Top Trends Fleet Accident & Driver Risk Management
Today, more vehicles are being totaled because of the high cost to repair them. For instance, as manufacturers use more expensive components, such as aluminum frames, Xenon headlights, and multiple airbags, the cost to repair can often exceed the residual value of the vehicle. In future years, this trend will reduce the number of accident-damaged vehicles repaired and raise the cost of accidents for fleet owners. One consequence of this trend is the renewed
emphasis on accident prevention as a way to reduce fleet costs.
With this as a backdrop, here are the top trends that will affect fleet accident management costs in 2005 and beyond. Also examined is the growing trend toward driver risk management.
Ongoing Increases in the Price of OEM Replacement Parts
Across the board, prices have increased for all OEM (original equipment manufacturer) replacement parts. Also, part prices are increasing more frequently -- from annual to quarterly price hikes. Traditionally, the annual price increase for parts occurred during the fourth quarter, sometime between November and January of each year. “Now, we are seeing dealers adjust prices for parts more frequently. Prices are now being increased on a quarterly basis,” said Greg Neuman, quality control supervisor for The CEI Group.
Also, OEMs continue to make parts that are increasingly more difficult to replace by non-OEMs, driving up parts costs, according to Art Liggio, national director, risk and insurance services for CEI.
More Assemblies Sold
Instead of Individual Parts
Manufacturers are selling more assemblies rather than individual parts.
“It used to be if you had a damaged quarter panel, you would just buy that part. Now you have to buy an integrated unit that contains the quarter panel,” said Neuman.
Vehicles are Being Built With More Plastic Components
Another reason for rising repair costs is that manufacturers are using more plastic components in vehicles.
“One reason why manufacturers are increasing the number of plastic components is to reduce the weight of vehicles to meet CAFE (corporate average fuel economy) standards mandated by the federal government,” said Liggio. “As a result, accident damage to plastic components is more severe than what would occur if the components were made of metal. The other consequence is that you may have what you consider a minor hit, but the vehicle beneath could be
structurally compromised,” added Liggio.
Plastic parts are more expensive. “For example, the headlamps on all fleet vehicles are now made of plastic, which cost approximately
$250-$300 to replace,” added Neuman.
Greater Vehicle Complexity is Increasing Accident Repair Costs
The costs to repair vehicles damaged in accidents has increased as a result of the complexity of new vehicles, primarily resulting from the proliferation of electronic components.
“Consistent consumer demand for specialized features, both comfort and easy to use computerized components with new safety features, have driven up the manufacturers’ factory invoice pricing and collision repair costs after an incident,” said Ed Kemps, corporate risk and insurance manager for Automotive Resources International (ARI).
“Increased vehicle complexity absolutely translates into higher repair costs,” said Liggio. “As vehicles have become more complex, the cost of replacement parts has increased and so has the required level of technician expertise, which has increased labor costs.”
In addition, key components, such as electronics, are installed in the sections of a vehicle commonly damaged in a collision. “For example, some cars have most of their electronic components at the front end of the vehicle,” said Neuman. “This is a key reason why the amount of time it takes to repair a vehicle – cycle time – has increased.”
More Companies Looking to Manage Medium- and Heavy-Duty Truck Accidents
There is a growing interest in accident management services from fleets operating medium- and heavy-duty trucks. “We’re experiencing tremendous growth in the number of companies interested in seeing the same type of accident management value for truck accidents as they get for cars and lights,” said Eliot Bensel, manager of PHH Arval’s Vehicle Accident Services department. “In addition to on-the-road assistance and accident reporting, they also need a national network of quality repair providers for these larger vehicles, plus a streamlined process to repair damage where there has been specialized upfitting.”
Growing Inflationary Pressures to Increase Labor Rates
Labor rates are not uniform nationally and vary by region. The highest labor rates are in Northern California, which averages
$75-$80 per hour, while Houston has rates as low as $32-$34 per hour.
Although labor rates in the past year have remained relatively stable, they are susceptible to inflationary pressures in the economy.
“Usually, labor rates increase $2 per hour every 18 months or so,” said Vincent Brigidi, manager, strategic account services for CEI.
More Manufacturers are Not Certifying Cars as Meeting OEM Specs Unless Repaired at Dealer Body Shop
There have been changes in vehicle engineering as a result of CAFE regulations. Manufacturers are now using lightweight metals such as aluminum for frames and engines to improve fuel efficiency.
“Some of the OEMs will not certify a car as meeting OEM specs unless it is repaired at one of their dealer body shops. This will continue to increase costs in the world of accident management,” said Liggio.
Insurance Industry Considering Consolidating Work to Specific Body Shops
Changes in the auto insurance industry affect fleets, even though the majority are self-insured. “We are closely watching changes in the insurance industry,” said Liggio. “For instance, the top 10 auto line carriers control 50-60 percent of the market. Right now they are having serious conversations to start contracting with body shops across the country for all of their capacity. A body shop will not be owned by an insurance company, but it will contract with a carrier for all of its capacity. It will be more and more difficult to get the attention of body shops unless you have a significant scale to provide them,” added Liggio.
More Insurance Companies Using Arbitration Forums
Many insurance companies are using arbitration forums as a tool to manage their claims process, especially in regards to subrogation. “It is becoming more standard policy for insurance
companies to immediately deny a claim and then take the claim through a third-party arbitration process,” says Bensel. “This delayed claim closure allows them to float their money, close their files more quickly, and avoid fees.”
Outsourcing of Accident Management to Increase
More and more fleet managers who have never outsourced before are considering outsourcing accident management services instead of managing them in-house, especially with public service fleets that are looking for alternatives to help reduce administrative time and manage costs, added Liggio.
Agreeing is Bob Martines, president/CEO of Corporate Claims
Management Inc., who says outsourcing will continue, but with a twist. “Fleet managers are demanding more from their vendors; therefore more selective outsourcing is becoming more prevalent,” said Martines.
“We have also seen a major increase of outsourcing by large corporations in the past five years on accident/damage management claims,” said Kemps. “The reduction in employee overhead costs and the lack of in-house insurance/claims handling knowledge by in-house administrators has created this trend. Damage appraisals, total loss decisions, and subrogation law have become major issues for a
self-insured physical damage company.”
More fleets are using suppliers for consultative purposes. “We are finding that more and more clients want a consultative approach to managing risk and reducing accidents,” said Dan Shive, vice president of risk management services for LeasePlan USA. “They are no longer just looking for a better way to respond to accidents when they occur. Clients want a proactive approach to accident management – a way to prevent accidents from happening altogether.”
Corporate Procurement Departments Will Make More Fleet-Related Decisions
Procurement and finance will continue to assume more decision-making authority, and traditional decision makers will continue to lose some of their authority. Traditional decision makers will continue to retain influence and decision-making authority, but in conjunction with other departments, said Liggio.
According to Adrian Stone, president of LeasePlan Risk Management
Services, “Purchasing departments will seek to combine services, such as accident management and emergency roadside assistance, for a smarter purchasing decision, which doesn’t always translate into a smarter fleet decision.”
Types of Vehicles in Fleet are Expanding, Impacting the Cost of Accident Management
The trend to use different vehicle types in fleet service is expanding, not contracting, and this is impacting the cost of accident management.
“With drivers and ultimate buyers becoming more aware of the many vehicles offered today, we have witnessed an increase in demand for specific vehicles and options. More drivers want and are getting SUVs and upscale vehicles,” said Martines. “Companies appear to be
becoming more lenient to demands from the field, and I believe part of that is because there are fewer veterans in the key positions who understand fleet operations. Too many decisions are made by individuals who have limited knowledge of overall fleet. They may know purchasing or finance, but have less knowledge than traditional fleet managers of the past.”
Challenges in Repairing Accident-Damaged Hybrid Vehicles
The use of hybrids in many fleets poses some challenges in repairing accident-damaged vehicles. “It’s important to have some expertise in parts procurement, authorization management, and shop requirements, as well as a national network of repair shops qualified to repair these hybrid vehicles,” said Bensel.
Shift to Electronic Data Management of Subrogation
A current trend in subrogation is the transition to electronic data management of documents. (Subrogation is defined as the monetary recovery of damages from an uninsured party or the recovery of costs not covered by an insurance policy.)
High-tech service providers are now able to make demands for payment electronically along with supporting documentation. “Technology is definitely helping us to reduce our days to recovery during the subrogation process,” said Chris Villella, senior manager, loss
recovery services for CEI.
Shive agrees. “Electronic data solutions for subrogation are helping to reduce the time to collect, a positive benefit to our clients.”
More Internet-Based Communication
More Internet-based communications will occur between clients and suppliers on a real-time basis, not based on an overnight download, said Myron Zadony, president and COO of Fleet Response.
Bensel adds, “Fleet and risk managers want to see their information on a real-time basis, whether it’s live pictures of damaged vehicles, First Notice of Loss reports, repair updates, or trends analyses. Internet-based information management systems make it possible to really be on top of all accident-related data and make smarter decisions. And information that links accident data, driver profiles, and trends can help a company modify driver behavior, with
far-reaching implications for a company’s risk profile and collision management performance.”
Stone concurs, “The Internet is the key medium to tie clients and vendors into a seamless, real-time ‘value chain.’”
Martines offer another perspective. “In years past, communication with a fleet manager or risk manager was relatively comfortable with a variety of issues discussed, including day-to-day operations, procedure enhancements, and general business practices. Now it is an e-mail of what has occurred and a telephone call for emergencies. The personal touch is slowly evaporating, which serves companies when all they care about is bottom-line figures. It is quite the opposite with individuals who need the personal contact, when a situation develops that needs that personal attention.”
Fleet Managers are Demanding More Efficiencies
Fleets are looking for more efficiencies. “Some have the mentality of ‘if it’s not broke don’t fix it;’ however, many fleets we encounter are now looking to find out if the practices they use are correct and if there is room for improvement,” says Martines.
With ongoing downsizings, every employee is expected to do more with less, and eventually they are so overwhelmed they just give up. “I cannot tell you how many people I speak with in our industry who have the same dilemma,” said Martines. “They know what needs to be done; they just cannot get to everything.”
Ever-Increasing Appetite for Direct Access to Accident Data
Fleet management is rapidly transforming itself into sophisticated users of accident data.
“Instead of being fed a few simple reports each month, fleet managers now want direct access to their data in order to track and analyze key business metrics and goals via management dashboards, scorecards, and alerting,” said Liggio. “Providing the necessary business
intelligence tools to fleets are quickly becoming a mainstream requirement so they can analyze information, align decisions with strategy, and feel confident in the outcome.”
Future Accident Management Will Be More Demanding
“I expect the future of fleet management to become more demanding from a vendor perspective,” said Martines. “Whether we face challenges from an operational or service perspective, vendors will be expected to pick up the slack.”
A Paradigm Shift to Driver Risk Management
A growing trend among commercial fleets has been the shift toward driver risk management. “This has changed dramatically over the past three years,” said Art Liggio, national director, risk and insurance services for The CEI Group. “This is really a paradigm shift for the industry because it represents the next frontier where fleets can extract significant cost reductions.”
Here are the top trends in driver risk management for 2005 and beyond.
Increased Use of Automated Driver Risk Profiling Programs
There will be a growing use of software programs that profile driver risk as one of the components of a driver risk management program.
According to Liggio, to minimize losses and liability, fleets are realizing they need a system that continually monitors accident data as well as motor vehicle record data for the purpose of determining driver risk and for targeting driver training. “It is becoming essential that all types of data need to be combined and considered to minimize risk in today’s litigious society,” said Liggio.
Based upon client guidelines, drivers are assigned points for MVR infractions, as well as claim history, and placed into risk categories. In conjunction with their individual fleet policy, fleet managers can automatically determine if a driver requires additional safety training. “These programs will no longer just recognize the problem, but will actually provide a solution. It’s bridging the gap from just accident administration to providing a safety resolution,” said Myron Zadony, president and COO of Fleet Response.
At the same time, more scrutiny will be paid by company management to the level of risk profile program used and the cost/benefit it provides, said Stratford Dick, director of marketing and product management for Wheels Inc. “Measuring the impact is critical yet difficult to do with confidence. Did accident rates go down because of safety training or through switching selectors and providing safer vehicles? Screening upfront through MVRs with points is critical; providing after-the-fact training may help reduce accidents or it may just add cost after a driver who has been in an accident has ‘learned their lesson.’ Hard data is critical to assessing this question.”
Increasingly, companies are seeking to become more proactive. “We are working towards a more proactive approach to accident management,” said Dan Shive. “It’s important to evaluate more than just driver’s motor vehicle records. Looking at the driver’s accident history including accident severity will help to identify high risk drivers, which will aid in modifying and developing safety programs.”
In-House System Development vs. an Outsourced Service
A question some fleets are now asking is whether they should build their own in-house safety and risk management system or buy the services?
“Building involves an intensive investment in the development of the necessary Web applications – costing hundreds of thousands of dollars and taking years to develop. It also means managing and maintaining continuous data feeds with multiple vendors such as MVR providers, accident management providers, multiple driver-training providers for all types of training – online, class-room, behind-the-wheel, as well as incentive providers to encourage safe driving,” said Charlie Ganter, risk and safety services manager for CEI.
“The motivation of some fleets to consider building instead of buying is to keep all data in-house. Very few fleets will want to do this because of the high cost and considerable time commitment involved,” said Ganter.
Fleet and accident management companies – both leasing companies with an accident management arm as well as independent providers – see a need for these types of programs and are now developing driver safety and risk management applications.
The other option is purchasing these services on a subscription basis where the cost is amortized over a multi-year basis per driver, per month.
“The more advanced systems can import a robust range of data such as accident data, motor vehicle record data, vehicle monitoring data, safety policy violations, and training data to provide a complete driver profile,” said Ganter. “These systems will provide drivers
access to their own personal data where they can review their own driver history.”
Using In-Vehicle Technology to More Effectively Control Driver Behavior
In-vehicle telematic devices will be increasingly used to control driver behavior. “New telematics capabilities, combined with enhanced information and reporting, are opening up new frontiers in a fleet or risk manager’s ability to enforce safety policies,” said David Coleman, vice president, PHH Arval. “When it’s done right, it has the potential to drastically change a company’s risk profile, reducing the number of accidents and costs, while increasing safety.”
Greater Technology Integration Between Fleets and Suppliers
Technology integration between fleets and suppliers will become increasingly important as a way to provide information and streamline claims processing, said Liggio.
Adrian Stone, president of LeasePlan Risk Management Services, adds, “Real-time access to claims is a technology that is right here, right now.”
“In the future, our data and the client’s data will be interfaced through a common link – a software program – that will feed to the client’s insurance brokerage firm. All the information is based on a risk analysis approach,” said Zadony.
Partnering Between Accident Management and Fleet Safety Companies
Fleet managers are recognizing the need to take advantage of data and the technology that can present that data in meaningful ways to monitor risk and thereby reducing accidents.
“Accident management companies will need to partner with driver safety companies to offer these new solutions. Accident management companies that fail to provide those kinds of solutions will find it more difficult to compete,” said Liggio.
“Today’s companies will need to reinvent themselves from being either a leasing and/or accident management company to companies that meet the evolving needs of fleet managers. Our business should be evaluated frequently and reinvented if found necessary,” said Liggio. “Also, the value of traditional providers, while still
important, will be threatened by new entrants, technology, software, and consolidation.”