The surge in demand led many companies to enter the last-mile delivery business for the first time, causing increased risk and potential coverage gaps.
In 2020, global retail e-commerce sales amounted to $4.3 trillion, a number that is expected to increase to $6.4 trillion by 2024, according to Statista.com. Online shopping has been growing in significance for years and is currently one of the most popular online activities in the world. In addition to this growth, the impact of the coronavirus pandemic on the e-commerce market has been dramatic, resulting in significant corollary changes in the commercial auto market.
The transportation industry played a major role in ensuring both essential and non-essential goods were being delivered during the coronavirus pandemic, with one segment of the industry, last-mile delivery, emerging as a crucial element in the delivery process.
“During the past decade there has been a shift in consumer buying habits toward more online and same-day delivery options," says Mike Miller, commercial lines business leader, Progressive Insurance. “These shifts were accelerated during the COVID-19 lockdowns, and we expect many of the habits to remain at these higher levels, which is driving continued demand for more last-mile delivery."
“Amazon, in particular, has altered the last-mile delivery segment into a rapidly growing one, which has ultimately changed the dynamic of that segment in the insurance industry and the transportation segment," says Mark Gallagher, vice president, national transportation practice leader, Risk Placement Services (RPS).
Nearly 42% of businesses that had never delivered before offered delivery services for the first time during the coronavirus pandemic, according to financial services company Rewards Network. Yet, even with an increase in the need for more immediate delivery options for everything from household goods to groceries to pre-made food, insurance carriers were reluctant to write and quote this line of business.
“While demand surged for last-mile delivery services during the pandemic, few carriers were willing to write coverage for this class of business, which includes many independent contractors using their own vehicles," Gallagher says.
“Right now, there's not a lot of carriers that provide last-mile delivery insurance coverage like the trucking segment, which has a lot of carriers providing coverage," Gallagher says. “There's just more data available in trucking. However, last-mile delivery has grown so rapidly and so quickly over the last few years that we will see more companies dive in."
“Carriers are a little bit more hesitant to jump into a segment that they don't have a lot of data on or know how to successfully be profitable in writing that type of business," he adds.
“We are working on refining our underwriting to be able to accept more last-mile delivery coverage in the future," says Emmanuel Viant, head of Bristol West® commercial auto product, Farmers Insurance.
“This segment has seen a lot of changes in the past few years as customers want their goods faster and faster. They also want to know where their goods are every step of the way, which means more local warehouses are needed, as well as tools like real-time delivery tracking."
Throughout the coronavirus pandemic, many transportation companies reformulated from operating as long-haul transportation companies into last-mile delivery.
“Some companies are emerging into the last-mile delivery segment as a way to get more products out to their customers," Gallagher says. “As people work and live at home much more now, getting products delivered to a home, not only household goods but also food deliveries, has presented emerging opportunities and emerging risks."
For restaurants and cafes, the change in business model from in-house dining to delivery service led to increased risks for the business—risks that challenged the safeguarding of both the business and its employees. If a business didn't offer a delivery service before the pandemic, it was more than likely that their business insurance policy didn't cover any delivery service risks. Yet, as many small businesses shifted to using employees to make deliveries, it was crucial to add hired and non-owned auto insurance to ensure they were protected.
“It's imperative that business owners understand the increased risk they are opening themselves up to when venturing into delivery, especially if employees are using personal vehicles to make those deliveries," says Lindsay Guerrant, small commercial product strategy lead, Liberty Mutual.
“Commercial auto losses and claim frequency jumped right back up just a few months into the pandemic, as small businesses resumed operations," Viant says. “Severity is now trending up as costs continue to rise. With the boom of e-commerce during the pandemic, the last-mile delivery segment has grown significantly as trucking carriers look for independent drivers to deliver goods from their warehouse to the customer's home."
“Post pandemic, we expect last-mile delivery to become more competitive as shippers drive costs down; consumers enjoy the convenience of fast, home delivery, and expect it for no or low costs," Miller says. “The best shippers will utilize insurance products that reward them for good driving habits and disciplined driver hiring practices and standards. Insurance will continue to be a major expense item and managing it well will be a competitive imperative."
Olivia Overman is IA content editor.