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Managing Risk and Reducing Insurance Claims in the Delivery Industry

Managing Risk and Reducing Insurance Claims in the Delivery Industry​

The delivery services industry is a bustling and vital part of global commerce, responsible for ensuring the seamless movement of goods across distances. Yet, beneath the surface of its efficiency and speed lies a significant challenge: managing risks effectively. The impact of insurance claims on the financial health and operational stability of carrier companies cannot be understated. A closer look at the statistics sheds light on the gravity of the situation. 

The Harsh Reality of Insurance Claims

Despite past growth in the freight delivery industry – and its predicted future growth by the American Trucking Association over the next seven years up to 25.6% – the sector grapples with a daunting average loss exceeding 100% over the last five years. This ratio indicates that for every dollar earned, the industry faces a loss of $1 or more due to claims, reflecting a formidable challenge in maintaining profitability.

Verdict sizes and the financial outcomes of legal disputes, have witnessed a daunting 51.7% increase between 2010 and 2018. (Murray, Williams, & Speltz, 2020) This rapid escalation in legal claims highlights the escalating legal and financial complexities that carriers face in an evolving landscape.

However, it is not just the increase in verdict sizes that is concerning. A more in-depth examination of the numbers reveals a shifting landscape. From 2006 to 2011, there were a mere 26 cases with verdicts exceeding $1 million. However, between 2011 and 2019, that number nearly tripled to almost 300 cases. This exponential rise suggests a changing legal environment that necessitates careful risk management strategies.

The most concerning trend of all is the doubling of nuclear verdicts—those that exceed $10 million—during this period. These high-value verdicts can have catastrophic financial consequences for delivery companies, underscoring the urgent need for effective risk mitigation.


The Factors Behind the Rising Risks

This surge in insurance claims and the resulting escalation in verdict sizes isn’t a random or isolated occurrence. Several underlying factors contribute to this challenging landscape:

  • Technology’s Costly Impact: The integration of advanced auto technology, while improving efficiency and safety, also translates to higher repair costs for vehicles. These higher costs directly impact insurance claims as the value of claims rises with the complexity of the technology being employed.
  • Soaring Healthcare Expenses: Healthcare costs have been on an upward trajectory, and this trend extends to insurance claims. Higher medical costs lead to increased claims, particularly those related to driver injuries and medical care.
  • Scarcity of Experienced Drivers: The shortage of seasoned and experienced drivers is a pervasive issue in the industry. As companies struggle to fill driving positions, less experienced drivers take to the road. This inexperience increases the likelihood of accidents and insurance claims, as drivers may lack the expertise to navigate complex road conditions.
  • The Ripple Effect of Inflation: Inflation is an economic reality that impacts various sectors, and insurance claims are no exception. Rising costs across different industries lead to higher claims and overall operational expenses for delivery services.
  • The Magnification of Verdict Sizes: The exponential growth in verdict sizes is particularly concerning. In just eight years, between 2010 and 2018, the average verdict size increased by a staggering 1,000%. Such an increase places added strain on carrier companies’ financial resources, requiring them to allocate more funds for legal settlements.
  • Complexities of Final Mile Deliveries: Final mile deliveries, often involving multiple stops and smaller parcels, amplify the risk of theft and loss. The nature of these deliveries makes them more susceptible to theft, increasing the likelihood of claims.
  • The Safety Culture Deficit: Unlike the more established trucking industry, the final mile sector is relatively less mature. This lack of maturity extends to safety culture, potentially contributing to a higher overall risk profile.

Strategies for Tackling the Challenge

Understanding the problems is only half the battle. To counteract these escalating risks and mitigate insurance claims effectively, transportation and delivery services need to adopt a holistic approach:

Implementing Standard Operating Procedures

One of the most effective ways to manage risk is by implementing standard operating procedures (SOPs). This begins with the hiring of skilled fleet managers who possess a deep understanding of risk factors specific to the delivery industry. These professionals oversee vehicle maintenance, driver training, and adherence to safety regulations. By ensuring that vehicles are in optimal condition and drivers are well-prepared for the road, the likelihood of accidents and incidents can be significantly reduced.

Comprehensive driver training is another essential aspect of SOPs. Driver training isn’t just a one-time endeavor; it’s an ongoing process that equips drivers with the necessary skills and knowledge to navigate the road safely. Investing in comprehensive training programs covering safe driving practices, defensive driving techniques, and adept handling of unexpected situations, can go a long way in minimizing the probability of accidents. A well-trained driver is not only an asset but also a frontline defense against potential insurance claims.

Streamlining warehouse operations is the final piece of the SOP puzzle. Efficient warehouse operations play a crucial role in risk management. A disorganized warehouse environment can lead to mishandling of goods, theft, and accidents. By implementing streamlined storage and handling protocols, carrier companies can reduce the potential for claims arising from mismanagement or theft. Organized inventory control and proper storage procedures ensure that goods are safeguarded from damage and loss.

Leveraging Technological Advancements

Incorporating technology into risk management practices can yield significant benefits. The integration of telematics systems is a prime example. These systems, when installed in vehicles, provide real-time tracking and monitoring of driver behavior. They offer insights into driving habits, route optimization, and vehicle performance. By identifying and rectifying risky driving behaviors, telematics systems contribute to safer roads and reduce accident probabilities.

Advanced warehouse management systems are another technological avenue for mitigating risks. These systems streamline inventory control, minimizing errors and misplacements. By employing technology to manage warehouse operations, delivery services can mitigate risks associated with inventory mishandling and damage. These systems help prevent incidents that could result in insurance claims by ensuring accurate inventory tracking and efficient goods handling.

The integration of surveillance cameras with AI capabilities adds an extra layer of risk mitigation. Cameras can monitor driver behavior, vehicle conditions, and warehouse operations. AI algorithms can analyze data in real-time, detecting anomalies and potential issues. By intervening promptly in case of unusual activities or behaviors, these technologies can prevent incidents from escalating into insurance claims.

Knowing Your Customers and Coverage

Effective risk management doesn’t end with internal operations; it extends to customer relationships and communication. Offering tailored insurance coverage based on specific needs is pivotal in managing risk. Customized insurance coverage considers the types of goods transported, delivery locations, and other unique factors. This approach bridges coverage gaps and prevents claim denials. Providing tailored coverage ensures that clients are adequately protected, reducing the likelihood of disputes and claims related to coverage issues.

Effective client communication is equally important. Clear communication with clients regarding safety protocols, delivery expectations, and insurance coverage assists in managing expectations and preventing misunderstandings. Addressing concerns and clarifying terms proactively can prevent potential disputes that might lead to insurance claims. Building strong relationships with clients based on trust and transparency goes a long way in preventing disagreements that could result in costly legal battles.


There are multiple factors creating increased business for carriers. The COVID-19 pandemic accelerated ecommerce growth. Online shopping post-COVID continues to grow, generating more deliveries. Many consumers who had never ordered online pre-COVID do it as a matter of convenience today. As online shopping becomes more and more mainstream, flexible delivery options are becoming a key competitive advantage. 

A study by McKinsey estimates that parcels will be equal in volume to mail by 2025. The demand for couriers will continue to grow.

One component of being successful and able to capitalize on this growth opportunity is for carriers to be fully competent in their risk management strategies. Reducing risk loss ratios can be accomplished through strong standard operating procedure implementations, leveraging technology advances, developing great knowledge of customer needs, and investing in close relationships with risk mitigation providers. 

Special thanks to the following ECA, A Delivery Industry Alliance members for their significant contribution to the article. 

Jason Burns; President Customized Logistics and Delivery Association and CUI Agency

Roslyn Ellerbee; Express Errands & Couriers

Thanks to the following ECA, A Delivery Industry Alliance Board members for their review.

Diedre Hudson; Avalon Risk Management

Brian Jungeberg; Risk Strategies



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ECA: A – Delivery Industry Alliance
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