Damaging facts

Senior managers and board members need to carefully consider motor fleet risks as the consequences of hidden or uninsured losses, especially through absenteeism, can have costly results explains Andy Price

There are four fundamental reasons why a company should manage the risks faced by its vehicle based employees: reducing the risk of harm; complying with the relevant legislation; meeting their corporate social responsibility standards; and minimising financial loss to the bottom line.

It is the financial argument that is usually the most compelling from a business perspective, especially when the uninsured losses associated with every crash are taken into consideration. Indeed, the International Loss Control Institute says that for every £1 a business recovers from its insurance policy there are £8-£53 in uninsured losses, depending on the severity of the collision. The uninsured losses that a company faces depends on the exact nature of its business, but lost productivity, late deliveries, brand damage (especially if liveried vehicles are used), higher staff turnover, and associated recruitment costs are only a few examples of what a business can be up against. However, the biggest issue for most companies is usually the cost caused by absenteeism.

When someone is involved in a collision, even if it is quite a minor one, they immediately start losing time as they arrange the vehicle to be repaired. Filing the claim, filling out a collision report; all takes time and time spent dealing with the administration is unproductive time. Of course, if the collision is more serious then there is the potential for time off-sick, making the issue much worse.

Spiralling consequences

Now think about the consequences to the business itself. Is the absentee still able to do their job effectively and, if not, what effect does this have on the company? Do colleagues have to cover and, if they do, are they able to cope with the extra workload as well as do their own job effectively? Employees being asked to cover two jobs could even see their stress levels increase, leading to their own absenteeism - the knock-on effects can be disastrous.

These hidden costs are not limited to company vehicle drivers. Even if an employee involved in a collision is using their own vehicle and the direct costs are their responsibility, hidden costs are still borne by the business. In fact the issue is sometimes worse as it will often take longer to make personal collection and repairs of these vehicles, as they are not managed in the same way that a company leased vehicle would be.

Another way of looking at these hidden costs is to compare it to the easily measurable example of the cost of the damaged vehicle bodywork or bent metal. Various estimates have been used to approximate uninsured losses for this, including up to 32 times the basic cost to repair, but the generally accepted minimum estimate is four times the cost.

Assuming that the average cost of a collision involving damaged bodywork is £1000, typical for a high value or mixed vehicle fleet, this gives an estimated average of £4000 per collision for the uninsured losses. If the business has a collision rate of 25%, meaning a quarter of all the vehicles in the fleet will be involved in a collision each year, and the 'return on sales' for that business is 15%, then for each vehicle on the fleet, not just those involved in a collision each year, the business will need to generate £6667 per vehicle to fund the direct and uninsured losses associated with each collision.

Of course if the collision rate is higher or the return on sales is lower, which is common in many businesses, then this figure will be higher still. Many companies go one stage further, not only calculating how much revenue is required to fund the direct and uninsured losses associated with every collision, but also equating this to how many units or days' consultancy they would have to sell in order to fund the collision costs.

This is exactly what confectionary firm Nestle did when it analysed the collisions it was having across its European operation; the company calculated that it would have to sell 235 million KitKats to fund the direct and uninsured losses associated with the collisions it was having. By putting the costs into real terms that everybody can understand, it helps focus the minds of the senior managers to ensure that action is taken to reduce the collision rate.

Senior managers, of course, will be looking at this argument from the other direction. They will see reductions in the collision rate will lead to contributions straight to their bottom line instead of paying for the funding of direct and uninsured losses. In other words reducing risk will improve their profitability. The argument so far is quite compelling, so why haven't more organisations embraced work-related road risk management?

To reduce the collision rate requires investment, something many companies can ill afford. What fleet managers, insurance managers, and health and safety managers need to be able to demonstrate to the board is a business case for investing in risk management, which demonstrates a quick return on investment and looks favourable when compared to all the other projects under consideration.

When talking to senior managers or board members it is, therefore, best to look at a five-year picture as work-related road risk management should be seen as a long-term process not a quick fix. It is easy to demonstrate the cost of doing nothing as claims inflation alone, currently running between 4.5-6.5% per annum, will lead to an escalation in costs - assuming that the rate and severity of collisions remains unchanged.

A five-year risk management programme is advisable as it focuses on gaining a thorough understanding of the risk profile and on management interventions to reduce risk wherever possible, but also with some interventions focused on individual drivers. It is then possible to provide an estimate of the likely collision reduction rate, based on what other people have achieved, and calculate the five-year costs to take into account the investment required and also the likely reduction in collisions.

This should prove to companies how important it is to invest in risk management for their fleets.

- Andy Price is the motor fleet practice leader for Zurich Risk Services.

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