Last-mile delivery service has significantly evolved over the past few years as a result of online shopping. When the COVID-19 pandemic sent consumers across the globe into lockdown, the already-growing trend rapidly accelerated. Even now, as restrictions lift in the U.S., brick-and-mortar retailers face pressure to move online in order to compete for consumer dollars, especially as giant online product aggregators lure customers with aggressive pricing and speedy buy-it-now/get-it-in-hours delivery. Now that consumers are accustomed to one-day, or even same-day delivery, we’ve seen the development of a fast-growing micro-shipping economy, where packages go from a local warehouse directly to the customer’s doorstep via a last-mile delivery driver. 

The burgeoning gig economy and the demand for same-day delivery have converged to grow the last-mile delivery sector. Many of the drivers getting those packages to our front doors are independent contractors. They are solopreneurs or employees of small businesses. As a result, most aren’t required to carry or provide the same level of insurance coverage as conventional long- and short-haul truckers. But they’re still vulnerable to the same exposures as larger carriers and require the same protections. The question, then, isn’t whether or not last-mile delivery services should carry insurance, but rather what insurance program is right for each business.

Key Coverages

Retailers often require some level of insurance coverage to secure a delivery contract. But those requirements can vary. Generally, most last-mile drivers will need workers’ compensation insurance, auto liability, non-trucking liability, physical damage and cargo coverage. The variables for each of these coverages can be confusing, so it’s important to understand precisely what you’re purchasing. Following are some of the more common insurances you may encounter.

• Workers’ compensation. Most contracts with service providers require workers’ compensation or some form of occupation accident policy. This insurance protects the employer’s employees in the event of an on-the-job injury obtained from a vehicle accident, lifting boxes, dog bites, or slips, trips and falls.
• Auto liability. Auto liability insurance covers only the non-policy holder’s property in a claim. In the event of an accident, this would cover damage to personal property like a fence or the other party’s vehicle.
• Non-trucking liability. Some service providers also require last-mile delivery services to carry non-trucking liability. Unlike primary liability insurance, non-trucking liability pays only for the other party’s damage in instances where the vehicle is used for non-business-related activities, such as going to the bank or the store.
• Physical damage. Physical damage insurance covers a scheduled delivery vehicle in the event that it sustains property damage from an “at fault” accident, and covers the insured party’s costs when the other party doesn’t have adequate insurance. Physical damage insurance generally carries a deductible, the amount of which is stipulated in the contract.
• Cargo insurance. Cargo coverage insures the actual goods you’re carrying in transit. As with other coverages, your contract will define what insurance limits you are required to carry.

Calculating the Cost of Coverage

Established last-mile carriers have a track record. In determining costs for coverage, insurance companies will analyze your loss history, including any insurance claims presented over the course of your business’s operations. A best practice is to provide your insurer with three years of prior history so it can calculate its risk and the overall cost to insure your company.

For new entries into last-mile haulage, many insurance carriers will offer coverage based on the retailers with which you have contracts. With so much growth in e-commerce, there are many new entities offering last-mile insurance coverage. Even though you may not have an established loss history of your own as a startup driver, you can obtain the seller’s loss history for all lines of insurance coverage and use its previous claim records to secure coverage.

As with any form of auto insurance, the insurer will need a vehicle list to provide a quote for the coverage. Required information includes year, make, model, vehicle identification number (VIN), the value of each vehicle and a list of vehicle drivers. 

For workers’ compensation coverage, you’ll also need to provide the loss history for the last three years, the state(s) in which your company is domiciled, and a list of the states in which you do business. A class code is used to determine the rate for your workers’ compensation premium. Most workers’ compensation carriers have flexible programs that adjust your premiums as your employee payroll fluctuates.

Cargo insurance premiums will be determined by the insurance limit you choose, which is dependent on the types of goods you carry. Naturally, it’s important to make sure you have enough coverage to protect your cargo.

Managing Premium Costs

Fortunately, there are ways to mitigate the cost of your insurance, starting with reducing the number of claims you submit in the first place. Hire qualified drivers and provide them with proper training, as their proficiency directly affects your premium calculations. Start investing in safety programs. While it might seem obvious, it’s essential that your drivers are well versed on the dangers of distracted driving and know how critical it is to pay attention to their surroundings.

When incidents do occur on the job, make sure your employees are properly trained to handle these occurrences safely and efficiently. In the event of an on-the-job injury, report the claim as quickly as possible to get that employee treated and back to work as soon as they’re able. Consider offering a light-duty program that permits injured employees who are capable of less strenuous work to return to the workplace more quickly. Programs like this will lower your workers’ compensation premium and improve employee morale.

Why Coverage Matters

Last-mile delivery may be a relatively new industry. However, the loss and liability exposures it faces are well documented and of interest to retailers and delivery service providers.

Consumers have high expectations, and the past 15 months have shown that they’ll shift their dollars to retailers who can get their products to them on time and in good condition. Savvy last-mile drivers know that those retailers won’t risk their reputation on last-mile carriers who aren’t sufficiently covered to deal with the logistical challenges inherent in delivery.

Jamie Cantrell is an insurance agent with World Insurance Associates LLC.