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Automotive Risks

Auto Fleet Risks: 5 Things Risk Managers Need to Know

Knowing auto fleet risks and employing ways to mitigate them can help keep businesses profitable and lives safe.
By: | July 18, 2018 • 6 min read

In the U.S., auto fleet risks are a daily challenge. Roughly 121 million business vehicles share the road with some 128 million passenger vehicles.

With this volume, opportunities for risky events, such as speeding and distracted driving, can keep fleet managers up at night.

1) Distracted Driving

Distracted driving is a key risk factor in the growing number of accidents on the road today. A National Highway Traffic Safety Administration (NHTSA) study found that, in 2016 alone, 3,450 people were killed in crashes involving distracted drivers.

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The NHTSA describes distracted driving asany activity that diverts attention from driving, including talking or texting on your phone, eating and drinking, talking to people in your vehicle, fiddling with the stereo, entertainment or navigation system — anything that takes your attention away from the task of safe driving.”

Peter R. VanDyne, technical director, Risk Control Services, Liberty Mutual Insurance, said distracted driving risks are greater for fleets of lighter vehicles as compared to heavier vehicles. These drivers have been identified as more often engaging in dangerous driving behaviors that result in risk events. (With heavier fleets, it’s the shortage of drivers that increases risk.)

The push to curtail risky human behavior has resulted in some meaty laws. For example, driving while texting is banned in 46 states and the District of Columbia and driving while holding a cell phone is illegal in 14 states, giving risk managers some muscle to back up phone-free driving requirements.

“Training … needs to be communicated as the company’s expectation, ‘We expect you to wear your seat belt every time you operate a company vehicle for any distance.’ ” — Peter R. VanDyne, technical director, Risk Control Services, Liberty Mutual Insurance

But laws, and even training, are not what really change behavior, VanDyne said.

“Most of the training we’ve seen to date has a marginal impact on driving,” he said. “The training content tends to be on what is safe and what is the law. But to really work, the training needs to focus on the things that are ‘company expectations.’

“Training shouldn’t be communicated as a message, like ‘seat belts save lives.’ Rather, it needs to be communicated as the company’s expectation, ‘We expect you to wear your seat belt every time you operate a company vehicle for any distance,’ ” VanDyne said.

2) Aggressive Driving

The NHTSA defines aggressive driving as the behavior of an individual who “commits a combination of moving traffic offenses so as to endanger other persons or property.” Hard-breaking, speeding and acceleration are examples of aggressive driving.

In 2016, the NHTSA reported that speeding killed 10,111 people, accounting for more than a quarter (27 percent) of all traffic fatalities that year.” Not only can speeding lead to more crashes, it can also make the severity of crashes greater.

For auto fleet managers, addressing aggressive driving needs to include more than simply stating the law and the company’s expectations, VanDyne said.

Hard-breaking, speeding and acceleration are examples of aggressive driving.

“Sometimes management needs to assess what the root causes of aggressive driving are,” he said.

VanDyne used as an example the case of an employee who had multiple speeding incidents but was otherwise exemplary. “If management dug deeper, they would learn that this employee’s son’s daycare opened at 8:30 a.m., and he was due into work at 9 a.m. But the 30-minute commute to the office, often hindered by traffic, led to his ‘beat the clock’ driving tendencies. The employee wasn’t alone in this dilemma. After learning this, management could launch a flexible start-time policy and subsequently reduce risk significantly.”

3) Impaired Driving

Drunk driving, drug-impaired driving and even drowsiness are risks that costs profits and lives. The NHSTA reported that drunk driving accidents claim 10,000 lives annually — that’s 28 people a day — and these deaths and damages contributed to a cost of $44 billion every year.

“Businesses face a variety of fleet risk challenges, including impaired driving, that negatively affect drivers’ abilities while on the road and push up the frequency of auto accidents,” said Mark Lucca, senior director, commercial auto product management, Liberty Mutual Insurance.

Drunk driving is decreasing thanks to advocacy and education coupled with increased penalties and fines. But drugged drivers, those using marijuana and illegal substances, continue to be a leading cause of accidents and auto fleet risks.

 4) Increased Litigation and Claims Severity

Commercial auto litigation and claims severity are both trending upward. Lucca cited a recent report estimating claims severity increased by 17.4 percent between 2010 and 2017.

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In large part these adverse trends are a result of the increased costs of both medical care and vehicle repair (See Risk No. 5, below) and further exasperated by increased claims litigation.

 “The litigation environment is more complex,” said Lucca. “Damages are increasing. The trial lawyers have become more aggressive and focused on specific industries, and it’s adding to the severity of claims. Awards are larger than in the past and more cases [are] going to trial. Unfortunately, there is no indication that this trend is going to level off anytime soon.”

Additionally, Lucca said the report also noted 24/7 news and social media coverage of serious truck crashes has led to plaintiffs’ lawyers pursuing higher damages.

An example of a high-profile accident is the Walmart truck that hit a limo carrying comedians James McNair, also known as Jimmy Mack, who was killed, and Tracy Morgan, of 3rd Rock from the Sun and Saturday Night Live fame, who was injured. McNair’s two children eventually settled with Walmart for $10 million. Morgan’s settlement amount was not confirmed, but Walmart’s insurance carrier reportedly reimbursed the mega-store millions for the loss after some contention over the very high settlement amount, rumored to be about $90 million.

5) Rising Costs

Both medical costs and auto repair costs have been rising considerably, according to Liberty Mutual’s Lucca.

“In the past 10 years, insurance claim costs for bodily injuries increased 42 percent, primarily due to the increase in medical care costs to treat injuries. The same holds true for auto repair costs; newer vehicles with newer and advanced technology will cause costs for commercial fleets to continue to increase.”

Commercial vehicle repair and replacement are auto fleet risk costs that have soared, rising 17 percent over the last 10 years.

Newer vehicles with technology-driven features run higher tabs when replacement or repair is needed. Features such as built-in navigation systems, camera- and sensor-based systems, power doors and lift-gates and other features that can make a vehicle safer on the road, make it costlier when it’s in the shop.

Safety Up; Costs Down

Both VanDyne and Lucca stressed that there are steps auto fleet risk managers can take to mitigate these risks: “The idea is, why have an accident if you can prevent it. Improve safety and reduce claims by applying practical strategies,” said VanDyne.

These steps include creating a culture of safety, engaging insurance partners and employing best practices and strategic safety initiatives that are ongoing and measurable, as well as the use of telematics. That last item just may be the golden ticket.

According to iFleet, telematics is “an exceptionally powerful tool that can monitor and report on vehicle location, vehicle mileages, engine on/off times, driver behavior (speed/braking) as well as fuel usage, vehicle performance and more. Indeed, the most sophisticated telematics systems can allow for preventative action to be taken prior to mechanical failure, saving downtime and potentially reducing repair bills.”

“Why have an accident if you can prevent it. Improve safety and reduce claims by applying practical strategies.” — Peter R. VanDyne, technical director, Risk Control Services, Liberty Mutual Insurance

However, VanDyne and Lucca advocate harnessing the existing technology and investment fleets already have in their telematics technology to further help with risk management. Doing so means looking at the data differently and working together with drivers and insurer to create best practices.

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Many auto fleet risk managers become overwhelmed by the massive amounts of data, they said, and consequently, they can’t truly leverage it for risk management purposes.

For example, a fleet manager may know that there are 200 acceleration and braking events in one day. But are these events all bad? Probably not.

Rather than directing drivers to ‘watch their acceleration and braking,’ they can evaluate the data to determine the amount of which acceleration and braking events are reasonable or typical, and from there they can set an expectation for drivers. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]