Insurance strategies

Scope

There are various insurance strategies available to assign risks associated with a transportation company.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Insurance strategies a company might consider include:

• Single sourcing. Single sourcing or “packaging” is a way to attempt to reduce insurance costs while addressing both good and bad risk exposures. Furthermore, by packaging all of a carrier’s insurance needs with one insurance company, that carrier can simplify notification, reporting, and filing requirements.
• Layering insurance. Layering insurance coverage is a way to attempt to get the best cost for a company’s insurance by establishing monetary layers of coverage and then negotiating rates for each separate layer. A carrier may secure one policy for the first million dollars of loss. This would be seen as the first layer. The company would then negotiate policies for additional amounts (layers) as they saw fit. This practice is becoming more common, as carriers typically have claims under one million dollars but settlements exceeding 20 million dollars are becoming more prevalent.
• Self-retention. Self-retention is another way of covering risks associated with the transportation industry. Self-retention is also referred to as self-insured, thereby being viewed as an insurance strategy. This type of “insurance” is often associated with a smaller level of exposure such as $250,000. All claims filed against a transportation company under this amount would be paid directly by that company, as no outside insurance company would be attached at this level. The trucking company may then determine that all claims over $250,000 must be covered by an outside company. This of course, refers back to the layering approach, with the trucking company “carrying” the first layer, while additional layers are assigned to outside insurance companies.
  • Self-retention is an excellent way to reduce the costs associated with insurance policies however; a financial analysis must be done to determine what level the trucking company can handle out-of-pocket without negatively affecting its financial position.