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May 14, 2007 7:45 AM, EDT
Fleets Eye Safety Gains to Cut Insurance Costs
By Tarun Reddy, Staff Reporter
This story appears in the May 14 print edition of Transport Topics.
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Risk management has taken on a new urgency for many carriers as trucking companies attempt to reduce operating costs and minimize insurance premiums, often by including safety improvements.
Despite that urgency, many carriers are having a tough time recruiting drivers with clean motor-vehicle records free from accidents or an excessive number of moving violations. At the same time, insurance providers face the challenge of wanting to write more policies for the trucking industry but being wary of trucking companies that do not have a well-rounded risk management program in place.
This combination has led to a greater awareness by trucking and insurance executives that their industries must do a better job of working with each other to promote safety and an economical approach to risk management.
A study about the trucking industry released last year by Liberty Mutual Group, Boston, found that companies with low crash rates tended to follow several “best practices” and had high management involvement in driver training.
The study also found that in the case of successful companies, at least 60% of their drivers had clean motor-vehicle records. These trucking firms also had drivers with at least six months of driving experience.
Dave Melton, transportation director for loss prevention at the Liberty Mutual Research Institute for Safety, said the survey underscores the importance of carriers’ being diligent about hiring practices.
“If carriers do not hire good drivers, they are potentially at risk of hiring drivers that no one else wants,” he told Transport Topics.
Melton said there is big difference between writing a safety policy and implementing it. “You don’t write a safety policy for drivers and then just put it on the shelf,” he said.
An official with Celadon Group said the truckload carrier has found that a combination of incentives and warnings is important to promoting risk management for all drivers.
Ken Core, Celadon’s vice president for risk management, said the company gives bonuses to drivers for every 30,000 miles driven without an accident.
Core also said the company may send drivers for additional training if they need to work on particular skills, such as backing up. But he stressed that doesn’t mean all drivers: Because Celadon has more than 2,900 drivers, it is impractical to send a driver trainer with new hires during the first few weeks on the job, he said.
Core said his role has changed since he joined Celadon six years ago. Rather than reacting to accidents after they happen, he said, “My role is to find ways to prevent accidents from happening in the first place.”
As an example, Core said, Celadon has expanded its use of computer-based training programs for new hires as a way to emphasize the importance of safety. If a driver gives the wrong answer, the computer program stays on that question until he gets it right.
Celadon, Indianapolis, ranks No. 58 on the Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers.
Don Osterberg, vice president of safety for truckload carrier Schneider National, Green Bay, Wis., said technologies such as in-cab simulation have been important tools for helping the company improve its safety record in recent years. In 2005, the company installed driver simulators at its six training academies.
Osterberg said using the simulators has helped the company personalize training for drivers, who sit in a replica of a truck cab and face a large screen that displays images representing mountains, icy roads and other conditions.
“Without the simulator,” Osterberg said, “there would be a lot of scenarios we wouldn’t be able to replicate.”
He said Schneider, which ranks No. 8 on the TT 100 for-hire list, has seen a 31% reduction in the number of accidents that must be reported to the U.S. Department of Transportation.
Osterberg stressed that the simulators have not lessened the important role of the company’s safety instructors: “The simulators act as another tool to help drivers improve their skills.”
Another reason trucking firms are  more cautious about risk management is higher expectations from shippers, said an executive with Lexington Insurance Co., Boston. Steve Silverman, an assistant vice president at Lexington, said shippers increasingly judge a carrier’s reliability based on the frequency of accidents cited in data contained in SafeStat.
SafeStat — short for Motor Carrier Safety Status Measurement System — is an online database maintained by the Federal Motor Carrier Safety Administration.
Silverman said that Lexington, a subsidiary of American International Group, is placing a greater emphasis on the role of company management in overseeing risk-management programs.
“People cannot look at risk management in a vacuum. It ultimately affects the entire operation of a company,” Silverman said.
A key issue facing carriers is how much coverage they should have if they have a brokerage service, which relies on other fleets to provide capacity. Nick Bayliss, Lexington’s assistant vice president for product line management, said carriers are starting to realize they could be liable for an accident that occurs in a truck they do not own.
Lexington recently added a line of coverage to help indemnify carriers using brokerage operations. Several firms, including J.B. Hunt Transport Services, Lowell, Ark., are increasingly relying on brokerage services to meet customers’ freight-hauling needs.
“Many trucking companies may lack a full appreciation of what their exposures are when they operate in a truck brokerage capacity,” Bayliss said.
He said trucking firms can reduce brokerage-related risks “once hazards are clearly defined and proper controls are put in place.”
As the economy becomes more global, having the right insurance is growing in importance, said Mark Robinson, vice president of business development for UPS Capital, Atlanta.
Robinson said UPS faces the challenge of convincing shippers to pay for additional insurance coverage because it could reduce their profit. But Robinson said shippers must take more interest in coverage needs as the supply chain gets longer.
“When you have long supply chains and multiple handoffs of freight, customers can get very confused about who is the responsible party for the freight,” he said.
While some carriers will consider hiring drivers with problems on their driving records, they do so carefully, industry officials said.
Kevin Burch, president of Jet Express Inc., Dayton, Ohio, said he might hire a driver other carriers will not but only under close supervision. Besides requiring the driver to have a trainer ride along with him or her on routes, the driver may have to view safety videos.
Jet Express also will look at data from the truck’s engine-control module to detect evidence of speeding or hard braking, two factors that can lead to accidents, Burch said.
“When a driver knows that a company truly cares about him, they are more likely to change their driving habits,” he said.
The company has 320 drivers, including 220 owner-operators, Burch said.
An executive with Captive Resources, Schaumburg, Ill., which allows trucking companies to pool their risk, said it is possible for carriers that hire drivers with some safety blemishes to get coverage at favorable rates. Nick Hentges, the company’s executive vice president, said trucking firms must have a clearly defined risk-management program and have someone whose main responsibility is overseeing driver safety.
“The other key is that carriers must show they are communicating the importance of safety to drivers on a regular basis,” Hentges said.
Tom Kretsinger Jr., president of truckload carrier American Central Transport Inc., Liberty, Mo., said risk management is especially important for small carriers, which may not have enough money to pay for an accident if it involves a fatality. FMCSA said in a 2005 study that an accident involving a fatality costs an average of $3.4 million.
Despite that statistic, Kretsinger said many smaller firms are underinsured. “There are a lot of carriers out there that are one accident away from being out of business,” he said.
Kretsinger said there are too many carriers that keep only the minimum amount of coverage required by their insurance provider, rather than having a sufficient amount based on their business needs.
“Compliance is not the same thing as safety,” Kretsinger said.
He said the growing popularity of onboard computers has played an important role in emphasizing the importance of safety to drivers. The key to getting drivers to embrace technology is to show them it is a tool, rather than a form of punishment — or a sign of mistrust.
“The more tools a driver has in his toolbox, the better he will become,” Kretsinger said.
Getting some in the trucking industry to embrace risk management remains a challenge, Kretsinger said. He explained that given the fast-paced nature of trucking and the need for just-in-time shipments, it is difficult for some executives to take a step back to consider the role of risk management.
Kretsinger said it also is important for insurance brokers and agents to be aware of the way the trucking industry is changing and how that affects liability coverage needs. “As a carrier, I can’t talk directly to the person who is making the final decision about my coverage,” he said.