Courier insurance can be both misunderstood and NOT understood. Unlike a new truck or warehouse, or even new technology, insurance doesn't seem to "pay off" until or unless there's a big claim. In truth, if you know where to look, and you're not noticing daily returns on your insurance investment, you should reexamine your coverage, broker service, and risk strategy.
In the world of courier, same day, and last mile delivery, insurance is a key component of your operation. Protecting you against risk allows you to invest in your company and expand your customer base while upholding the promise to protect against financial harm.
Time-sensitive delivery and other mission-critical logistics services expose you and your customers to hazards every hour of every day.
If your insurance program feels foreign to you, you're not alone. There is nothing tangible to handle, and it's hard to get a "feel" for loss control because more often than not it's less than user-friendly and difficult to understand. This guide will help you understand your insurance by explaining common concepts and categories that make up the foundation of many types of policies.
It's important to note that the summaries we're providing are general guidelines. It's always important to read your policies, including "exclusions" and "definitions" that provide key provisions. The good news: you'll find there's much more "plain English" than there used to be, also never be shy about having your broker translate when needed. Remember, your courier insurance is one of your largest investments.
What You Should Know
- Limit of Insurance - (aka policy limit, limit per occurrence, or just "limit"): The dollar amount up to which your insurance will pay in the event of a covered claim. If the claim is greater than the limit, you're on your own for the excess amount. Some policies contain one or more "sub-limits" which set more conditions on how much the policy will pay. For example, a policy with a $200,000 limit on property loss could have a $50,000 "sub-limit" for property left unattended. An "aggregate limit" on the other hand, shows the most an insurance policy will pay for all claims combined during the policy term (usually a year).
- Deductible - Deductibles reduce your costs. By agreeing to share a manageable portion of the risk, you presumably will do what you can to minimize claims. The higher the deductible, the lower the premium charged. Some policies feature multiple deductibles that apply to different types of claims. Deductibles are applied to the first dollar payable on a claim. Then insurance takes over and pays the rest, up to the policy "limit." Either your payment is reduced by the deductible amount, or you contribute that amount to the settlement of a claim, or you reimburse the insurance company if it lays out the money.
- Self-Insurance Retention (SIR) - Like deductibles, but your contribution is triggered by legal expenses as well as claim payments. Since legal expenses tend to be incurred earlier (or exclusively) in the claims process, your obligations may kick in sooner. Still, they are capped, just as they are with a deductible.
- Endorsements - An amendment or change to an insurance policy. Endorsements are used in two ways. First, they are added during the course of the policy term to reflect changes in your preferences (e.g., increased or decreased limits) or your operations (e.g., new locations, vehicles, drivers, etc.). Second, insurance companies attach endorsements to the basic policy contract at the outset in order to adjust its terms and conditions.
These "initial endorsements" can be as common and standardized as the basic policy forms they modify. They can expand or restrict coverage. Some are required by various state regulations (e.g., state-specific cancellation provisions). Others customize the policy for your company, reflecting either the preferences of the insurance company or special requests from you and your broker. If these are important to you, check to make sure they appear as you expected. Policies often include a list of initial endorsements toward the beginning.
Aka: "third-party coverage" refers to a category of insurance policies that protect against claims/lawsuits brought against you. Claims may allege injury to people, loss or damage to property, mistakes that cause others to suffer financial loss, and various kinds of misconduct. Commonly, liability insurance policies pay for your legal defense costs, court settlements or awards, and related costs, such as interest, bonds, etc.
Various kinds of liability insurance protect against different risks. Coverage you should consider include: "Auto" insurance (the liability section),"Warehouse Liability" insurance, "General Liability" insurance, "Management Practices Liability" insurance, "Errors & Omissions Liability" and "Directors & Officers liability" insurance. Cargo insurance is often sold as "Cargo Liability" insurance, but better "non-liability" protection is available.
Sometimes contracts that customers, landlords, and others present to you will contain liability insurance requirements using outdated and unavailable coverage terminology. These include "comprehensive" general liability, "public" liability, "broad form" liability, etc. Your broker should be able to assist you with suggestions for updated contract language that will allow you to comply.
Liability insurance involves lawsuits or the threat of legal action. It is important to be aware of how your insurance handles the costs of legal representation. Most policies make it the insurance company's responsibility to hire and pay attorneys, but some reimburse you after-the-fact in certain cases.
In part two of our two-part series, we’ll dive into the various types of Liability Insurance and their importance in your overall risk management strategy.