Opinion: Turn Risk Into a Competitive Advantage

By Chris Mikolay

Assistant Vice President

National Interstate Insurance Co.

This Opinion piece appears in the Nov. 5 print edition of Transport Topics. Click here to subscribe today.

In speaking with hundreds of trucking company executives over the course of my career, I’ve noticed two distinctly different mentalities when discussing insurance: There are those who buy insurance, and there are those who manage risk.

There is a world of difference.

Let’s consider two fictional trucking companies, Ralph’s Rigs and Dan’s Delivery. Ralph and Dan, owners of each fleet, have seen the industry evolve significantly over the past few decades, and each has learned a thing or two about running a trucking company.

When it comes to insurance, for example, Ralph likens his premiums to the current price of diesel — it is a commodity over which he has very little control, other than to shop for the lowest price to find the best deal. In fact, few events are more exasperating to Ralph than his annual insurance renewal. And while Ralph’s Rigs had long ago grown large enough to hire a full-time safety manager, Ralph still believes accidents are more or less random and losses are a cost of doing business.

Like Ralph, Dan has watched as the trucking industry has evolved and become increasingly difficult — driver shortages, a sagging economy, the burdens of the government’s new Compliance, Safety, Accountability program (better known as CSA),  an aging workforce and rising fuel prices, just to name a few — it seems like running a profitable trucking company is harder every day.

However, long ago Dan decided he had two choices: He could let the industry’s challenges determine his destiny, or he could meet the challenges head-on and take control.

Dan became an early adopter of electronic onboard recorders and saw his CSA scores decline. He experimented with aerodynamic skirts to fight rising fuel costs and realized a significant return on the investment.

And, significantly, he challenged his insurance broker and insurance carrier to help him control his losses and fight claims aggressively.

Dan decided he could turn risk into a competitive advantage by using the latest techniques to reduce accident frequency and workers’ compensation claims. He found that he could, in fact, control and drive down his total cost of risk.

As the trucking industry continues to evolve, Dan will thrive and Ralph will grow ever more frustrated.

Today, fleets must think like Dan and take a disciplined, proactive approach to managing all facets of their business — and that includes embracing risk and establishing a culture of safety. When it comes to effective risk management, the best fleets do the following:

• Establish a comprehensive return-to-work program to control workers’ compensation costs. Everybody loses when an employee is out of work, and an effective RTW plan can be a win-win for the trucking company and the injured employee. Proactive trucking companies lean on their broker and insurance carrier to design and implement the RTW program.

• Avoid hiring workers’ compensation claims by using pre-hire physical abilities testing. These tests have been shown to dramatically reduce workers’ comp claims.

• Use accident-event-recorder technology. While some fleets are reluctant to install this technology because of driver privacy concerns or high cost, the systems typically pay for themselves in relatively short order in the form of reduced accident frequency, less wear and tear on the trucks and improved fuel economy. Plus, AER technology provides an irrefutable witness in the event of an accident.

• Take calculated risk. Analyze various loss-sensitive risk financing options, including captives, risk retention groups and large deductibles. The best fleets will periodically review multiple solutions with an insurance broker who has in-depth knowledge of these programs.

• Take a longer view when making an insurance-buying decision. Too often, trucking companies get caught in the trap of making a year-to-year insurance-buying decision. Stifling collateral burdens, poor claims outcomes and sudden premium increases at renewal are the high costs of short-term insurance-buying decisions. In contrast, visionary fleets determine the most efficient way to finance risk over a three- to five-year horizon.

• Maximize the loss-control services provided by the insurance carrier. Many fleets are not aware of the often innovative loss-control programs available to them — or worse, some view loss-control visits as a nuisance. The best fleets will check their ego at the door and take advantage of the services provided by their insurance carrier.

These are just a few of the ways good companies turn risk into a competitive advantage. Risk can be controlled to a greater degree than many imagine. However, this requires a holistic approach to risk management, including vision and support from senior management, a commitment to reducing accidents before they happen and aggressively managing those losses that do occur.

National Interstate Insurance Co., Richfield, Ohio, is a specialty property and casualty insurance company that focuses on the transportation industry.