FMCSA News- BMC-32 and Broker Bonds

Some recent news peaked my interest that will affect the transportation insurance industry and change some things. (Courtesy of our friends at CAB).

DEMISE OF THE BMC-32 ENDORSEMENT - To the surprise of many in the insurance and transportation industry the FMCSA has decided to do away with mandatory financial responsibility for cargo insurance for many carriers - the BMC-32 endorsement is going away. The FMCSA has issued its final rule, effective March, 2011, that certain motor carriers operating in interstate commerce will no longer be required to have an endorsement in place in order to operate. The shipping industry was directed by the FMCSA to protect itself by insuring that the carriers with whom they did business are adequately insured. Household goods carriers and household good freight forwarders will continue to be subject to the filing requirement. It is currently unknown what effect the existing filings will have, and whether insurers will be required to cancel all filings and remove the endorsement from existing policies.

BROKER LEGISLATION - This month the Motor Carrier Protection Act was introduced in the Senate. The Act is designed to change the requirements for brokers operating in interstate commerce. The proposed legislation will increase the broker bond from $10,000 to $100,000, impose stricter requirements for entities seeking broker or forwarder authority and increase penalties for violations of broker regulations

This author's take is that there will be more insurance capacity attacking motor truck cargo coverage and that financial underwriting will be looser- due to the lack of repercussions that the insurance filing had. Also, the barrier for entry and continuation as a truck broker has been raised so that smaller operations will have a much tougher time getting bonded and maintaining compliance.

What type of situations occur where a broker bond would come in play? A bond for the truck broker provides confirmation that an insured has the financial reserves to meet its payment obligations and handle unexpected financial demands from a risk incident such as a significant shipper non-payment, liability for an error and omission by an employee, liability for actions by a carrier.