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Insurance premiums and excesses, “no win-no fee” solicitors’ fees, health service charges and personal injury costs have all increased substantially in recent times. September 11 and a range of lesser insurance disasters in 2001 (including the Petrobras oil rig, Air Lanka aeroplane attack, tropical cyclone Alison and the Toulouse factory explosion) mean that all fleets need to manage their insurance (including self and re-insurance) more effectively to avoid the following types of outlay.
Every truck, van or company car operator experiences a “ripple in a pool” or “iceberg effect” (see figure 1) after a vehicle claim. Fleet crash costs are much higher than just vehicle repairs and include both insured and uninsured costs. Several Australian researchers have structured the costs of crashes using a direct (repairs) and indirect (personal injury, medical/hospital, rehabilitation, absence from work, workers compensation, downtime/lost productivity, and potential loss of custom, replacement vehicles, administration and insurance hikes) framework. Insurance data for 1996 showed that the average direct repair cost of a claim was about $2,000, with the total cost between four-10 times higher. Other Australian researchers have structured them into insured and uninsured costs. The uninsured costs, including legal costs, can be up to 20 times higher than the insured ones. In the UK, the Health and Safety Executive (HSE) figures are often quoted, particularly by driver trainers, to show that for every £1 of obvious costs, such as repairs, the hidden (and often unrecoverable) costs in relation to the vehicles, drivers, third parties and other expenses are somewhere between eight to 36 times as high. This is not an exact or standard figure, and individual fleets should use Table 1 to work out these costs and the extent to which they are recoverable in their own case. In the original HSE study the 8x case study was the only one that actually related to transport or driving. Where we have worked with managers – typically in workshops, but sometimes in more detail with the actual data – to review their hidden or uninsured costs, they normally come out in the region of two-three times higher than the obvious costs. Normally, vehicle operators focus on vehicle repairs and insurance costs. There are, however, many other costs that are more difficult to quantify, but the quantification of these can make the arguments in favour of investing in fleet safety even As a starting point, it is vital to get an understanding of the full costs involved. Costs can be split into recoverable and irrecoverable through insurance. Table 1 shows examples of these costs split down by vehicles, drivers, third parties and others. Even those costs that are recoverable can be a problem. The continued submission of claims will increase annual insurance premiums and the size of the “excess” paid on each crash. Both of these trends have been occurring in the UK. One of the major and fastest-growing elements of these hidden costs is that of personal injury claims by third parties, particularly for whiplash. People and their advisers are becoming much more aware of what they can claim. Law firms and accident management companies specialising in personal injury have become more promiscuous in promoting their services to potential clients and “ambulance chasing”. In some cases if the commercial vehicle operator admits liability (the incident was caused through their negligence) then the whole cost of the incident will be substantially lower than if liability is contested. This is because if a case is contested it will then proceed to a trial where a judge will have to determine who caused the crash after hearing evidence from both the defendant and the plaintiff. Usually in a situation like this, the commercial vehicle operator will have to weigh up the pros and cons of possibly admitting liability, though usually on a without prejudice basis, to be able to settle the case at minimum cost. If the likelihood of the commercial vehicle operator being deemed to be liable is high, it is probably in their financial interests to admit liability quickly.
Once these costs are fully understood and quantified, they can then be used to develop countermeasures and set standards and targets for managers, supervisors and drivers. Cost data is particularly important for targeting effort. If crash numbers alone are considered in Table 1, reversing is the most important claim type. But, when costs are added this shows the importance of the more expensive and dangerous colliding with vehicle in front claims. Cost savings made through safety countermeasures go straight to the “bottom-line” profit margin as shown in Table 2. For example if your return on sales is 5% and you save £50,000 on your safety costs that is the equivalent of generating £1m of new turnover. This cost relationship is a powerful argument for investing in fleet safety, and a useful mechanism for focusing the minds of accountants, senior management and local operational managers on the need for pro-active crash reduction. In one trucking company we worked with recently, they calculated that they needed to earn over £5,000 in revenue for each damaged wing mirror they had to replace. Cost trade-offs need to be evaluated on a case-by-case basis. Typically, the extra costs are the programme itself, and management and staff time. Potential cost savings include insurance, crashes, vehicles, drivers, quality and PR. The best way to avoid the threat of spiralling personal injury costs is for fleet managers to take a much more pro-active approach to safety and risk management. Organisational culture and management/supervisory and driver skills and attitude are fundamental to this. Managers not taking responsibility, not analysing their claims statistics and not taking appropriate and pro-active actions are the main causes of crashes involving fleet vehicles. All too often fleet managers take action “after the event”. To help reduce the hidden, particularly personal injury, costs of crashes they should take action to fulfil their duty of care to employees and the public, by “creating a crash-free culture”. Typically, this involves the following types of action.
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