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How asset tracking drives risk management and lowers insurance costs

Rising customer expectations and the need for more secure, controlled product delivery are prompting greater focus on sophisticated risk management tools and strategies
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05/09/2024 · 5-minute read

In today’s transportation and logistics industry, the swift adoption of technology is becoming increasingly important to stay ahead of the curve. Rising customer expectations and the need for more secure, controlled product delivery are prompting greater focus on sophisticated risk management tools and strategies. Asset tracking technology is leading the charge, offering substantial benefits for reducing operational risk, addressing the rise in theft, and improving insurance costs.

To better understand how technology is shaping risk management and insurance in the transportation and logistics sector, this article aims to outline the current challenges and opportunities in the industry, focusing on the important role asset tracking technology plays in mitigating risks and improving insurance processes.

Impact of theft

Theft and loss in the industry not only impose an immediate financial burden but also lead to broader operational implications. In the US and Canada in 2022, the total cost of stolen cargo was estimated to be US$223 million — a value we can only expect to increase as cargo theft remains at unprecedented levels. While this figure represents a relatively small percentage of the billions of dollars’ worth of goods shipped annually across the continent, it carries significant weight in the context of insurance and risk management.

Any instance of theft can be devastating for the affected companies, and has the potential to go beyond the immediate value of the stolen goods. These disruptions often reflect poorly on the operational efficiency and reliability of businesses, damaging the reputation of both the owners of the goods and the transportation companies responsible for their safe and timely delivery.

Economic exposure and risk factors

Shifts in the economy, particularly during challenging times like the COVID-19 pandemic, have led to an increase in thefts. Economic downturns and hardship, shifts in market demand, disruption of traditional criminal activities, and increased opportunities for crime due to reduced security measures are contributing to the uptick in thefts. This increase is often accompanied by a rise in violent theft, reflecting the opportunistic nature of these crimes and the need for robust risk management strategies.

Influence of asset trackers on insurance and risk management

Over time, asset trackers have evolved from basic location tools to integral components of risk assessment and management for fleet operators. This change reflects a broader expectation within the industry that all fleets, regardless of the cargo they carry, should utilize this technology to mitigate risks.

The role of asset trackers on insurance premiums has also evolved alongside new technology. When fleets first started using them, the high cost of asset tracking technology provided a leverage point for negotiating lower premiums. However, as the cost of asset trackers has decreased, their role in risk management has become standard. Their effectiveness in reducing losses and managing claims is now a key focus for underwriters.

This shift is not just technological; it represents a change in how companies approach risk management and insurance dealings. Effective asset tracking often leads to direct savings through more favorable pricing based on being a better risk. It also can offer fleets more strategic risk management opportunities. Predictable loss profiles, enhanced by asset tracking, allow for measures like increased retentions or deductibles. These measures give fleet operators more control over their insurance costs, and generally result in lower premiums.

Benefits of asset trackers

When used in tandem with geofencing and other technologies, asset trackers not only help protect against financial losses but also improve operational efficiency. They can be instrumental in promptly locating pilfered cargo, and lead to the quick recovery of the stolen goods. For instance, geofencing technology can immediately alert fleet operators if a driver is heading in an unexpected direction. Asset tracking enables precise location tracking, allowing fleet operators to quickly engage with law enforcement.

Further, asset trackers can improve delivery accuracy and prevent costly mix ups. Using asset trackers, geofencing, and other technology to help ensure correct delivery offers fleets a huge opportunity to improve service and reduce insurance claims arising from these types of errors.

The future of asset tracking technology

The future of asset tracking in insurance, logistics, and transportation includes both potential risks and opportunities. Take the rise in cyber risks associated with the adoption of more sophisticated asset tracking systems as an example.

As asset tracking technologies become more complex, so does their connectivity. Although beneficial for efficiency and risk management, this interconnectedness also creates potential vulnerabilities that cybercriminals could exploit. The industry is therefore challenged to enhance the capabilities of these tracking systems while fortifying them against potential cyber threats.

There is potential for a future where asset tracking and Internet of Things (IoT) technologies merge with other digital solutions, such as electronic bills of lading and smart contracts. This possible integration promises to streamline various aspects of commerce, from triggering payments and title transfers, to managing liabilities and optimizing claims processes. Utilizing data from asset tracking systems could lead to greater supply chain efficiency and transparency, reshaping how trade and commerce are conducted.

While the integration of advanced technologies aligns with efficiency and security, vigilance against cybercrime and adapting to new security standards remains key. Going forward, the focus for organizations will be striking a balance between embracing innovation and maintaining risk management, so that these technological advancements bring tangible benefits for everyone in the sector.

Incorporating asset tracking in fleet operations heralds a new era of making smarter decisions, achieving greater operational clarity, and improving safety standards. Now that asset tracking is an industry norm, it plays a key role in influencing insurance premiums. By effectively controlling losses and managing claims, these technologies have altered how both the transportation and logistics industry and the insurance industry value their impact.

Marsh is at the forefront of reshaping risk management in transportation and logistics. Our global team of over 500 transportation specialists offers the capital and risk expertise that can help your business better understand, prioritize, and manage these risks. Through our consultative approach, we leverage data and analytics to help you effectively manage your total cost of risk, keep up with industry standards, and maintain a competitive edge. Please reach out to us to help develop your strategies and place the appropriate risk transfer insurance solutions for your organization.

Our people

Matthew Yeshin

Matthew Yeshin

Global Digital Cargo Leader

  • Canada

Bill Kalbhenn

Bill Kalbhenn

National Transportation Lead Consultant, Advisory

  • Canada

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