Ultimately, it’s up to the insurers and truck carriers to implement risk management strategies to mitigate cargo threats. (xavierarnau/Getty Images)
According to Claude Pettis of Hub International, cargo theft isn’t just a rising concern, it’s a swarm.
“It’s an exponential advance,” explained Pettis, who is the insurance broker’s ocean marine director. “It’s morphing so quickly that tactics used even as little as a year ago are being discarded and new ones put in their place.”
Cargo insurance companies face a dual challenge: a dramatic surge in cargo theft incidents and the increasingly sophisticated technology behind these crimes. The industry has made some progress in its response but needs to develop more effective countermeasures, according to multiple insurance brokers.
“Within this industry, there’s not enough sharing of data. I think if we could do a better job of that, we can start connecting the dots,” said Rick Bridges, vice president and account executive for supply chain and logistics with Lockton Cos.
Tech-Fueled Cargo Theft
Well-funded criminals, often from Eastern European countries, infiltrate the logistics network linking freight brokers and truckers, then collect the data to create fraudulent bills of lading or set up fictitious carriers, said Bridges.
“For example, it could be a truck shipment of 50 pallet loads of electronics. They might manipulate the bill of lading to show that it’s only 40. They’ll deliver the 40, and they keep the 10,” he said. “They do that 20 times to an unsuspecting distribution center.”
Bryan Paulozzi, vice president of transportation for Risk Strategies, says the increase in theft exposes supply chain vulnerabilities, such as inadequate vetting procedures. Because the logistics network is so highly transactional by nature, the criminal act might not be noticed right away.
“Things are just moving at such a fast pace. I think that’s why you’re starting to see the supply chain be targeted in the way that it is,” he said.
Nick Saeger, associate vice president of products and pricing for Sentry Insurance, noted that insurance premium increases will follow in the rise of cargo theft.
Saeger
“When increased costs occur, like the industry is seeing now with cargo thefts, rates need to keep pace,” he said. “While rates contemplate the risk of theft, when the frequency increases beyond what’s expected, rates need to match that heightened cost. Combined with some of the recent inflationary pressures, the severity of losses has been increasing too.”
Jim Heide, chief operating officer and co-owner of Loadsure, noted that many insurance companies are taking a harder look at carrier onboarding practices and risk management. In response to higher premiums, insurance companies will get creative, he said.
“Maybe your tolerance for a higher deductible is easier, so you can increase the deductible, which will impact the premium,” Heide said. “Maybe you’ll be open to some more limiting insurance terms or warranties in the policy around using certain technologies to try and mitigate these things like IoT tracking, having telematics tracking of the vehicles, or IoT in the loads.”
Cordell Fenig, senior underwriter at Vivace Insurance Partners, said among the “creative ways” that insurance underwriters can respond to cargo theft are higher premiums, which can be used for high-risk cargo such as pharmaceuticals, electronics or metals. If shipments are going to high-crime regions or regions with civil unrest, insurers can customize conditions and split deductibles specifically for theft risks. They also can apply coverage to cease at certain points of the shipment.
Graber
Chad Graber, a risk manager for TrueNorth, says theft-specific deductibles and commodity-specific sub-limits are becoming more common, with significantly higher retentions and lower sub-limits than the standard policy deductible and limit for non-theft loss types.
“Historically, if an insurer’s coverage form excluded high theft risk commodities such as electronics and pharmaceuticals, an insured [party] could negotiate and procure a coverage endorsement,” Graber said, adding that it has become difficult and expensive to do with insurers charging more or choosing to outright exclude with no exceptions.
Another mitigation strategy is to keep the communication lines open between insurers and carriers.
“It’s important for trucking companies to sit down and review their coverage with their agent and insurer right now,” Saeger said. “A few conversations can ensure truckers have adequate coverage, which can go a long way in avoiding additional financial losses following cases of theft.”
Pettis
Pettis noted that extending the vetting process to include the private sector and bolstering cybersecurity protection for a company’s internal systems are initiatives that the industry ultimately should pursue.
“We’re trying to emphasize strengthening relationships — battening down the hatches on your weak points and your warehouses,” Pettis said. “I’ve also been advising my clients to do things like vary your lanes and modes of transit so that they’re not so predictable.”
Policy Term Adjustments
As cargo insurance companies adjust their policy terms, they may take actions to limit their liabilities, such as monitoring losses at more frequent intervals or seeking more detailed spreads of the type of commodities, and the origins and destinations of those commodities.
Fenig
“It is a good rule of thumb to always check an account’s claim status midterm or at the six-month period,” Fenig said. “That way, you can see and get ahead of things if there are any trends occurring such as theft risks.”
He also noted that if there is a policy adjustment, the factors that go into those adjustments are frequency of theft claims, location, and which carriers and commodities are more prone to theft.
According to Graber, rates are continuing to climb in inland marine markets due to the increased theft exposure across an insurer’s total book. Theft-specific sub-limits and increased deductibles are more common now, typically around high-risk commodities, thus increasing an insured’s potential out-of-pocket exposure as markets attempt to reduce impact.
RELATED: Stakeholders Urge Congress to Take Action on Cargo Theft
To address these increased premiums, insured clients should consider developing and demonstrating a robust internal risk management team, which may utilize nationwide theft data or work with a specialized broker “that can help tell the story of active steps an enterprise may be taking to combat theft,” Graber said.
Brad Schneider, director of underwriting commercial lines at Sentry Insurance, recommended that underwriters must work closely with agents to review the account exposures of individual fleets. If a fleet hauls a lot of high-theft commodities such as metals, consumer electronics, shoes, beer or similar materials, an underwriter may offer a special theft deductible or tailored coverage limits, he said.
In other instances, an underwriter may debit an account based on cargo loss experience or those higher-theft commodities, which helps customize the pricing to more adequately reflect the exposures, Schneider continued.
Schneider
“Fleets have the opportunity to potentially stabilize their cargo insurance premium costs by being proactive with their safety and loss control measures. Load securement is a key strategy for reducing cargo theft,” he said.
Indeed, providing evidence to an insurance provider could help a client get the coverage that the client needs, according to Risk Strategies’ Paulozzi.
“You might not be able to get insurance on a high-value pharmaceutical load unless you can show documentation of geofencing, tamper-proof seals, vendor vetting, things like that,” he said. “Where these specific warranties are going to go on the policy that say, we’re not going to pay a claim unless you have XYZ in place for technology.”
Insurance companies may ask trucking companies to deploy technologies, such as cameras, IoT and telematics for vetting at the carrier level and driver level, according to Loadsure’s Heide.
“One thing we’re working on in particular is trying to help our customers further upstream, before the wheels even roll. It’s a concept we refer to as risk insights, that essentially couples with insurance but provides our customers hazard information … to help mitigate their risk,” he said.
However, one issue that has arisen lately is when insurers decline a cargo theft-related claim when it involves a fictitious carrier because the insurers argue that such a situation doesn’t meet the conditions of the policy, according to Paulozzi.
“It’s going to take people getting together, both on the cyber side and the cargo side, to say, ‘Wait a minute, how do we help the industry here gain back this coverage?’ ” he said. “We’re actually working on an endorsement right now to our cargo policies that would be a cybertheft enhancement that would give insurance coverage against this particular loss for fraudulent carriers.”
Useful Data Points
If used in tandem with technology, data points can provide insurers with helpful insights into cargo theft patterns while ensuring that truck carriers are who they say they are.
“The utilization of state-of-the-art carrier vetting, tracking and screening platforms such as Go Highway, along with heightened criteria for onboarding eligibility, tend to provide insurers with a level of confidence that the insured is engaged and being an active partner in theft prevention,” Graber said.
Tammy Kozelek, claims manager for Sentry Insurance, said that the firm uses several methods to help identify fraud, including predictive analytics based on the information provided regarding the claim.
Kozelek
“Factors such as a particular region where the theft occurred, specific types of loads or possible names and addresses can flag a file,” she said.
However, insurance brokers acknowledge that the industry has yet to form a thorough and effective response against cargo theft within the trucking industry. That response will need to involve action from the public and private sectors.
Both FMCSA and the insurance industry need to work collectively “to find a solution. It’s not a one-party fix, and it’s going to inflict pain on transportation intermediaries and ultimately the shipping public as well, when it gets to that,” Lockton’s Bridges said.
An issue with vetting is that FMCSA’s database on trucking companies can be easily manipulated, according to Bridges. A trucking company might sell its trucking authority and its established credit to a bad actor, he said.
However, while technology has its usefulness, it’s ultimately up to the insurers and truck carriers to implement risk management strategies to mitigate cargo threats.
“The software, the technology is only as good as the users, in terms of utilizing the data that they’re being armed with and provided with, and then following through on it,” Paulozzi said.
And shippers also may need to get more involved in stopping cargo theft, Bridges said, adding that to some degree, it’s always been looked at as a logistics provider’s problem. But it’s becoming a shipper’s problem, too.
“When you have other pressures, whether it’s the tariffs or things like that, there’s going to be a breaking point,” he said. “So, I think shippers need to get involved just as much as us in our little world of logistics to help solve the problem.”
