The Importance of Cargo Insurance
Cargo insurance is essential for truckers in the industry, but what exactly is it and why is it important?
The trucking industry is facing tough times as rising operational costs make it harder for carriers to stay profitable. Despite increasing expenses, freight rates haven’t kept pace, forcing some carriers to accept jobs at a loss just to keep their trucks on the road.
What Is Cargo Insurance?
Cargo insurance is a type of property insurance that protects your shipments from loss, damage, or theft. It protects against the risks involved in moving cargo by sea, air, road, or rail. If goods are lost or damaged during transit, cargo insurance compensates the owner for the financial loss.
It’s also important to know that there’s a big difference between cargo and truck insurance. Truck insurance only covers damages to your vehicle, and will not help in any way with cargo. Therefore, having both kinds of insurance is essential to ensure all your needs are covered while on the job.
Types of Cargo Insurance
All-Risks Coverage
This is the most comprehensive type of cargo insurance. It covers a wide range of potential risks that could lead to the loss or damage of cargo, except for exclusions explicitly stated in the policy. Businesses seeking maximum protection often opt for this coverage.
Named Perils Coverage
Named perils insurance is more specific, protecting against particular risks identified in the policy. These might include fire, theft, accidents, or natural disasters. While it’s typically less expensive than all-risks coverage, it offers more limited protection.
Open Cover
Open cover insurance provides ongoing protection for shipments over a set period instead of just covering a single shipment. This type of policy is ideal for businesses that frequently ship goods and need continuous coverage.
Legal Requirements for Insurance
To legally operate, the Federal Motor Carrier Safety Administration (FMCSA) mandates that carriers carry at least $750,000 in liability insurance. However, this does not include cargo insurance. Some states also have additional requirements for companies based in or doing business within their borders.
Most drivers use standard coverage, but specialized policies may be necessary for certain types of freight, such as perishable goods, hazardous materials, or oversized equipment. These are often covered through endorsements added to the standard policy.
Why Does It Matter?
Insurance protects carriers, shippers, and brokers in the event of accidents, cargo damage, or theft. Without adequate coverage, carriers risk significant financial losses and damage to their reputations. Where a carrier purchases its policy is just as important as the policy’s coverage. Additionally, carriers need to focus on the balance between the total cost of a policy and the coverage it provides, rather than simply going for the cheapest option.
The Cost of Risk
A single cargo claim can cost upwards of $100,000—a figure that many carriers, especially small to mid-sized ones, can’t afford. Along with covering damaged cargo, carriers must also repair any damage to their vehicles, making claims even more expensive. For some, a single claim could be financially devastating.
Cargo theft is another growing issue, contributing to rising insurance rates. In response, some insurers have removed theft coverage from their standard policies, requiring carriers to purchase it separately.
Tailoring Policies to Fit
Carriers that haul different types of freight—such as dry goods versus heavy machinery—require customized policies to cover their unique risks. While basic policies work for many, one-size-fits-all solutions often fall short.
Natural disasters, while seemingly a major concern, rarely affect cargo insurance. Carriers are only liable for certain types of losses, excluding acts of God, shipper errors, and a few other exceptions.
Related Articles: