Consulting » Company cars: lower risks mean higher returns

FEW RECENT trends in fleet management have been as dramatic as the rising use of road risk policies, which have rocketed from relative rarity to near-ubiquity in less than five years.

Ninety-eight percent of companies questioned for the 2011 Alphabet Fleet Report confirmed that they had a fleet risk management policy – a 260% increase over the 2006 figure. Another telling statistic from the report that highlights the focus on risk is 71% of managers cited driver safety as their top concern, compared with 62% who ranked fleet costs as their biggest issue.

This policy shift is undoubtedly a reaction to the 2008 Corporate Manslaughter Act, under which penalties include unlimited fines, remedial orders and publicity orders if inadequate management of safety is proved to have contributed to an employee’s death.

But while manslaughter is at the extreme end of the corporate road risk spectrum, the bread and butter job of fleet risk management is alleviating the constant financial drag that accidents and incidents impose on companies’ bottom lines.

Although the UK has seen a remarkable fall in road fatalities in recent years, numbers of incidents and injuries have not dropped so quickly. Incident rates for business fleets stubbornly hover at around 35% of fleet vehicles each year.

Hidden costs

Company vehicle incidents take a lot of shine off the bottom line. Average bodywork repair bills, according to benchmark data from the body shop industry, are now nearly £1,300 per car. How much would your company need to sell to pay for this additional cost?

‘Hidden’ incident costs typically come in at twice the cost of physical repairs. They include disruption to business and potential lost sales while vehicles are off the road. Then there are uninsured losses such as drivers’ out of pocket expenses, vehicle hire and insurance excesses.

In addition, businesses are just as exposed as private motorists to the phenomenal growth of the UK’s no-win-no-fee personal injury claims industry. Bogus claims for whiplash constitute a multi-billion pound pain in the neck for holders of compulsory third party liability insurance.

In January, MPs were told that alleged whiplash injury claims helped to drive insurance premiums up by 250 times the annual amount the NHS actually spends on treating suspected cases – allegedly adding around £90 to the average cost of individual motoring premiums in 2010 alone.

Fighting premium increases

But the Alphabet Fleet Report found that nearly 70% of respondents avoided any increase in their fleet insurance costs despite the jump in general motoring premiums thanks to a focus on risk management.

While proactive Accident Management cuts the cost of repairs after the event, by getting cars back on the road quickly and seeing off opportunistic claimants, Risk Management strikes at the root cause of incident rate-driven premium increases through preventing accidents happening in the first place.

Indeed, many of the companies questioned for the Fleet Report also reported a reduction in accidents. This strongly indicates that companies are enforcing effective Risk Management practices in order to benefit fully from their risk policy rules.

There is a steadily expanding range of Risk Management tools available to companies. As well as products directed at drivers – risk assessments and training – there are services to handle vital tasks like verifying and recording essential documentation such as driving licences, insurance, MOT and registration certificates and service records.

Companies’ ability to monitor driver risks is also increasingly moving out into the field thanks to improvements in-car technology that broadcasts vehicles’ positions along with information about speed, acceleration, braking and cornering forces. As well as its obvious safety and security benefits, advanced in-car technology will pinpoint risky behaviours that lead to excessive costs for fuel, wear and tear, as well as accidents.

While pricing currently limits advanced technology primarily to commercial vehicles, some car fleets have begun to adopt it. In the near future, cars will feature advanced factory-fitted systems for delivering new services to fleets and drivers, including important aspects of risk management.

Of course, that is still in tomorrow’s fleet world. Today’s business car driver knows that no-one looks over their shoulder while they are driving. Safety policies get forgotten, unless the company takes steps to keep it there.

That is the key to managing fleet risk. Surveys have repeatedly shown that awareness of fleet safety policy rules doesn’t naturally percolate down to drivers. For instance, it’s surprisingly common for firms to leave a gap in their safety audit trail by omitting to require employees to sign their acceptance of the policy.

Specialist skills

Policies inevitably lose their effectiveness if they are not regularly reviewed and renewed. Every employee who drives on business should have to re-sign up to the company’s business driving policy at least once a year. Many companies sustain safety awareness through regular updates and bulletins for drivers.

Making a road safety discussion part of drivers’ annual review process also reminds line managers that they too hold responsibilities in this area.

For the FD, the important point is to receive timely and accurate reports on risk costs and statistics from the fleet department or fleet management company. In many cases, the first sign of deteriorating road risk performance is when costs and vehicle downtime start creeping up for no apparent reason.

That’s the time to prompt those responsible for safety policy to put fresh impetus behind it. Effective risk management unquestionably has a positive impact on fleet operating costs, from fuel use and maintenance bills to the cost of repairs and insurance.

An ounce of prevention saves a pound of cure.

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