Identity Fraud Prevention for the Freight Industry

Jet Insurance Company leverages Authenticate to fight & reduce identity fraud in issuing freight broker surety bonds.

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What is a Freight Broker Surety Bond?

A freight broker surety bond is a financial guarantee required by the Federal Motor Carrier Safety Administration (FMCSA) to ensure that freight brokers adhere to industry regulations and fulfill obligations made to shippers and carriers. Essentially, it serves as a form of insurance that protects shippers and motor carriers if a broker fails to meet their responsibilities, such as making timely payments to carriers. According to the American Trucking Association, the number of active freight brokers increased 12.4% from 2020 to 2021, underscoring the need for oversight to prevent fraud. The Government Accountability Office reports that identity fraud accounted for 64% of all FMCSA enforcement cases last year.

The FMCSA sets the bond amount at $75,000, and its purpose is to provide financial recourse for parties negatively affected by a broker's inability to pay their carriers. By obtaining a freight broker surety bond, brokers demonstrate their commitment to ethical business practices and financial responsibility within the freight transportation industry.

The Growing Threat of Identity Fraud in Freight Brokerage

Jet Insurance Company began in 2018 as a direct-to-customer surety bond provider. The basis of the company was quite simple: to “take out the middleman” and avoid unnecessary agent fees and commissions. Jet had success growing its business, writing a large variety of surety to nearly all states. In June 2023, the company decided to create business units for three types of surety: California Contractor License, Probate, and Freight Broker (Florida Motor Vehicle Dealer launching later in January 2024). According to the American Trucking Association, the freight transportation industry is expected to grow 2.1% annually over the next decade, indicating an increasing need to address fraud risks.

Jet originally had no interest in focusing on BMC-84 bonds, but did have a generic offer that could be purchased automatically online. Our claims team quickly had an influx of claims from freight carriers who were unpaid by brokers and Jet ended up paying out numerous claims. It was quickly discovered most claims were related to businesses started up by fraudulent operations. Jet should have tucked their tail and run. But after finding out this story was common for many other surety carriers, a decision was made at Jet to take this problem head-on. In fact, a recent industry report found that up to 80% of surety claims stem from identity fraud schemes.

Jet put together a capable team of underwriters and went to work exploring the ins and outs of the freight industry, creating a fresh understanding of the current climate. It was quickly realized that a drastic change needed to be made to the current underwriting process, which was previously based on the applicant's credit report.

How Authenticate Helped Jet Combat Freight Broker Fraud

It was clear to Jet they needed to make sure what should have been obvious. The person applying for the bond needs to be who they say they are. We never had to consider: who buys insurance for someone else? In the freight industry, crime rings do. The FBI reports that identity fraud accounts for the highest number of suspicious claims in the surety industry, making identity verification critical.

Beginning in August 2023, Authenticate’s API was integrated into Jet’s fraud prevention process and has continued to be an essential core within the system. Almost immediately, declinations for surety increased, but Jet’s underwriting and claim process performed much better over time. Ultimately Jet was able to combine Authenticate’s tool with other factors to offer a lowered rate for the bond for all applicants who proved to be legitimate.

"We took for granted that people applying for a license are who they say they are. Unfortunately, with freight brokers, this is not the case and Authenticate's tool verifies that only the honest can get a license surety bond from Jet," said Joseph Pappalardo, VP of Jet Insurance Company.

As Jet Surety’s book expands, other surety markets may find the use of Authenticate beneficial and not only offer a better product but assist in limiting fraud across various industries.

The Fitch credit rating agency reports that identity verification is becoming an essential tool for sureties to improve underwriting and prevent claims fraud.

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