As our industry changes and adapts, the risks change and the need for carriers to insure against them must keep up.
Andrea Obston, PR director of the Customized Logistics and Delivery Association (CLDA), recently interviewed Lisa Paul, CPCU of Paul Hanson Partners and Peter Schlactus, CIC, AAI of Brightstone Insurance Services, LLC. Both organizations provide protection for CLDA members along with four other affiliate providers.
Here’s what they had to say about the risk and protection trends that impact our industry.
Question: What changes have you seen in the industry over the last five years that have had an impact on the insurance coverage that carriers need?
Paul: Issues around wage and hour laws for employees and IC misclassification issues have expanded and worsened in many states. As a result, the traditional insurance costs for Directors and Officers Liability, and Employment Practices, have continued to rise. IC’s in the traditional heavy durable goods delivery (B2 room direct or B2 white glove) are using the same assets in this industry to engage in the easier B2B (business-to-business) and B2T delivery of parcel only. This e-commerce space has placed a greater demand for qualified ICs and therefore recruiting, retaining, and engaging ICs is critical. New insurance products for these ICs—including improved commercial auto coverage, broad form general liability, competitive occupational accident, and the new CLDA accident and health solutions for ICs—will be important for companies to successfully recruit and retain these important vendors to the supply chain.
In the courier space, shippers and logistics companies are requiring higher levels of insurance and seeking to shift liability to couriers and last mile freight brokers and carriers. [Many are] carrying only state minimum levels of auto coverage and not specifying whether personal or commercial insurance has led to high hired and non-owned auto premiums. [Those premiums] can be mitigated by improving IC agreements to match the same demands of shippers, improving compliance checking of those underlying policies and thus reducing hired and non-owned auto premiums.
Schlactus: The most consequential change I’ve noticed is a shift away from traditional on-demand delivery toward more routed or scheduled supply-chain distribution work. This is because of rapid online shopping growth, and rising expectations for express delivery fueled by buyers—consumers and businesses. With this increased emphasis on scheduled routes and new kinds of distribution work, our clients’ insurance and risk management needs have evolved.
Increased use of employee drivers has sparked a need for more sophisticated Workers Compensation programs as well as increased requests for employment practices liability insurance to protect against allegations of discrimination, harassment, wage and hour violations, wrongful termination, and more.
Home delivery brings with it more “white glove” service involving assembly of furniture and equipment, and installation of appliances and other items. This adds significant liability risk. Drivers may interact with electrical and plumbing systems creating the risk of fire or water damage. Poorly assembled products can break or collapse causing additional damage and injury. It’s also critical for companies to hire the right people for repairs, and they should make sure their insurance will extend to cover accidents that happen well after their drivers have completed a run and left the scene.
Lastly, a number of larger supply-chain customers are inserting provisions in their contracts that require additional kinds of insurance not previously seen, specifically “errors & omissions” (E&O) liability insurance and “cyber-liability” insurance.
E&O is like malpractice insurance for a carrier’s operations. If customers are financially harmed by how the carrier and its drivers deliver their services, this insurance can protect against legal expenses and damages. It’s important to understand what a customer expects when they request this insurance. Many E&O policies, which are not standardized, may not provide all the protection desired, especially when injury to people is involved. A gap in coverage could leave a motor carrier holding the bag for unlimited liability.
So-called cyber-liability insurance is a catch-all term for policies that protect against loss of personal or private information as well as a host of computer-network-related risks. This could include the loss of paper records a carrier is storing or transporting, as well as computer crimes, or failure to secure hard drives, thumb drives, etc. As retailers and distributors transfer customer data to facilitate supply-chain delivery work, they want to know they’ll be protected from financial fallout.
Question: Have there been new insurance products over the last five years? If so, how are they different than those before them?
Paul: New products have emerged to address wage and hour, and IC issues. However, the biggest changes are in the creation of insurance specifically designed to help small business motor carriers and ICs, and the offering through settlement deduction is critical to recruit and retain these critical vendors. We are particularly mindful of that as CLDA expands its membership to include independent contract drivers as members of the association.
An example of this is the new tax audit coverage CLDA will be offering ICs in the fourth quarter of this year. It will give members access to a network of CPAs to help them solve state or federal tax audit issues. This is a valuable benefit to any employee or IC of a CLDA member company. These small businesses need health, dental, vision and ACA enrollment solutions for their operations and obtaining those coverages through their trade association of the CLDA is the proper venue for them to obtain it. Additionally, occupational accident coverage based on revenue instead of a monthly premium allows couriers, freight brokers and 3PD companies to utilize more part-time ICs who then pay premium through a trade association like the CLDA for the few hours a week they decide to come on their app and deliver parcels. Harnessing retired folks who may want to deliver on an app 4-6 hours a week may be exactly what the industry needs to meet capacity. These folks can also have multiple revenue streams from a number of couriers, shippers and 3PLs, such as drive for UBER, deliver a parcel for Amazon, and deliver pharmaceuticals for a courier. This also solves the misclassification issues—if the IC has multiple revenue streams they are clearly holding themselves out as an IC. An occupational accident policy that is based on revenue allows for a more equitable proposition for the IC.
Schlactus: As the courier and delivery industry has evolved, insurance providers are driven to keep up.
For example, the last few years has seen the introduction of insurance policies that protect against the risks of IC misclassification. Previously, insurance policies either excluded such claims or were silent, forcing you to try and make a case for coverage by parsing the nooks and crannies of the policy language. Now, affordable policies that explicitly grant coverage for misclassification claims are spreading throughout the industry.
As another example… Does this sound familiar? “They dented the wall,” or “they scratched the floor,” or “they knocked over the computer or artwork”? When pick-up or delivery results in damaged property, independent delivery drivers who maintain personal auto insurance (versus a more expensive business auto policy) may find themselves without coverage. In such cases, the customer’s claim falls back on the motor carrier. A new endorsement available with auto insurance policies protects motor carriers—and their relationships with customers.
Auto liability insurance, after all, is not designed to make your customer happy. Rather, it directs the insurance company to determine who is legally liable for the claim. When the answer is an independent contractor, the insurance is technically justified in refusing to pay. Instead, it defends you against the customer’s claim.
Of course, this is not the desired outcome. The new endorsement solves the problem by putting the delivery company into the driver’s seat to determine when a customer (or the customer of a customer) should get paid for damages caused during a pick-up or delivery.
Finally, we have seen an upsurge in insurance products aimed at individual independent delivery drivers or “master contractors” with mini-fleets or their own handful of sub-contractors. Insurance programs specifically designed for home delivery operators vs. B2B local freight vs. parcel delivery couriers are emerging.
Question: How has the increase in on-line shopping impacted the risks carriers are experiencing and need for different types of coverage?
Paul: Online shopping is bringing products into homes and work places that previously were not transported to them by last-mile providers or couriers. These products bring new challenges due to installation. These products necessitate the need for increased general liability coverage because of the risks posed by that installation process.
In the future, we also foresee a time when last-mile and courier companies will form strategic alliances with home assembly and “handyman” companies. This might help all involved, but would, of course require a system where those companies are vetted, have insurance, background checks and provide drug screening to protect all involved.
Schlactus: The rise of the online shopper has impacted the same-day delivery industry in several ways. Each has impacted the insurance coverages and risk management challenges of transportation businesses seeking to capitalize on these trends.
First and foremost, the traditional owner-operator model of making deliveries is under pressure on two fronts. On the one hand, with more predictable work and the demands of larger supply-chain customers for supervision and control of workers, we are seeing more companies running their own fleets with employee drivers. On the other hand, a stubborn shortage of quality drivers and the lure of Uber-style gig work have made it challenging to maintain and grow a reliable cadre of drivers who will utilize their own vehicles.
We have found the owner-operator model to be less risk-prone than fleets. And the risks of Uber-style driver sourcing are just starting to come into focus as troubling headlines persist (check out WhosDrivingYou.org for some sobering data. This spells potential trouble for auto insurance prices, as riskier models lead to more accidents and drive up rates.
Companies that have relied mainly on owner-operators in the past should be especially careful about embracing fleets or experimenting with gig-economy recruiting. All too often, clients come to us under pressure from a large new prospective customer to bite off more than they can realistically chew. Or, they may be desperate for drivers, and they come to us to check if “my insurance will cover” the new initiative they are already committed to.
Even when the answer is yes, the risk of poor claims performance (i.e. lots of costly accidents) is high. That leads inevitably to spiking insurance premiums that endanger the new business a carrier has worked so hard to develop. Those who start small or plan ahead in consultation with advisors have tended to fair much better.
Another side to the delivery of goods purchased online involves the use of driver’s helpers. Helpers open up a veritable Pandora’s Box of risks. For example, auto accidents now have the potential to injure a passenger. For those companies who treat drivers as independent contractors or vendors, how well can a carrier set and uphold hiring standards for these additional workers? Will drivers treat helpers as employees? If so, how will workers compensation obligations be met and verified? If not, how will a carrier avoid getting dragged in to cover helper injuries? Companies taking on work that will require helpers are well-advised to seek counsel early on.
Question: Has the rise of the Internet changed the way insurance providers like you do business with your customers in this industry? If so, how?
Schlactus: Absolutely. First, clients can now utilize online portals to generate their own Certificates of Insurance 24/7 as well as auto ID cards.
Online services also are enabling insureds to request updates to their insurance, such as changes in fleet vehicles and drivers, and to report a claim or check a claim’s status—all 24/7. New online services are being added or upgraded continually as better tech bridges are built between clients and their insurance data. The days of carriers having to maintain their own extensive insurance files are numbered as so much can already be accessed online through a secure portal.
Looking ahead in the near future carriers can expect the next generation of online applications to streamline and simplify the process of collecting critical underwriting data. This will happen despite companies’ increasingly varied and sophisticated operations. Indeed, online applications are already empowering drivers, with their more modest needs, to apply for insurance more conveniently and with less effort from mobile devices or computers.
Paul: User-based insurance is the key. Customers want the ability to make a change in a policy, pay [a] premium, submit a claim, see claims history and integrate into education and remediation. It’s a good way to drive lower insurance costs and manage risks, especially for large companies with hundreds of employees. However, the customers want more than to just to get a cert, auto ID card or file a claim, they want to be able to manage their entire business including onboarding employees, ICs, conduct training based on data from claims and telematics, and have their own customized message and brand for their employees and ICs. The new CLDA online portal with BizChoice Online allows CLDA members to also access a shared marketplace where ICs and employees can procure insurance, get fuel discounts, lease trucks, conduct training, obtain accounting and tax support and connect with other critical vendors that support CLDA members.
Another change is the use of telematics and the ability to integrate that information in an affordable and low transaction cost way. We use Greenlight Telemetrics (greenlight.life)for that. They offer customers the ability to use technology to measure driver behavior. In addition, this system gives customers the ability to track shipments and get video of incidents like vehicle accidents or product damage. These can be streamed back out to customers. For example, Greenlight monitoring of driving behavior with forward-facing cameras can link that information to the need for driver education. It also syncs drivers’ hand-held device with fleet management systems so users can easily invoice those shipments and do route insertion through Route and Roll.
Question: What changes in the industry do you foresee in the next 12 to 24 months?
Paul: Technology, technology, technology! For example, we are finally seeing big data that is being used to make an impactful difference on public safety and the reduction of insurance costs.
Schlactus: Certainly there is the possibility of truly disruptive change in the coming year or two. Amazon could decide to take most or all of its delivery operations in-house (although I would argue that would be a bad idea). The government or courts could enact landmark legislation or judicial decisions that legitimize—or delegitimize—the use of ICs once and for all under clear rules. A bounding leap forward in 3-D printing (as in the HBO, series, “Westworld”) or molecular teleportation (as in, “Beam me up, Scotty”) could completely upend the industry.
In all likelihood, though, the pace of change in the industry will continue to be relatively gradual. Despite all the experimentation and trials, drones and self-driving vehicles likely will take far more time to develop at scale than most media accounts let on. The independent contractor wars will continue on their indecisive way leaving companies exposed and uncertain. Recruiting and retaining quality drivers will remain challenging while the growth of the “gig economy” and its pool of irregular drivers increasingly tempt delivery companies to try out non-traditional labor models.
Lisa Paul, CPCU, has over 25 years of insurance experience. She founded the company in 1993 to provide risk management and insurance placement services to the transportation industry. For more information, visit: paulhanson.com
Peter Schlactus, CIC, AAI, is a Managing Director of Brightstone Insurance Services, LLC, a national delivery and logistics specialist. Peter has been awarded Courier Magazine’s Mercury Award for contributions to the industry and serves on its editorial advisory board. He is a Certified Insurance Counselor, a Certified Risk Manager, and an Accredited Advisor in Insurance. For more information, visit brightstoneins.com
About the Author
Andrea Obston is the CLDA Director of Public Relations.