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Courier, Banking, And Insurance Industries Work Together To Improve Security
Even with the advent of online banking, 36 billion paper checks totaling $40 trillion traveled through banks’ financial systems in 2004. Most of those checks were transported from local branches to regional banking facilities by the courier industry.
The new Check Clearing for the 21st Century Act known as “ Check 21" means banks can now clear checks electronically and avoid the expense of sending paper checks back to issuers. While this is expected to have an impact on the courier industry, moving from paper to image exchange requires banks to invest in costly new hardware and software.
According to bank courier BeavEx President and CEO Mark Tuchmann, “The consensus viewpoint of the industry is that courier services will be dramatically reduced by Check 21. However, it will still be several years before hardware and technology costs drop enough to make branch check truncation a viable alternative to couriers in high-density metro markets.”
With paper checks here to stay, the bank courier industry continues to face several challenges including obtaining adequate insurance coverage while retaining profitability. One of the most difficult issues facing the industry is shared responsibility - who is responsible when and who is going to pay for it? If a robbery occurs on a bank’s property, who is responsible for insuring the loss? The courier or the bank?
When losses do occur, banks try to “reconstruct” lost or stolen checks by contacting check issuers in the hope they can issue stop payments and reissue new ones. It can take as much as 6 to 12 months to reconstruct the contents of a single lost bag – with varying success.
In years past, check deposits were microfilmed at each branch. Today they are transported to regional facilities for scanning. During the time period when the checks are being transferred, there is often no backup such as microfiche for the checks and financial documents being couriered to the regional facility. Check 21 will eventually check this practice, but today insurance companies not only pay for the cost of reconstruction, but also the face amount of lost, unconstructed checks. Over time, cumulative losses have been higher than the premiums charged by insurors.
To tackle the growing problem of losses associated with courier business and its impact on the cost of insurance coverage, leading courier companies, financial institutions, and the insurance industry have joined forces.
The start of this joint industry effort was a direct result of the formation of the National Transportation & Logistics Association (NTLA). With the support of the largest banks and bank courier firms in the country, a conference sponsored in 2003, by leading courier service BeavEx led to forming NTLA. NTLA members work closely together on areas of common interest ranging from transportation networks to regulatory issues.
Interest in the NTLA has grown considerably. In 2004, over 145 representatives from the country’s largest banks and financial services couriers attended the annual event, a 40% increase from 2003. This year the Third Annual NTLA Transportation Roundtable will be co-sponsored by The Express Delivery and Logistics Association (XLA), which is made up of about 100 transportation firms.
Among the issues the NTLA is addressing is finding solutions to improve the security of bank courier operations. At the inaugural 2003 meeting, courier insurance broker Capacity Coverage conducted a presentation to inform the industry there is a crisis taking place because insurance losses for couriers were outpacing premiums. Several insurance companies dropped out of the market with Penn America and Lloyds of London left as the major players.
As a result of the 2003 meeting, representatives of the courier, insurance, and banking industries formed a Task Force. Its purpose is to create performance standards for courier companies and improved standards for banks to conduct reconstruction after a courier bag is lost or stolen.
The task force is developing “best practices” standards for the chain of custody, document reconstruction, and insurance. These efforts are intended to try to mitigate the ultimate expense of the losses by addressing and correcting inconsistent practices by couriers and banks.
Areas that need new standards include mutually agreed upon “best practices” for pick-up and transport. For example, is it safer for vehicles to be clearly marked, minimally marked, or unmarked? Should couriers be uniformed or un-uniformed? When these decisions are made, they must take into account the impact on the requirements for other insurance policies.
Where is the best location for bag transport - the driver's compartment? Trunk? Locked to cable? The Task Force recommends bags that have a locking zipper, handles, and are fire retardant. Finding the right answers to these safety and logistical issues as well as setting up robust surveillance programs can help prevent robberies from occurring.
In the early 1990s, many same day transportation companies started using independent contractors as drivers instead of company employees. This has become an industry standard, which has helped to keep operating costs down. However, contract language needs to catch up with today’s environment. Today’s Independent Contractor Agreements should permit enforcement of specific security and safety standards
The Task Force is creating suggested minimum standards for reconstruction and that a standard reconstruction clause be included in contracts. Banks are also being asked to develop better, more consistent contract language for Requests for Proposals (RFPs) including “best practices” for pick-up and delivery, pre-employment screening, street surveillance programs, communications, and route optimization.
Loss controls such as cable locks, agreed upon reconstruction standards, and contract language are among the factors that influence insurance premiums for the bank courier business.
“With all parties in the industry working together to address these concerns, we can establish standards that improve courier services provided to financial institutions while keeping insurance costs affordable. We began the NTLA Roundtable Series to inform users and providers of bank transportation services about key issues in the industry. This Task Force is an excellent example of how we all can benefit from cooperation,” says BeavEx President and CEO Mark Tuchmann.