I'd like to share an excellent article from Mike Bush, AKA - "The Claims Guy". Or if you played pool with him in Vegas at the TIA conference, you might know him as "The Pool Shark."
He is an independent claims agent specializing in helping 3PLs navigate complicated claims issue. In short, you just hire Mike at a fraction of what it will cost you to either work a claim or pay it off.
Some of the highlights include:
- What the heck is vicarious liability?
- What happens when my carrier doesn’t cooperate?
- If I have contingent insurance, then why are the litigators knocking on my door?
- What are the hidden costs associated with working my own claims? And why am I not so good at it?
So, without further adieu...here's some sage advice from The Claims Guy.
Stuck between a rock (your customer) and a hard place (your carrier)
While there are no differences in claims exposures for smaller logistics companies, the consequences of a poorly handled claim can be more devastating financially due to economies of scale.
As we all should know, there is no liability for the freight broker under a bill of lading. However, you do have a somewhat nebulous exposure for vicarious liability and a more direct one for negligent choice of the carrier. Attorneys running out of potential targets are deciding to go after freight brokers more often these days when there are enough dollars involved.
From your customers’ perspectives, the issue is very simple. They rely upon you to get their freight moved. They pay your company, and they do not have a relationship with the carrier. Therefore, customers expect you to see that their cargo claims get resolved.
You may believe you have your bases covered. You do your homework on carriers or employ a service that does so, you require that signed carrier contracts and current certificates of insurance be on file before dispatching a carrier, and you have a contingent cargo policy to cover the gaps. That should be enough, right? In a perfect world, you would be fine.
What happens when your carrier doesn't cooperate?
What happens when your carrier sticks their head in the sand, refuses to accept that the loss was their fault, and does not notify their cargo insurer? What if their cargo insurer sets up a claim but is totally unresponsive to inquiries about what is going on? What if the carrier’s insurance company’s guiding philosophy is to play hardball and employ delaying tactics every step of the way on claims?
What happens is that your customer gets upset, and the claim becomes your headache.
Can you afford to front the money for a significant claim and try to get it back from the carrier or its insurance company? For small problem claims under a thousand dollars or so, the best option may be to eat it and void the carrier’s contract if they won’t pay up.
The hidden costs with managing your high value claims
What if it is a fifteen or twenty-thousand-dollar claim? Can you still handle it? Should you incur the expense of a lawyer to get it straightened out?
What most small freight brokers do is roll up their sleeves and get to work. You think, “Maybe I can work things out and make it happen.” After all, that is what entrepreneurs do.
You call the carrier and raise hell. They refer you to their insurance company, and you call them and demand they take care of it. They say they will review the file and get back to you. A few days later, they send you an email stating that they requested documentation from your customer and have not yet received it.
Okay, now you’re getting somewhere. You call the customer to walk it through, and the requested documents get routed to the insurance company. You pat yourself on the back for getting it handled, secure in the knowledge that payment will finally be issued, and you get back to running your business.
Then, three or four weeks later, your customer complains that they still have not been paid. You go through the second of what turns into several cycles of contacting the insurance company and the customer trying to work through issues.
The insurance company has something else they need, and then another document or piece of information is missing, and yet another. Meanwhile, time is passing.
You ask yourself why it is that they don’t just give you a list of everything they need rather than checking off the boxes one at a time. The claim is taking up way too much of your valuable time and energy that should be spent putting revenue on the books, and your customer is wondering about their choice of 3PL provider.
Can you afford to hire a claims person?
This might work depending upon your size, but you have no idea how to evaluate claims talent, and you would need to budget for the overhead of another salary, benefits package, and associated expenses that come with it when you are not sure you can keep that employee busy.
Let’s say you do hire someone and they turn out to be incompetent. By the time you figure this out, your business’s reputation would be suffering damage again.
One of the issues is that insurance claims people with experience in cargo claims are in short supply. If you find a person with the necessary experience, their salary needs would probably be way out of your range.
Maybe you can hire someone who is smart enough to figure it out, but there will be a learning curve. Then what happens when they get a better offer or need to move to another city.
The logic of a third party logistics company outsourcing to a third party claims administrator
The best option for smaller 3PL’s that do not want the headaches may be having a third-party claims administrator (TPA) handle significant claims.
Outsourcing claims starts becoming cost effective when the amount reaches the mid four-figure range – say over $5,000. You would still need somebody in-house handling smaller claims, but this can be a function of an employee who wears multiple hats in your company.
Despite what their sales people might tell you, there are very few claims TPA’s out there that are familiar with the cargo insurance world. Some that do know the industry are as expensive as attorneys, and others overwork their staffs and experience a constant turnover of adjusters.
Most of the large TPA’s would not even be interested in an account that only has occasional claims.
Find a smaller TPA with cargo knowledge who will assign a specific adjuster to your account so you can get to know them. Good ones will also be open to fielding claims questions from you and your in-house claims person.
The Claims Guy,
Mike Bush, Sr.
4075 Desoto St., Ste A
Mandeville, LA 70471