Dos and Don’ts for Insuring Growing Transportation and Logistics Businesses

The demand for delivery services has never been higher than it is today. And neither has the demand for independent contractor liability insurance in the delivery industry. 

Now technology can automate hours of back office administrative work at transportation companies, freeing up your team to focus on more important priorities. 

Delivery companies contracting with independent contractors (ICs) are critical for businesses to keep up with the demands of today’s market. New delivery companies, new motor carriers, and new ICs are entering and exiting the market every day, and everyone is reacting rapidly to keep up with demand. But fast change means high risk, and higher insurance rates follow. 

Transportation companies need technology to help keep up with demand and keep costs down. 

How can delivery companies play a role in providing the necessary coverage to protect their businesses, as well as the ICs engaged with them at an affordable cost in this new world of work without limits?  

The Dos and Don’ts. 

When utilizing independent contractors in logistics, here are some dos and don’ts to keep up with client demands, to manage risks, and to ease administrative burdens.  

DO create visibility for your insurance provider into the drivers you are using. Establish a system to make it easy for drivers to provide you with documentation such as background checks, insurance certificates, motor vehicle records, and so forth. This not only creates accessibility to important documents, but it also helps you have good qualification protocols in place. Insurance companies like this. 

DO have a protocol in place to update driver lists in real-time. In the world of logistics, high driver turnover is a naturally occurring event. Establishing a protocol to keep track of drivers no longer contracted with you as well as new drivers coming in will help keep this data organized and current in the event of a claim.

DON’T rely on spreadsheets and manual tracking for organizing this essential data. There are a lot of moving parts in a logistics business. Luckily, there are technology platforms available that link insurance providers to their insureds to alleviate the administrative burden of tracking important documentation. This technology can also send alerts for things like approaching expiration dates for licensures, enabling businesses to be proactive in obtaining proper documentation from your drivers.  

DON’T underestimate compliance monitoring. Compliance monitoring is critical for insurance companies and brokers to protect their interests, and their insureds. Whether compliance monitoring is through a third-party platform or a separate department within your organization, figuring out a way to continually track, update, and maintain files will increase visibility on all fronts.  

DO empower your compliance department to protect as best they can. If you are handling compliance in-house, it is important to continually educate and update staff on specific logistics industry-related issues so that they can continue to acquire the proper documentation.  

DON’T assume the master contractor owns or leases the vehicle. Typically, ICs use their own vehicles but that is not always the case. Sometimes they rent or lease them to or from others. When vehicles break down, ICs often utilize temporary vehicles to keep their business moving. When ICs need extra help, they utilize subcontractors and helpers to drive vehicles. Keeping current on each vehicle, driver, and exposure is critical. Make sure you have a strong, consistent process for updating vehicle and driver information daily, so you always know your exposure.  

DO remember the four basic elements in establishing IC status. When you insure ICs and your business, those independent contractor relationships should be defined as independent under the law. Every state has slightly different parameters of establishing independent contractor status. However, there are similar elements in common:  

• The driver needs to be paid on a 1099 based on a factor of the performed work (rate per mile, percentage revenue, rate per delivery, etc.). They cannot be paid hourly or salary.  
• The driver should work under a formal written agreement.  
• The driver should have a material investment in the tools or skills needed to perform the job (in this case, their own vehicle or vehicle rental).  
• The driver must be the one determining the method, manner, and means of performing their work.  

Insurers will require visibility in the relationship to verify these four basic elements are properly established and maintained.  

DON’T assume ICs are only accepting work with your business. By their independent nature, ICs in the transportation industry often try to generate multiple revenue streams through more than one contracting company. Make sure you have a strong, consistent process for documenting when an IC is completing shipments for your company. 

The Solution 

Industry trends indicate transportation companies are investing in technology. Insurance companies should do the same when serving logistics clients.  

Just as people in their everyday lives are relying more on technology and making purchases via apps instead of at the checkout counter, transportation companies are starting to realize how investing in tech, or better tech, will set them up for success. Their customers, underwriters, and investors are making new tech investments, and logistics companies have no choice but to improve their management platforms in order to compete.  

Expert industry veterans are expecting logistics companies to focus on integrating systems and using full-service TPA offerings equally (both coming in at 40%). Another option, though it comes with greater cost and potentially less domain knowledge, is to hire additional in-house technology staff (20%).     

The pressure to increase investment in technology comes at the same time claim expenses, administration expenses, and insurance expenses are rising. Established transportation companies are looking for insurance carriers making similar investments in technology to ease administration and reduce costs. 

In the new world of working without limits, allowing technology to be the bridge between all involved parties is the way forward in compliance, in risk mitigation, and in supporting the small businesses that are proud to represent America’s entrepreneurial spirit.