Do freight brokers need insurance? While you don’t technically need insurance to operate as a freight broker, there are some pretty significant things going on in the industry that put you at a great disadvantage without it.

For one, you can be sued for damages associated with death and injury if your motor carrier is in a severe accident. And with the steadily increasing legal actions being taken against freight brokers in the industry, it’s not “if” but a matter of “when” you’ll get caught up in a lawsuit.

And second, certain insurance lines can provide a competitive advantage with your clients (generally the larger ones).

This article will break down the various risks of not carrying insurance and the opportunities that present themselves.

Top 4 Reasons Why Freight Brokers Need Insurance

  • Insurance Protects Your Operation Against Various Forms of Litigation
  • Insurance Protects Your Shipper From Loss and Litigation
  • Certain Insurance Lines Are Prerequisite to Work With Many Larger Shippers
  • Insurance Provides a Unique Value Proposition and Competitive Advantage

Reason #1: Insurance Protects Your Operation Against Various Forms of Litigation

Interestingly, many freight brokers are not aware of the litigation trends currently taking place in the industry, and many are caught utterly unprepared by the time and financial costs of defending themselves in court.

You need to remember that there’s no downside to a plaintiff naming a freight broker in a lawsuit as it’ll only increase the chances of getting a larger judgment amount (if the plaintiff wins the case), which is why they are increasingly being named. And the unfortunate reality is that it’s expensive just to defend yourself, regardless of the outcome.

If the outcome is a judgment against your broker operation, it can be catastrophic. There is no cap on judgment amounts, so losing a case could seriously hit your operations and, worse, put you out of business. Fortunately, though, this outcome is avoidable with the right insurance coverage.

Important lines such as Freight Broker Auto/Third-Party Liability will pay for a broker’s defense costs and judgment when the broker is named in a lawsuit where death or injury occurred.

Reason #2: Insurance Protects Your Shipper From Loss and Litigation

Freight brokers aren’t the only tertiary targets in the lawsuits, as their shipper clients are also at similar risks. Shippers are also pulled into legal battles to build and enhance the chances of winning cases.

Freight brokers can affordably carry the appropriate coverages to protect them and their shippers whenever the motor carrier’s coverages max out or simply fail to do so.

Additionally, gaps in cargo insurance coverage or ambiguous contingencies can put the shipper’s goods at risk in the event of theft, loss, or accident. So by having insurance coverage, you can protect your client against lawsuits and damage settlements. And don’t forget that you can proactively position yourself as the best source since you have the required covers.

Reason #3: Certain Insurance Lines Are Prerequisite to Work With Many Larger Shippers

Loss, litigation, risk management, and legal counsel have caused many of the larger shippers out there to demand more protection from their freight brokers. Many freight brokers entering the market or ascending into new revenue tiers have to up their insurance covers to accommodate the shipper’s requirements.

Additionally, the most competitive brokers are setting the standard in the market. Even if the shipper doesn’t require umbrella protection, competitive brokers proactively offer it, making the brokers who don’t have it obsolete.

Reason #4: Insurance Provides a Unique Value Proposition and Competitive Advantage

There’s a lot of competition, and it can be exhausting to compete on price and speed constantly. If a freight broker can obtain and position on a new differentiator, they can potentially elevate themselves beyond the commoditized criteria and win based on other values.

In many cases, insurance covers can be that competitive edge. If your client understands the risks and trends, there is a good chance they’ll place value in your insurance policy if it reduces those risks for them.

Carrying policies that protect your shippers goes a long way in communicating that you have their best interest in mind. You’re not just focused on the deal itself but considering scenarios that could happen that are outside your and your shipper’s control.

All of this works to improve your brand value and reputation in the industry.

How to Find the Right Agent To Purchase Freight Broker Insurance From

So, do freight brokers need insurance? Absolutely. Here are some things to keep in mind:

  • Freight broker lines/limits vary depending on the freight broker’s size and focus — it’s never one-size-fits-all.
  • Look for an agent that specializes in freight broker insurance. You have unique needs and challenges and should work with an agent who understands your business’s ins and outs.
  • Invest in the coverages that will adequately protect your freight broker operation and not let an agent steer you towards cheap coverages that will not do much in the event of a loss or trial.

Things to keep in mind when finding freight broker insurance

  • Freight broker lines/limits vary depending on the freight broker’s size and focus — it’s never one-size-fits-all.
  • Look for an agent that specializes in freight broker insurance. You have unique needs and challenges and should work with an agent who understands your business’s ins and outs.
  • Invest in the coverages that will adequately protect your freight broker operation and not let an agent steer you towards cheap coverages that will not do much in the event of a loss or trial.

On that note, here are some of the freight broker insurance covers to consider:

Third-party auto liability: This would automatically cover the litigation costs if you’re sued and even settle the lawsuit if held liable.
Broad form cargo: This type of insurance will cover you against any loss/damage to the shipment and can be essential in closing the gaps that the carrier’s policy might be having.

Things to keep in mind when finding freight broker insurance

Third-party auto liability
  • This would automatically cover the litigation costs if you're sued and even settle the lawsuit if held liable.
Broad form cargo
  • This type of insurance will cover you against any loss/ damage to the shipment and can be essential in closing the gaps that the carrier's policy might be having.

If you need any freight broker insurance or need to learn more, you can contact us for a consultation.

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