Top Trends and Insurance Implications for Home Delivery in a Changing Marketplace
As demand for home delivery services increases exponentially, retailers and the industry at large are working to accommodate a rising service sector. As a result, new technology and innovative solutions (apps, business models, insurance, etc.) are required to meet these demands and support companies operating in this segment.
Risk Strategies Transportation VPs, Bryan Paulozzi and Brian Jungeberg weigh in on the state of the industry, including top trends, challenges and insurance implications to consider in 2019.
Q: In your opinion, what are the greatest challenges home delivery, last mile delivery and white glove companies face?
Paulozzi: From a high-level, companies should pay attention to bigger players (e.g. ride-share companies) entering the space and driving up competition. Also expect the possibility that tech giants like Amazon and Google could potentially get into the home delivery mix, deploying their own fleets to go direct to customers. Both would impact the competitive landscape and market prices—and not necessarily for the better.
As it relates to insurance, independent contractor (IC) misclassification presents a challenge to large and small delivery companies alike. Many third-party logistics companies (3PLs) still have contracting carriers operating under their authority within a master policy. This could threaten their IC status and thus result in an unintentional misclassification.
Jungeberg: I think insourcing is another issue home delivery companies need to watch. As external costs (such as the price of insurance) rise, then the cost transferred from 3PLs to the end customer will also rise. This will force customers to review outsourcing altogether and look for more cost efficient ways to operate.
Q: Similarly, what do you perceive to be the greatest opportunities businesses and independent contractors (ICs)?
Jungeberg: I would say the biggest opportunity for ICs is the exploding consumer demand for customized doorstep delivery. The appetite for instantaneous product delivery is growing by the day. From furniture and appliances to other household goods, being able to get whatever you want, when you want it, is the new norm. To appease the insatiable consumer demand, opportunities in this space will continue to explode.
Paulozzi: I agree 100%, and would also add that app-based technology is a huge driving force behind this shift in buying behavior. Mobile tech and automated purchasing systems enable consumers to effortlessly search, compare and purchase products from the convenience of their couch. As more consumers take to their phones or smart home tech (e.g. Amazon’s Alexa), demand will continue to increase, and home delivery and last mile delivery providers will certainly benefit from that.
Q: What are the largest external factors impacting this industry and how service providers operate their business?
Paulozzi: From an insurance perspective, the overall tightening of the insurance market will impact home delivery and last mile delivery companies. Major insurance carriers continue to exit the transportation delivery insurance market—including major underwriters like Zurich, AIG, Fireman’s Fund, just to name a few.
Why are insurers removing their programs from the market? Because underpricing in the commercial auto sector over the past few years hasn’t kept pace with the loss performance. Furthermore, auto related claims have been on the rise due to more distracted drivers on the road, plus the ability to tracks ones distraction prior to a crash if they are texting, tweeting, etc. — it all adds up to “nuclear verdicts” that are hitting the commercial auto insurance carriers hard.
We’re seeing this contraction among insurance providers, which makes it tougher, and more expensive, to find coverage in this space. As carriers are eliminated, insurance costs go up—not a great situation for a market with intensifying competition. That’s when “insourcing” can indeed become a threat to the customers with whom they do business.
Q: As it relates to insurance, what are the greatest challenges, threats and opportunities for home delivery, last mile and white glove service providers?
Paulozzi: There’s no doubt the insurance landscape continues to change in this space. We see a growing number of last mile / home delivery companies transition to having ICs operating under their own authority and carrying their own insurance. This helps bolster the IC model, but also opens the door to more challenges and opportunities.
With this change, you’re starting to see more portable insurance policies come into the mix, whether it’s portable Occupational Accident or Property & Casualty insurance. Individual ICs benefit from using these policies to maintain insurance requirements between the 3PL companies for whom they work. This ultimately can help control costs for ICs, but can also present a challenge from a compliance perspective for the 3PL.
That being said, the good certainly outweighs the bad, as these portable policies help to drive down cost, support the IC model, and keep the loss performance burden off of the 3PL, which is a huge benefit.
Jungeberg: Another challenge or threat that could become an issue is the inability to control losses from claims in this industry. There could be a cost crunch that forces insurance carriers to raise rates and deductibles, which means the first dollars (out of pocket expense), to both contractors and 3PLs would be impacted if losses are not mitigated.
Paulozzi: This claims scenario is an important point to raise. What we’ve historically seen are combined insurance programs shared by both 3PLs and contracting carriers. This can be an issue relative to subrogation. With the same insurance company representing both the 3PL and contracting carrier, there’s no way that that carrier can get off the loss.
Conversely, there’s the insurance model where you have a contracted carrier that has his own insurance policy with a unique carrier that is separate from the 3PL. In this scenario, if the 3PL is named in a claim by the consumer, the 3PL’s insurance carrier can push that claim to the contracting carrier’s policy. This is important because subrogation really only benefits the 3PLs policy and helps control their overall costs.
Q: How does Risk Strategies help support home delivery companies in achieving their business and financial goals? And, what are the key differentiators compared to other insurers serving this segment?
Paulozzi: One way we help support this class of business is that we take a holistic approach to managing their unique risk. We have the ability to write the insurance for individual contracting carriers, as well as providing a full suite of insurance products for the 3PL. It’s important to be able to get all insurance and compliance within that ‘one-stop-shop’ platform that we provide.
Risk Strategies leads the way in providing cutting-edge customized risk management strategies for the same day expedited and home delivery industry. We’re not new to the game—this is a space we’ve served and established proven results in.
Partnering with us means you’re getting both the insurance product expertise, but also 360-degree support by our team of industry experts that truly speak your language when it comes to your complete risk picture.
Jungeberg: One key difference-maker is our proprietary insurance program that no other brokers have access to, which includes two A+ rated underwriting carriers, both with large transportation appetites.
Beyond our specialized program and decades of direct experience serving home delivery companies, Risk Strategies Transportation Group is like a boutique agency. Why does that matter? Because it means that we’re more nimble and able to quickly navigate client needs on the fly if needed, and work with our underwriter to manage any type of claim quickly and efficiently. That’s powerful ammunition and peace of mind to offer our customers. They know we can grow and evolve with them, as their business and insurance needs change.