delivery receipts (a.k.a. bills of lading).

This can be dangerous because cargo insurance is generally predicated on the courier receiving a declared value at the time the 
delivery is ordered. Where there is no declared value, it becomes harder to settle claims. Delivery receipts help shippers focus on 
declared values. They also usually contain language limiting your liability unless a shipper declares a value and pays a charge. 
While not foolproof, such language is highly recommended.

Couriers that do not use delivery receipts need to think about how they can identify valuable shipments before a loss and cap 
their otherwise unlimited liability. After a loss, even customers who would not have purchased "all-risk' insurance from you may 
hold you responsible if they think your messenger's negligence caused a loss.

Being Lumped Together With The Trucking Industry

Being lumped together with the trucking industry has been the achiles heel for the courier industry, for decades. Only recently 
have a few insurance specialists compiled the statistical information to show that there is a true difference in loss frequency and 
severity. Clearly couriers must give more thought and seek advice about what they arc carrying and how they carry their insurance.

While no amount of planning will completely eliminate losses, applying the proper 
safeguards will minimize your risk exposure and save you premium dollars.

In a nutshell, the secret to minimizing claims involves securing your vehicle (locks, window guards, cages, etc.), properly screening 
your drivers, and establishing and enforcing written procedures for making sure vehicles arc lockcd, not leaving loadcd vehicles 
unattended, etc. While no amount of planning will completely eliminate losses, applying the proper safeguards will minimize your risk 
exposure and save you premium dollars.

In the years ahead, the industry is certain to see more fundamental changes. What is certain to remain the same, however, is the risky 
nature of the business.

Adequate and affordable insurance protection will remain a challenge. More couriers will overcome the challenges: a greater percentage 
adopt modern, professional management methods and turn to courier insurance specialists for assistance.

In partnering with these specialists, many of the most successful couriers will learn how to leverage their insurance coverage to build 
their businesses. For these fortunate companies, insurance will become an investment , rather than simply a cost item. With these 
firms setting a higher standard, the industry in general will move toward better risk management. Rather than draining revenues, 
this development should bolster profits. After all, given all the different kinds of losses to which a courier firm is subject, over the long 
run a well insured courier will also be more profitable.

Peter Schlactus, a Certified Insurance Counselor and  Accredited Advisor in Insurance, is Co-President of KBS International Corp., which provides specialized  insurance programs, benefits, and  risk management services to courier companies and executives nationwide. Mr. Schlactus is available to answer inquiries  at 1-888-KBS-4321 or via e-mail at

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