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Commercial auto: industry overview

NOV. 01, 2020

Businesses of all kinds depend on vehicles — cars, pickups, vans, trucks or buses — to carry out their daily operations and generate revenue. However, if these fleets are poorly managed or maintained, businesses could face significant damage to their reputation and bottom line, particularly if they aren’t able to meet the continued demands of their customers. Thus, it’s vital for businesses to manage their fleets and drivers effectively.

However, fleet management isn’t a straightforward affair; it’s heavily influenced by multiple dynamic trends. Driver shortages, distracted driving incidents, rising vehicle repair expenses, steep medical costs and telematics trends have all made managing fleets and drivers more complex. Understanding those trends — both positive and negative — can help organizations plan and take proactive steps to reduce exposures and efficiently manage fleets.

Driver shortages

According to the American Trucking Associations (ATA), trucking companies across the United States face a collective shortage of over 60,000 drivers due to higher freight demands and an aging driver population. What’s more, the ATA believes this shortage could grow to 160,000 drivers by 2028 if economic and industry conditions don’t improve.1

This trend isn’t simply limited to over-the-road truck drivers. In fact, by the end of January 2019, the U.S. economy had 7.6 million unfilled jobs.2 That means most businesses will likely have a difficult time securing qualified drivers moving forward.

Due to this historic shortage, many employees are driving longer hours to make up for lost time, which can lead to driver fatigue. In addition, to fill open positions, companies are broadening the types of candidates they are willing to interview and hire. In many cases, businesses are forced to bring on drivers who have less experience, minimal training and short driving records.

Driver training

It’s more important than ever that businesses have exceptional driver screening and training practices in place for new and prospective drivers. This ensures that whoever is driving a vehicle has the skill and experience needed to do it safely and effectively.

For training to be effective, it must be built into the organization’s processes, well-documented and updated regularly. Many businesses have found success instituting driver feedback programs that reward employees who exhibit good driving behavior.

Effective driver recognition programs leverage safety and performance data to reward or motivate drivers. Many businesses use programs to recognize drivers who maintain or improve their safe driving habits.

Not only do these programs promote safety, but they can also be an effective retention strategy. That’s because drivers who feel appreciated are generally more likely to remain with a company.3 Retention strategies such as these are especially important when the average cost of driver turnover is around $11,500 per driver.3

Distracted driving

Distracted driving — whether it’s the result of talking on the phone, eating or texting — reduces awareness, decision-making and performance, increasing the likelihood of driver error, near-crashes and crashes. According to the National Highway Traffic Safety Administration (NHTSA), approximately 25% of all vehicle crashes involve some form of driver distraction.

While the pervasive use of cellphones on the road has no doubt increased these incidents overall, driver distractions can also be visual (e.g., reading road signs), physical (e.g., drinking water), cognitive (e.g., daydreaming) and auditory (e.g., talking to passengers). Distracted driving continues to be a main contributor to vehicle collisions and an ongoing safety concern for fleets of commercial vehicles. Businesses need to proactively manage driver behavior in order to safeguard their employees and prevent costly accidents.

Accident costs

Accidents are becoming increasingly costly and unpredictable for businesses that utilize commercial vehicles. This largely has to do with trends related to vehicle repair and medical care costs:

  • Auto repair cost — While technology has created safer vehicles, it has also made them more expensive to repair following an accident. Sophisticated components, such as backup and blind-spot cameras, require costly parts and specialized technicians. In fact, the average new vehicle has thousands of sensors, which means that even small accidents can lead to thousands of dollars in repair costs. According to the most recent data from the U.S. Bureau of Labor Statistics, prices for motor vehicle repairs were 61% higher in 2017 than they were just seven years prior.5 While many businesses rely on cutting-edge technology to make their operations more efficient, the steep cost to repair their vehicles could be taxing for some businesses moving forward.
  • Medical costs — According to a study from the Insurance Research Council, economic losses from bodily injury liability insurance claims rose 10% from 2012 to 2017 — well above the medical inflation rate of 3% during that same period. What’s more, health care spending is expected to climb to $6 trillion by 2027 ($17,000 per person), according to the Journal of the American Medical Association.7 These inflating costs are due to a number of factors, including a growing number of people with chronic diseases, an aging population, increasing costs for outpatient and emergency room care, and higher premiums and out-of-pocket costs. Following a collision, plaintiffs will seek economic losses for medical care, lost wages and other out-of-pocket expenditures. Given the negative cost trends associated with these losses, commercial fleets could quickly exhaust their insurance protections, forcing them to pay out of pocket.

Telematics

In a challenging environment, businesses with commercial vehicles are constantly looking for new ways to improve safety and reduce their exposures. One solution that more businesses are turning to is telematics. Telematics is a broad term, referring to technology that organizations can use to gather data regarding drivers, individual vehicles or an entire fleet. Specifically, businesses that leverage telematics can track information related to a vehicle’s location, driver behavior, vehicle diagnostics and similar operating metrics.8

Telematics can benefit a business’s operations in many ways, as these solutions can lead to9:

  • Improved safety — Not only can motor vehicle accidents endanger the health and well-being of drivers, but just one crash can significantly impact a business’s bottom line. The severity of insurance claims, as well as the cost of medical treatment and vehicle repairs are all on the rise, making it more important for fleet managers to keep safety and accident avoidance a top priority. Telematics can help organizations of all sizes better protect their employees by monitoring driver behaviors and vehicle performance. It can also detect unsafe driving practices (e.g., excessive driving speeds or hard braking) and allow fleet managers to hone driver coaching and even send immediate in-cab alerts to correct dangerous behaviors in real time.
  • Increased productivity — By knowing the exact location and status of its vehicles, a fleet manager can make real-time business decisions. For example, businesses can reroute vehicles to avoid heavy traffic or deploy additional vehicles to a job, thereby increasing productivity. This is particularly beneficial for smaller fleets, as one vehicle often represents a larger portion of the overall business. This means that one driver’s productivity can have a significant impact on an organization’s bottom line.10
  • Improved vehicle maintenance — Telematics can provide businesses with invaluable information related to mechanical issues with their vehicles and equipment. For instance, diagnostic devices can flag an engine fault code, allowing businesses to investigate the issue before it becomes a bigger concern (e.g., the vehicle becomes nonoperational, leading to downtime and lost revenue). When used as part of a larger preventive maintenance program, telematics devices streamline the upkeep of vehicles and ensure organizations have access to functioning vehicles when they need them most.
  • Improve fuel economy — Fuel is a significant expense for businesses, and telematics can help organizations operate more efficiently. Telematics gives businesses the functionality they need to better plan their routes, reduce engine idling and notify drivers of excessive speeds. Cost savings such as these are critical for small and large fleets alike.

Addressing commercial auto trends

Managing a fleet of commercial vehicles can be difficult, particularly given the complexity of the trends that impact businesses. To optimize their operations, businesses need to take a proactive approach to managing their vehicles and drivers. This can be an involved process and may include auditing safety procedures and policies, monitoring drivers, incentivizing good behaviors, implementing preventive maintenance programs, and integrating telematics solutions to bolster risk management efforts.

Thankfully, businesses aren’t alone when it comes to navigating challenges related to their vehicles. Businesses should seek insurance partners that understand market trends, provide loss control guidance specific to their operations, suggest ways to make their fleet run more efficiently, highlight gaps in risk management practices, educate them on compliance considerations and act as a trusted advisor. Above all, businesses that work closely with an experienced insurance agent will not only have a better understanding of the exposures that impact their business, but they will also be more prepared to protect their drivers and vehicles on the road.

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