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Managing Public Sector Auto Risks

SHzoom’s Monthly Minute

Managing Public Sector Auto Risks

Sept 1, 2022 | This article was originally published on Risk Management Magazine.

Fleets are a serious and growing risk management challenge for public entities. The public sector collectively has the largest vehicle fleet in the United States. With 1.3 million cars and trucks, that sector is even larger than the commercial fleet segment, according to Government Fleet magazine, so the challenges of commercial auto insurance have been particularly hard on public entities.

A number of factors are driving the poor performance of commercial auto insurance. However, public entities—from municipalities to K-12 schools to public universities—can take a number of steps to better manage their fleets and minimize the negative impact of commercial auto loss trends on tight municipal budgets.

Commercial Auto Challenges

One of the challenges facing the commercial auto market is the rising number of accidents and their associated costs. The frequency of vehicle accidents is increasing for three reasons. First, a resurgent economy has increased traffic. In fact, the number of miles driven is at an all-time high, up 3.3% year-over-year in the first half of 2016, according to the Federal Highway Administration. More vehicles means more crashes.

Second, there are more distractions on the road, including cell phones, in-vehicle navigation systems, and other new technology. According to the National Safety Council, one-quarter of all crashes involve drivers talking or texting on cell phones.

Third, and perhaps most important, skilled commercial drivers with good driving records are hard to find, leading to more accidents. Worse, this is causing some employers to lower standards for their employees who drive.

At the same time, the severity of accidents has also increased. This is in part due to record U.S. auto sales, which mean that roads are full of newer cars that are more expensive to repair. Liberty Mutual found that the cost of repairing minor front-end damage to a 2016 entry-level sedan was nearly twice as high as fixing the same 2014 model, largely because of the use of more sensors and other new technology.

Additionally, medical costs are growing, with medical inflation soaring 1.5 times faster than general inflation, according to the Bureau of Labor Statistics.

Improving Fleet Performance

All is not lost, however. The following best practices can help public entities better manage their commercial insurance exposure, thereby protecting employees, the public, and their reputations and finances.

1. Develop a single fleet safety program. Public entities have diverse fleets, including everything from fire trucks to heavy equipment. The responsibility for day-to-day fleet management is often highly decentralized, with each department managing its own drivers and equipment. The result is a patchwork of approaches with different levels of effectiveness.

A public entity’s risk manager should bring together those responsible for fleet management and driver selection to establish best practices and set common fleet management requirements. The risk manager needs to understand what is causing accidents across all fleet operations, set goals for improving performance both at the department level and for the entity as a whole, and develop a detailed plan for managing fleet safety. Regularly highlight the plan for all employees so that they understand the importance of safe driving and the consequences of failing to comply with the program.

School bus fleets present a unique set of risks, and so a public entity’s consolidated fleet safety program should include a section dedicated to managing these exposures. The good news is that buses are well engineered and are often better than passenger vehicles at preventing crashes and injuries. In fact, students are 70 times more likely to get to school safely when taking a school bus than traveling by car, according to the National Highway Traffic Safety Administration.

2. Set a policy for vehicle use. Clearly define who can use a municipal vehicle, as well as create a process for approving who can drive their personal car on municipal business. The policy should set forth minimum insurance requirements for those who use their vehicle for work as such use can open the public entity to potential liability for any resulting accidents or damages, and thus needs to be carefully managed.

3. Hire qualified drivers. While a resurgent economy can limit the availability of qualified drivers, public entities are often in a better position to gather and update motor vehicle records and other driving-related information on potential or current employees because a public entity’s risk manager likely already has close contact with the municipality’s police department. Who better to check—and regularly update—driving-related information?

For schools, many states also require extensive training and criminal background checks for drivers who have contact with children.

4. Train drivers. Make sure drivers understand the public entity’s equipment and driver management program, including the range of possible consequences for failing to follow procedures.

5. Consider telematics. Some public entity fleets work with telematics vendors to help manage fuel, equipment recovery and maintenance. These systems can also play a key role in tracking and improving driver performance.

6. Review all accidents. Public entities should provide drivers with accident kits that help to collect key information following a crash. For example, immediately following a school bus accident, drivers should confirm that all students exited the bus and note the last time route checks were done. This information can help defend against potential litigation and improve future driver performance.

7. Consider increasing primary auto coverage limits. Costs generally rise over time. Yet the boundary between primary and excess commercial auto policies has remained relatively constant at $1 million over the past two decades. While that level used to provide sufficient coverage, it does not go nearly as far today.

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