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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]