Industry Misclassification Risks – General Freight Trucking, Local vs. Long Distance

Industry Misclassification Risks – General Freight Trucking, Local vs. Long Distance 

In the trucking industry, insurance underwriters face the critical task of accurately classifying businesses in order to adequately evaluate and manage risks. Two prominent sectors within the trucking industry are General Freight Trucking, Long-Distance, Truckload and General Freight Trucking, Local. The distinction between these two industries is vital, as they encompass different scopes of operation and associated risk factors. Misclassification can have a significant impact on the premiums, coverage adequacy, and overall risk management for insurance providers, which may result in financial inefficiencies and strained relationships with clients.

General Freight Trucking, Local vs. Long Distance

General Freight Trucking, Long-Distance, Truckload, often abbreviated as TL, comprises establishments primarily engaged in providing long-distance freight trucking services. In this industry, the focus is on the full truck movement of freight from the origin to the destination. The shipments are characterized as full single loads, meaning that the entire truck is dedicated to one shipment, and the freight is not combined with other shipments. This sector generally involves long hauls over significant distances.

General Freight Trucking, Local is an industry that consists of establishments primarily providing local general freight trucking services. These establishments handle a wide variety of commodities, usually palletized and transported in a container or van trailer. The operations of Local General Freight Trucking establishments typically occur within a metropolitan area, and though they may cross state lines, the trips are typically characterized by same-day return.

The Differences Between General Freight Trucking, Local vs. Long Distance

From an insurance underwriter’s perspective, the scope of work and risk profiles of General Freight Trucking, Long-Distance, Truckload and General Freight Trucking, Local are considerably different. Long-Distance, Truckload operations involve long hauls, and the risks associated include driver fatigue, mechanical failures, and heightened liability in case of accidents due to the large volume of goods being transported in a single trip. Additionally, these operations might be exposed to different state regulations, and the prolonged travel times may increase the susceptibility to theft or damage.

In contrast, General Freight Trucking, Local operates within a smaller geographical radius, usually within a metropolitan area, and involves shorter trips that are often completed within a single day. The risks here include frequent loading and unloading, navigating through congested urban areas, and short turnaround times. The liability per trip might be lower than in long-haul operations, but the frequency of trips and handling might lead to different types of exposure.

Premium Leakage Risks

Premium leakage could occur if a General Freight Trucking, Long-Distance, Truckload business is misclassified as a General Freight Trucking, Local business. Given the higher risks associated with long-haul trucking, including driver fatigue, mechanical failures, and larger liabilities in case of accidents, the premiums for Long-Distance, Truckload should typically be higher. If misclassified, the insurance provider may underprice the policy, not taking into account the higher risks involved, leading to premium leakage. 

Conversely, if a General Freight Trucking, Local business is misclassified as Long-Distance, Truckload, the business might end up paying higher premiums than necessary for the risks they are actually exposed to. While this may not result in premium leakage for the insurance provider, it could lead to customer dissatisfaction and disputes, especially if the customer realizes they are overpaying or if there’s a claim that isn’t adequately covered due to the misclassification. This could eventually lead to loss of business and reputational damage for the insurance provider.

‍