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.
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
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.
no amount of planning will completely eliminate losses, applying the
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 firstname.lastname@example.org.
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