Freight Broker Insurance Requirements:Protect Your Business in 2024

Freight Broker Insurance Requirements

If you are a freight broker, you know how rewarding and challenging this profession can be. You act as an intermediary between shippers and carriers, helping them find the best match for their transportation needs. You also handle the logistics, paperwork, and communication involved in the freight brokerage process.

But being a freight broker also comes with some risks and responsibilities. You need to comply with various laws and regulations that govern the freight industry. You also need to protect yourself and your business from potential liabilities and losses that may arise from your freight brokerage activities.

One of the most important aspects of running a freight brokerage business is having adequate insurance coverage. Insurance is not only a legal requirement for freight brokers, but also a smart investment that can save you from financial ruin in case of a claim or a lawsuit.

In this blog post, we will provide you with all the information you need to know about the insurance requirements for freight brokers in the US. We will explain the different types of insurance that freight brokers need, how to get them, and how to save money and avoid common pitfalls when getting them. By the end of this post, you will have a clear understanding of the insurance requirements for freight brokers and how to meet them.

What are the insurance requirements for freight brokers?

Before we dive into the details of each type of insurance that freight broker insurance require, let us first clarify the difference between a freight broker and a freight forwarder. These terms are often used interchangeably, but they have different meanings and implications for insurance.

A freight broker is an entity that arranges the transportation of goods by finding and contracting with carriers on behalf of shippers. A freight broker does not take possession or responsibility of the goods, nor does it provide any transportation services itself. A freight broker acts as a middleman between the parties involved in the transportation process.

A freight forwarder is an entity that provides transportation services by consolidating, packaging, warehousing, and shipping goods on behalf of shippers. A freight forwarder takes possession and responsibility of the goods and may use its own or contracted carriers to transport them. A freight forwarder acts as a carrier or a shipper, depending on the situation.

The distinction between a freight broker and a freight forwarder is important because it affects the type and amount of insurance they need. Freight forwarders need to have primary cargo and liability insurance, as they are directly liable for the goods they transport. Freight brokers, on the other hand, need to have contingent cargo and liability insurance, as they are only liable for the goods if the carrier fails to provide adequate coverage.

In addition to contingent cargo and liability insurance, freight brokers also need to have a freight broker bond, general liability insurance, and errors and omissions insurance. These types of insurance are essential for freight brokers to operate legally and protect their businesses from various risks and claims. Let us look at each type of insurance in more detail.

Freight Broker Bond ($75,000)

A freight broker bond, also known as a BMC-84 bond, is a type of surety bond that guarantees that freight brokers will comply with the federal laws and regulations that govern their industry. It also ensures that freight brokers will pay their carriers and shippers on time and in full, and that they will handle any disputes or claims that may arise from their freight brokerage activities.

A freight broker bond is not an insurance policy but rather a form of credit that the freight broker obtains from a surety company. The freight broker pays a premium to the surety company, which in turn agrees to pay up to the bond amount ($75,000) if the freight broker fails to fulfill its obligations or violates the law. The freight broker is then responsible for reimbursing the surety company for any payments made on its behalf.

A freight broker bond is a mandatory requirement for freight brokers to obtain and maintain a freight broker license (MC number) from the Federal Motor Carrier Safety Administration (FMCSA). The FMCSA is the federal agency that regulates and oversees the freight industry in the US. Without a valid freight broker bond, freight brokers cannot legally operate in the US.

Contingent Cargo Insurance

Contingent cargo insurance is a type of insurance that covers the loss or damage of the goods that freight brokers arrange to transport by carriers. It is called contingent because it only applies if the carrier’s primary cargo insurance fails to provide adequate coverage or denies the claim. Contingent cargo insurance acts as secondary or backup coverage for freight brokers in case of a cargo claim.

Contingent cargo insurance is not a legal requirement for freight brokers, but it is highly recommended and often requested by shippers and carriers. Having contingent cargo insurance can help freight brokers avoid losing their clients, reputation, and money in the event of a cargo claim. It can also help freight brokers avoid lawsuits from shippers or carriers who may hold them liable for the loss or damage to the goods.

Contingent cargo insurance policies vary in terms of coverage, limits, deductibles, and exclusions. Some common exclusions are acts of God, war, terrorism, nuclear hazards, theft, and fraud. Freight brokers should carefully review their contingent cargo insurance policy and make sure it matches their needs and expectations.

Contingent Liability Insurance

Contingent liability insurance is a type of insurance that covers the legal liability of freight brokers for bodily injury or property damage caused by the carriers they hire. It is called contingent because it only applies if the carrier’s primary liability insurance fails to provide adequate coverage or denies the claim. Contingent liability insurance acts as secondary or backup coverage for freight brokers in the event of a liability claim.

Contingent liability insurance is not a legal requirement for freight brokers, but it is highly recommended and often requested by shippers and carriers. Having contingent liability insurance can help freight brokers avoid losing their clients, reputation, and money in the event of a liability claim. It can also help freight brokers avoid lawsuits from shippers, carriers, or third parties who may hold them liable for the injury or damage caused by the carriers.

Contingent liability insurance policies vary in terms of coverage, limits, deductibles, and exclusions. Some common exclusions are intentional acts, contractual liability, pollution, and workers’ compensation. Freight brokers should carefully review their contingent liability insurance policy and make sure it matches their needs and expectations.

General Liability Insurance

General liability insurance is a type of insurance that covers the legal liability of freight brokers for bodily injury or property damage caused by their own business operations. It covers claims that arise from accidents, negligence, or errors that occur on the freight broker’s premises or as a result of the freight broker’s advertising, marketing, or communications. General liability insurance protects freight brokers from lawsuits from third parties who may sue them for the injury or damage they cause.

General liability insurance is not a legal requirement for freight brokers, but it is highly recommended and often required by shippers, carriers, and other business partners. Having general liability insurance can help freight brokers avoid losing their clients, reputation, and money in the event of a general liability claim. It can also help freight brokers avoid lawsuits from third parties who may hold them liable for the injury or damage they cause.

General liability insurance policies vary in terms of coverage, limits, deductibles, and exclusions. Some common exclusions are professional liability, auto liability, and cyber liability. Freight brokers should carefully review their general liability insurance policy and make sure it matches their needs and expectations.

Errors and Omissions Insurance

Errors and omissions insurance, also known as professional liability insurance, is a type of insurance that covers the legal liability of freight brokers for financial losses caused by their professional services. It covers claims that arise from mistakes, oversights, or negligence that occur during the freight brokerage process, such as miscommunication, incorrect documentation, missed deadlines, or failed delivery. Errors and omissions insurance protects freight brokers from lawsuits from shippers, carriers, or third parties who may sue them for the financial losses they cause.

Errors and omissions insurance is not a legal requirement for freight brokers, but it is highly recommended and often required by shippers, carriers, and other business partners. Having errors and omissions insurance can help freight brokers avoid losing their clients, reputation, and money in case of an errors and omissions claim. It can also help freight brokers avoid lawsuits from shippers, carriers, or third parties who may hold them liable for the financial losses they cause.

Errors and omissions insurance policies vary in terms of coverage, limits, deductibles, and exclusions. Some common exclusions are fraud, dishonesty, criminal acts, and bodily injury or property damage. Freight brokers should carefully review their errors and omissions insurance policy and make sure it matches their needs and expectations.

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How do I get freight broker insurance?

Now that you know what types of insurance you need as a freight broker, you may be wondering how to get them. The process of getting freight broker insurance is not very complicated, but it does require some steps and paperwork. Here is a brief overview of how to get freight broker insurance in the US.

Apply for a Freight Broker License (MC Number) from the FMCSA

The first step to getting freight broker insurance is to apply for a freight broker license, also known as a motor carrier (MC) number, from the FMCSA. This is a unique identifier that allows you to operate as a freight broker in the US. To apply for an MC number, you need to fill out an online form (OP-1) on the FMCSA website and pay a one-time fee of $300. You also need to provide some information about your business, such as your name, address, contact details, ownership structure, and type of operation.

The FMCSA will review your application and issue you an MC number within a few weeks. You will also receive a USDOT number, which is another identifier that tracks your safety and compliance records. You need to display both your MC and USDOT numbers on your website and in any other marketing materials.

Obtain a Freight Broker Bond from a Surety Company

The second step to getting freight broker insurance is to obtain a freight broker bond from a surety company. As we explained earlier, a freight broker bond is a type of surety bond that guarantees that you will comply with federal laws and regulations and pay your carriers and shippers on time and in full. You need to have a freight broker bond of at least $75,000 to operate as a freight broker in the US.

To obtain a freight broker bond, you need to find a reputable surety company that offers this type of bond. You can use online platforms like SuretyBonds.com or JW Surety Bonds to compare quotes from different surety companies and choose the best one for you. You will need to provide some information about your business, such as your MC number, financial statements, credit score, and personal details.

The surety company will evaluate your application and determine your bond premium, which is the amount you need to pay to get the bond. The bond premium depends on various factors, such as your credit score, industry experience, and financial strength. The higher your risk, the higher your bond premium. Typically, the bond premium ranges from 1.25% to 12% of the bond amount, which means you can expect to pay between $937.50 and $9,000 per year for a $75,000 freight broker bond.

Once you pay the bond premium, the surety company will issue you a bond certificate, which is a document that proves that you have a valid freight broker bond. You need to keep this document safe and accessible, as you will need to show it to the FMCSA and your clients.

Shop Around for the Best Rates and Coverage for Other Types of Insurance from Different Providers

The third step to getting freight broker insurance is to shop around for the best rates and coverage for the other types of insurance that you need, such as contingent cargo, contingent liability, general liability, and errors and omissions insurance. As we explained earlier, these types of insurance are not mandatory, but they are highly recommended and often required by shippers, carriers, and other business partners.

To shop around for the best rates and coverage, you need to find reliable and trustworthy insurance providers that offer these types of insurance for freight brokers. You can use online platforms like CoverWallet or Insureon to compare quotes from different insurance providers and choose the best one for you. You will need to provide some information about your business, such as your MC number, annual revenue, number of employees, and type of operation.

The insurance provider will evaluate your application and determine your insurance premium, which is the amount you need to pay to get the insurance. The insurance premium depends on various factors, such as your coverage limits, deductibles, claims history, and risk exposure. Your insurance premium will increase as your risk level increases. Typically, the insurance premium ranges from $1,000 to $10,000 per year for each type of insurance, depending on the level of coverage you choose.

Once you pay the insurance premium, the insurance provider will issue you an insurance policy, which is a document that outlines the terms and conditions of your insurance coverage. You need to keep this document safe and accessible, as you will need to show it to the FMCSA and your clients.

Submit Proof of Insurance to the FMCSA

The fourth and final step to getting freight broker insurance is to submit proof of insurance to the FMCSA. This is a crucial step, as it allows the FMCSA to verify that you have met the insurance requirements and grant you the authority to operate as a freight broker in the US. Without submitting proof of insurance, your MC number will remain inactive, and you will not be able to legally broker freight.

To submit proof of insurance to the FMCSA, you need to fill out and file some forms on the FMCSA website. Your insurance premium increases with your level of risk.

• Form BMC-84: This is the form that shows that you have a valid freight broker bond of at least $75,000. You need to file this form within 60 days of receiving your MC number. The form must be signed by both you and your surety company.
• Form BMC-34: This is the form that shows that you have a valid contingent cargo insurance policy. You need to file this form within 90 days of receiving your MC number. The form must be signed by both you and your insurance provider.
• Form BMC-91 or BMC-91X: This is the form that shows that you have a valid contingent liability insurance policy. You need to file this form within 90 days of receiving your MC number. The form must be signed by both you and your insurance provider.

You can file these forms online or by mail. The FMCSA will review your forms and activate your MC number within a few days. You will receive a confirmation letter from the FMCSA that states that you have the authority to operate as a freight broker in the US. You need to keep this letter safe and accessible, as you will need to show it to your clients.

Conclusion

In this blog post, we have covered everything you need to know about the insurance requirements for freight brokers in the US. We have explained the different types of insurance that freight brokers need, how to get them, and how to save money and avoid common pitfalls when getting them.

To recap, here are the main points and takeaways of this blog post:

• Freight brokers need to have a freight broker bond, contingent cargo insurance, contingent liability insurance, general liability insurance, and errors and omissions insurance to operate legally and protect their business from various risks and claims.
• Freight brokers need to apply for a freight broker license (MC number) from the FMCSA, obtain a freight broker bond from a surety company, shop around for the best rates and coverage for other types of insurance from different providers, and submit proof of insurance to the FMCSA to get freight broker insurance.
• Freight brokers should carefully review their insurance policies and make sure they match their needs and expectations. They should also compare quotes from multiple insurers, check the reputation and ratings of the insurers, read the policy terms and conditions carefully, and review and update their insurance coverage regularly.

Having adequate insurance coverage is not only a legal requirement but also a smart investment for freight brokers. It can help you avoid losing your clients, reputation, and money in case of a claim or a lawsuit. It can also help you build trust and credibility with your shippers, carriers, and other business partners.

If you need more information or assistance on freight broker insurance, please feel free to contact us. We are a team of experienced and knowledgeable freight brokers who can help you with all your freight brokerage needs. We can also help you find the best insurance solutions for your freight brokerage business. We are here to chat with you and help you with your requests. 😊