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Compliance Challenges and Opportunities for 3PLs

By Bryan Paulozzi, Vice President, Transportation


Compliance Challenges and Opportunities for 3PLs

Third-party logistics companies (3PLs) are in an increasingly difficult position when it comes to insurance claims related to deliveries. A key part of today’s supply chain, they connect large retailers with smaller deliverers, leading delivery operations and ensuring orders are fulfilled. Sitting in-between major corporations with vast delivery needs and overtaxed deliverers poses a unique compliance challenge for 3PLs.

Pressured by delivery demands, 3PLs sometimes make a calculated business decision to contract with smaller deliverers lacking proper coverage. This is playing with fire and can lead to 3PLs paying huge sums for claims. All it takes is one big claim and all of your hard work, and the trust you’ve built with the retailer, goes out the window.
 

The Gap

Why is there such a gap in compliance amongst smaller contracted deliverers right now? For many years, so-called “master policies” dominated the industry. Through these policies, the 3PLs provided insurance for their subcontracted deliverers directly and then charged them back. 3PLs never had to confirm coverage compliance or worry about unforeseen exposures because they maintained full control over the insurance.

When a major carrier dropped out of the market at about the same time the subcontractor model itself came under attack by proposed legislation, 3PLs began to push contractors to secure their own insurance. Without direct control over contractors’ coverage, the need for stricter compliance oversight grew rapidly.
 

The Opportunity

The increasingly litigious nature of the industry, paired with the increasing complexity of delivery services, means that increased compliance is not just a necessity, but a business opportunity – one for 3PLs to save millions on paying claims out of pocket by investing in proactive compliance. It is no longer enough for 3PLs to ask for their contractors to show a certificate and check off certain insurance coverage boxes.
 

Increasingly, these deliveries are happening beyond the threshold, within people’s homes, which opens up new categories of vulnerabilities not typically offered in standard auto insurance policies. They are delivering and installing large appliances (i.e. washing machines) that could cause significant damage if not done correctly. To cover losses related to beyond-the-threshold damages, contractors need to hold policies that do not exclude loading/unloading and installation claims. Too often, 3PLs do not find out that their contracted deliverers lack proper coverage until it’s too late and they experience an incident that results in a loss.
 

Proactive Compliance is Needed

The only way for 3PLs to make sure that they are not vulnerable to costly claims is to build robust compliance programs internally or outsource it to a third-party organization that has extensive experience in the transportation insurance space.

These compliance teams need to be able to recognize which insurance carriers offer the necessary coverage for these types of deliveries. Experienced industry professionals know which carriers to avoid and which to recommend to subcontractors and 3PLs. There are patterns that they can identify that will prove valuable when protecting against risks.
 

Being proactive rather than reactive and developing these compliance programs will take time and money upfront, but it will pay off in the long run when 3PLs can significantly reduce the amount they’re paying out of pocket for claims and incidents. Additionally, bolstering compliance requirements will protect the reputation of the large retailers hiring 3PLs, whose brands have historically been damaged by lawsuits stemming from contractor negligence.
 

Additional Contractor Considerations

As 3PLs strengthen their compliance programs, they need to be aware of the challenges facing the deliverers they’re contracting with. Insurers are increasingly cautious about the policies they offer in this space, especially when nuclear verdicts are on the rise, with payouts well above the standard $1 million coverage limit.
 

Given the ongoing driver shortage, 3PLs and corporations need to be cautious that tighter compliance guidelines do not make it harder to do business. More deliverers will exit the market if they can’t afford higher premiums.
 

Whether you’re a 3PL or a contracted delivery company, finding the right coverage requires the right broker. Contact us below if you’re interested in discussing options.

 

Want to learn more?

Find me on LinkedIn, here.

Connect with the Risk Strategies Transportation team at transportation@risk‐strategies.com.

Email me directly at bpaulozzi@risk‐strategies.com.

Listen to me discuss this topic on the OpenForce Podcast.


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