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 Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: THE HEAT IS ON

Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”

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Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.

PART TWO: STRICKEN FAMILIES

“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.

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“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.

PART THREE: AN INSURANCE TANGLE

Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.

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But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.



Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]