Transportation

Driver Shortage Challenges Truck Lines

Recent accidents highlight risk management challenges of long hours and tough road conditions.
By: | April 8, 2015 • 7 min read
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Not since “Smokey and the Bandit” raced across the nation’s movie screens have truck drivers been so much in the mind of Americans. But the current attention is more like scrutiny than admiration.

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The June 7 crash of a Walmart tractor-trailer on the N.J. Turnpike brought lurid attention to a long-simmering crisis in highway transport: a shortage of experienced and healthy drivers at a time when the demands of high-tech vehicles and tight delivery schedules are increasing. Deteriorating roads and bridges and weather extremes exacerbate the situation.

The risk management dilemma for trucking companies is how they can operate profitably and meet shippers’ demands for service and transparency while meeting increasingly stringent federal and state safety regulations.

The Walmart accident killed comedian James “Jimmy Mack” McNair, and injured comedian Tracy Morgan and others in a six-vehicle crash. The National Transportation Safety Board investigation found the driver was going 65 mph in a 40 mph zone.

VIDEO: MSNBC opinion piece on the Tracy Morgan/Walmart collision.

Fatigue was considered a factor, because the driver was just 30 minutes short of the legal limit of 14 hours in service.

Few in the industry dispute the intention of equipment safety certifications, as well as hours-of-service limits for operators. The challenge is that the demands can often be mutually exclusive in an era when drivers are leaving the business, fewer are entering, and those who remain are getting older and less healthy.

The response from operators; their trade group, the American Trucking Associations (ATA); and regulators has been to gather and analyze ever more performance and safety data. However, industry and regulators differ on what data to gather and how to use it. Congress has weighed in as well.

Most recently, on March 5, the ATA asked regulators to modify its safety and compliance system. Not surprisingly, operators and their advocates in Congress favor self-policing, while federal officials advance government regulation.

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For example, the ATA has asked regulators not to make crash histories and compliance scores public until the government changes its evaluation process.

Also, regulators are reviewing whether they should increase the minimum financial responsibility of motor carriers. A notice of proposed rulemaking was issued late last year, and ATA says it is gathering input from its members.

Driver Shortage

All of these debates center on the core issue of the shortage of drivers overall, and the quality of the ones that remain in the labor force.

In his annual report to the ATA Management Conference last October in San Diego, the organization’s chief economist, Bob Costello stated, “Industry revenue and average revenue per mile are increasing nicely as capacity remains constrained. However, the industry is having a difficult time adding trucks due to the driver shortage.”

Costello added that the driver shortage was “as bad as ever and is expected to get worse in the near term,” as freight volumes continue to grow.

As evidence, Costello reported that turnover, a key indicator, rose 11 percentage points to an annualized rate of 103 percent in the second quarter of 2014. The increase set the rate at its highest point since the third quarter of 2012.

“These turnover rates show that the shortage is acute,” Costello said, “and if the freight economy continues to grow, it will worsen very quickly.”

One reason is that “some new drivers don’t know what they are getting into,” said Jack Scarborough, senior health, safety and environmental consultant at ESIS Inc., the risk management services division of the ACE Group.

“If they last the first few months to a year, they may last a few years, but after that they want to transfer to local work to stay closer to home.”

That drain on the long-distance driver pool adds to the strains of a diminishing overall workforce.

Justin Russo Senior vice president of risk management for Energi

Justin Russo
Senior vice president of risk management for Energi

“Drivers are in very high demand, and not a lot of people are going into the industry; we have got the challenge of an aged workforce,” said Justin Russo, senior vice president of risk management for Energi, a national underwriter specializing in the energy sector.

“Out of necessity, trucking firms have to hire drivers just out of school. Schooling can help prospective drivers pass the test,” said Russo, “but does not necessarily teach them how to drive the truck.

“It takes time to accumulate experience. Our prospects, even our insureds go through strict underwriting that includes their hiring and training practices, as well as operations, maintenance, and regulatory compliance.”

Energi has also taken a direct hand in training. It has a fleet of seven simulators built by L3, the same firm that makes them for military training.

“We bring the simulator to the insured’s site,” Russo said, “and based on their loss history, we build driving scenarios around the situations their drivers are most likely to face.”

Technological Changes

Russo detailed other technology, including cab-mounted cameras that look outward, “to help determine liability in case of accidents,” as well as more prosaic tools, such as devices to block cell-phone calls.

“Technology in the cab can certainly help, but it can hurt if it leads to distracted driving,” he said.

The best support for safe operations and high standards for drivers is often underwriting. “Clean operators with few incidents and all their paperwork in order are likely to pay less for insurance than ones with more losses,” said Russo.

Steven Rodriguez, president of third-party P&C claims for York Risk Services, an underwriter, reinsurer, and claims administrator, has more than two decades of experience in trucking.

“Truck technology is great these days; the transponders report location, speed, route, but at the end of the day what matters is the driver,” said Rodriguez.

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“The better companies are thinking ahead on training, records, medical screening. They have a discipline around hiring. But the million-dollar question is that if you have to get a piece of business out the door, what do you do?”

He stressed the risk management aspects of driver quality and availability.

“In the claims we are seeing, the planning is just not there. Good companies and good drivers are in sync with the road, with each other, with the dispatchers on route and road conditions and weather. That is important because even good drivers can be put in bad situations.”

Rodriguez noted that technical data, planning, and driver performance will be used one way or another. It can be used for advance planning, risk management and training, or even in litigation.

“It starts with hiring and keeping the best people,” said Rodriguez, “but if you can’t find enough of them, what do you do? At the very least, you have to have the basic tools of business practice. Not just mission statements and standards, but working business practices.

“I know small operators who use very granular details from their trucks’ transponders to plan their operations and as the basis of retraining on the basics for drivers.”

The segment of the trucking industry that handles energy, chemicals and hazardous materials is already subject to much more stringent regulation than other segments. In general, it is able to charge higher rates because drivers must be highly trained in materials handling and emergency procedures.

Given the specialization of the energy and chemicals sector, opportunities for transfer of best practices to the broader general-freight operations are limited, but do exist.

An April 2014 report by Jeff Melo and Mike Billingsley, risk managers on the group’s health, safety, and environmental team at ESIS, addressed the entire energy sector, from large complex drilling equipment being moved over the road, to local and long-haul transport of oil, chemicals, and wastewater.

It noted that the energy sector is more dependent on trucking than might be commonly understood, given the prevalence of pipelines, railcars and tankers.

“Oil and gas operations continue to grow across the lower 48 states, but that growth could not occur without the fleets of trucks that carry the drilling machinery and other needed equipment and resources,” according to the report.

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That reliance on trucking means that “energy companies and their affiliates confront many exposures related to this high-risk activity, due to driver demand and an inexperienced driver pool across the U.S., increased state and federal regulatory burden and oversight, and drivers operating in unfamiliar rural and urban locations.”

“Through a robust and proactive risk management strategy that integrates health, safety and environmental components, risk reduction is possible.”

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at riskletters@lrp.com.
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Specialty Risks

Art on the Move

Underwriting the transportation of fine art is tricky, but some large insurers are keeping the market covered. 
By: | April 8, 2015 • 8 min read
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Fine art transportation insurance experts agree that it’s a tough specialty market to write.

“Regular motor truck cargo underwriters don’t want to write it because of the high values of fine art and the specialized nature of it in the event of loss — for example, irreplaceable loss in value, conservation efforts, etc.,” said Houston-based Adrienne F. Reid, assistant vice president, Huntington T. Block Insurance Agency, an operating  unit of Aon.

Adrienne F. Reid, assistant vice president, Huntington T. Block Insurance Agency

Adrienne F. Reid, assistant vice president, Huntington T. Block Insurance Agency

“And fine art underwriters are leery of it because of the transit and handling volume inherent to the class,” Reid said.

Eric Fischer, senior vice president in Willis Fine Art’s metropolitan D.C. office, noted that the broker has to shop around for carriers that want to provide this kind of coverage.

“A lot of them, even the ones that do commercial trucking insurance, are terrified of the values that museums and specialized fine art shippers face,” said Fischer.

“There are very few companies that actually want to take on this exposure.

“Lloyd’s does a nice job,” Fischer added. “And there are some other ones that do the smaller policies for us. Berkley and Aspen Specialty, for example.”

Pricing the cost of shipping and handling can be tricky.

While losses rarely happen, it seems obvious that the freight carrier or warehouse should pay for any damage that results from their own negligence.

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“But that is not always the case,” said New York-based Eliot L. Greenberg, an attorney with Rosner Nocera & Ragone LLP.

“In fact, even when they cause the damage or loss, there is a very good chance that any recovery will be limited to as low as 60 cents per pound. While it may seem grossly unfair, federal law permits interstate freight carriers to limit their responsibility to a nominal sum even when the damage is caused by their negligence,” Greenberg said.

“The basis for the law of allowing interstate truckers to limit their liability is to keep the costs of moving goods across the country affordable.”

For shippers to protect themselves, they should either rely upon their own fine art insurance policy to cover their artworks, or declare the artworks’ value to the freight carrier/warehouseman to avoid non-reimbursable damage or losses to their collection, Greenberg noted.

“We provide insurance for the owners of artwork,” said Bob Opitz, vice president and worldwide inland marine manager, Chubb Group of Insurance Cos., based in Whitehouse Station, N.J.

“We typically don’t get involved in arranging for the transportation or selection of the carrier per se.”

“We’ll provide the fine art insurance and evaluate the transport company that’s going to move the art. We’ll look at how the art is going to be moved, how it’s going to be packaged, when it’s going to leave and arrive, and what type of condition it’s in before it’s shipped and upon arrival at its final destination.”

“… Even the [carriers] that do commercial trucking insurance are terrified of the values that museums and specialized fine art shippers face. There are very few companies that actually want to take on this exposure.” — Eric Fischer, senior vice president, Willis

Opitz noted that there are a lot of environmental impacts that can influence a shipment of art depending on what the art is.

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“You really want a company that understands those types of nuances and can provide the customer with the state-of-the-art packaging and transportation experience that you’d want for a shipment of artwork,” Opitz said.

Mary Pontillo, vice president and manager of the fine arts department at DeWitt Stern Group fine arts broker in New York, said her firm carefully checks out prospective art transport clients because of the highly specialized nature of the business.

“When deciding who to do business with, we go into the facility and we ask them about the operations,” noted Pontillo.

Mary Pontillo, vice president and manager of the fine arts department, DeWitt Stern Group

Mary Pontillo, vice president and manager of the fine arts department, DeWitt Stern Group

“We get a feel for things because this is a class of business that can be very challenging to place in the marketplace.

“That means checking out everything from their hiring procedures to their operational guidelines, to the way they take care of the facility, to how they take care of the important paperwork and legal aspects for the contracts.”

DeWitt Stern Group acts as the broker to place the actual fine art insurance and sometimes P&C insurance for the fine arts packers and shippers, and museums.

“We take over the actual request for the packers or shippers, everything from a client wanting to use the packers and shippers insurance to providing them with certificates of insurance so they can deliver a work of art to a commercial building that requires proof of liability and workers’ comp and commercial auto insurance before they’ll let a person pull up a truck to deliver an artwork,” said Pontillo.

Lloyd’s Likes It

She noted that at this point DeWitt Stern Group has all but one of its shipping and packing clients with Lloyd’s of London.

She noted Lloyd’s is in a positive position competitively because of its ability to spread the risk of an art shipping contract over a combination of its syndicates.

Lloyd’s insurers offer what is called “nail to nail” fine art insurance. First developed by Hiscox, the cover insures fine art in transport from one hanging to another, and pretty much everything in between.

The high value of fine art makes even small amounts of damage a sizable loss, according to Hiscox. This “volatility” in fine art claims, the very large sums insured and the need for bespoke underwriting, lends itself to Lloyd’s, Hiscox said.

XL Group has two categories of transit insurance, said New York-based Jennifer Schipf, senior underwriter, vice president of fine art and specie.

“The most visible participation is insuring quite a number of galleries, museums and private collectors for their permanent collections or their gallery inventory, and increasing a degree of transit coverage for a portion of sub-limits of their collection in every one of those classes,” Schipf said.

“The second way is we do insure some packers and shippers and warehouses that offer transport services to other clients or to collectors, museums and galleries who may or may not be existing XL clients,” Schipf added.

XL Group operates on a truly global business basis, meaning that Schipf will never be in a position to be in conflict with one of her colleagues at Lloyd’s or one of the underwriters in Zurich or Singapore because they all operate as one integrated business unit.

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“So if we have a collector client in New York who is moving to Hong Kong and is investigating warehouses in Singapore they may call us for help and I can call my colleagues and ask, ‘Which one do you recommend?’

“That means we get a lot of education and experience on the global fine art scene rather than if we were just focused on the U.S. or Europe, for example,” Schipf said.

Schipf noted that the best way to find good vendors and suppliers is through word of mouth; asking other dealers, registrars or private collectors what their experiences have been has helped her clients do well in avoiding problems.

“Word of mouth seems a very good way to vet resources,” she said.

Karen Griswold, senior vice president of ACE Group’s marine branch, noted that as a full-service marine insurance provider, her group can offer coverage for various types of transportation risks, including fine art risks.

“In conjunction with our in-house loss control team, we have the ability to assist with discussions on packing methods and standards of care particular to the transportation of art,” Griswold noted.

Coverages offered by ACE include ocean cargo, foreign and domestic inland transit, warehouse and warehouse legal liability. All standard perils could be underwritten, including fire, water damage, rough handling, theft and catastrophe perils.

For traveling exhibitions, ACE handles the underwriting of the specific location and transportation to and from locations; the handling of the goods before, during and after the exhibitions; and careful vetting of security and safety measures.

Corporate collections and small to medium sized museums are underwritten through the ACE USA commercial marine group.

At Aspen Insurance’s U.S. marine group, New York-based Senior Vice President Joseph Partenza stressed that security in shipping art is one of his firm’s highest priorities.

“We focus on security measures that may be in place, especially for high-valued shipments,” said Partenza.

“Will there be two drivers, and will they be stopping overnight? For extremely high-valued objects, will there be tandem trucks in front of and behind the main vehicle carrying the art?”

Partenza looks to see if there are any holes in the transport process, at which point Aspen may choose to make a suggestion, or in some cases demand, that the client enhance the quality of the packing and shipping process.

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“We will work with the broker to provide feedback to the client regarding our suggested improvements,” Partenza said.

Condition reports to be taken throughout the journey are a very critical point because without a condition report up-front, you could have art that was damaged before shipment. That creates a very difficult loss adjustment process down the road.

When it comes to warehousing, Partenza said Aspen prefers to work with fine arts specialty warehouses.

“We don’t like mini-storage facilities that anybody could enter,” Partenza said.

“We prefer high-quality outfits that have redundant measures in place, and that really understand the art business.”

Steve Yahn is a freelance writer based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit www.bhspecialty.com.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact info@bhspecialty.com.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
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