Driver Shortage Challenges Truck Lines
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.
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.
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.
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.
“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.”
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.
“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.
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.”
There are no hard statistics confirming a shortage of safety and health professionals, but there is a lot of circumstantial data.
An October 2011 study prepared for the National Institute for Occupational Safety and Health (NIOSH), for example, concluded that the need for health and safety engineers in 2011 and over the next five years “is substantially higher than the number estimated to be produced from … training programs.”
The U.S. Bureau of Labor Statistics predicts 11 percent growth in the number of health and safety engineers between 2012 and 2022.
In addition, a survey of members by the American Society of Safety Engineers (ASSE) found about 1 percent unemployment, and the 30 or so annual graduates of the University of Michigan Center for Occupational Health and Safety Engineering usually get hired before they graduate.
Some experts, however, say the shortage is not so much a lack of entry-level talent as it is of experienced safety and health professionals. They said that what organizations are missing are competent professionals who are knowledgeable about both the industry in question, and the resources and tools that professionals can offer.
As Skip Smith, senior director of risk management and insurance at HOA Inc. (Hooters of America) said in a recent Risk Insider article, “But these days, if you’re charged with overseeing a corporate risk management department, it is very difficult to fill a safety position. There are a limited number of qualified candidates with the required educational background, experience and unique set of skills.”
It takes time, obviously, to gain the credentials, experience and even the terminology necessary to make an impact on a worksite. But the clock may be ticking on the profession as baby boomers get ready to retire and the influx of professionals is lower than necessary to fill the gap.
One problem is the low visibility of the profession to most young people, said Stuart Batterman, director, University of Michigan Center for Occupational Health and Safety Engineering.
“Typically, they don’t recognize the opportunities that are available in this field,” he said. “It’s also not the kind of field that most people have prior exposure to.”
For some industries, such as construction, manufacturing, and oil and gas, the need may be greater than others. Obviously, that’s because such industries are more hazardous than some, but it’s also because these sectors are more likely to have the increased risk of ramping up or ramping down operations. When that happens, the danger increases.
New employees, round-the-clock operations, different locales — all of them add uncertainty and potential risk to organizations. The continuing increase of Spanish-speaking workers as well as those native in other languages also makes it harder to educate and train employees.
As the difficulty mounts in finding experienced environmental, health and safety (known both as EHS or HSE) professionals, the number of consultants and service providers to fill that void is growing. Insurance companies and brokerages as well provide risk control services to their clients.
But consultants are generally not on the jobsite every day and have less insight into the daily demands of an organization.
The age issue is not one that will go away anytime soon.
“We have got a graying population,” said Carl W. Heinlein, senior safety consultant, American Contractors Insurance Group, a captive owned by 41 contractors around the country. “I can probably think of seven great safety jobs that are currently available right now. They can’t find quality, experienced people to fill them.”
The 2011 NIOSH study, prepared by Westat, projected that about 10 percent of safety professionals would retire within the next year, and estimated that a “large number” of such professionals are over the age of 50.
It forecast that employers would hire more than 25,000 more over the next five years, but that colleges were expected to graduate fewer than 13,000 HSE professionals. And the report noted that enrollment was projected to slightly decline over a five year period.
Leaders in construction, oil and gas, and other industries, Heinlein said, “have been begging for quality safety folks.”
Those industries, in particular, are dangerous ones to be in. According to the Bureau of Labor Statistics, construction fatalities, while down 36 percent since 2006, still account for the highest number of fatal work injuries of any industry sector in 2013, the latest year for which results are available.
It’s more difficult to pin down the fatalities in the oil and gas industry as it is covered by several different BLS categories. Overall, construction and extraction occupations accounted for 818 fatalities in 2013, or 18 percent of all workplace fatal injuries. Transportation fatalities numbered 1,184 or 27 percent of all workplace deaths.
BLS indicates that organizations involved in oil and gas extraction have the highest percentage of EHS employment in the private sector, at nearly 1 percent of all positions. Another six-tenths of 1 percent are employed in petroleum and coal products manufacturing.
To be effective, health and safety professionals need hands-on experience in troubleshooting problems, said Scott Harris, director of EHS advisory services at UL Workplace Health & Safety.
“We really haven’t seen a shortage,” he said.
“When I am out talking to folks, they have never said to us, ‘We can’t find someone.’ I have heard often, ‘It’s hard to find a good one,’ meaning they are looking for certain key skills and the young people just don’t have them.”
The ability to research and “textbook knowledge” are what college graduates can bring to a job, he said, but they often lack industry experience, the ability to solve problems, people skills and presentation skills, so they can command attention during meetings.
It’s also important to understand the value of redesigning a process or engineering out the risk instead of focusing just on training and education, said Matt Kupiec, assistant vice president of construction risk engineering at ACE Group.
And, he noted, it’s not always necessary to re-invent the wheel. There are vendors and service providers that have created products to meet many safety demands.
It takes about two years for an entry-level person to become “well versed as a generalist.” — Brion Callori, senior vice president, engineering and research, FM Global
At FM Global, which focuses a lot of attention on commercial property risk, Brion Callori, senior vice president, engineering and research, noted that it takes time for property risk engineers to become fully proficient.
FM Global hires between 100 and 150 property risk engineers yearly.
There are two levels to proficiency, he said.
“We expect someone out of engineering school to think like an engineer. We have to give them cross-discipline training and have developed a hands-on training approach to expedite the process.”
It takes about two years for an entry-level person to become “well versed as a generalist,” he said, and then the carrier moves the focus to specific natural hazards, such as windstorms, power generation, chemicals, etc.
“It probably takes another three years of that to become top flight and really specialized in something,” Callori said.
One issue with the energy industry in particular, said Jay Doherty, partner, workforce sciences institute, Mercer, is the tremendous number of contractors on major projects, with investment levels ranging from $100 million to several billion dollars.
“You have less control and more variation in the skills, compliance and knowledge of safety [with contractors],” he said.
“The industry has, unfortunately, had incidents, serious incidents, more often with the subcontractors than with the prime contractor or operator.”
BLS statistics bear that out — for all industry sectors.
Fatal injuries of contractors accounted for 17 percent of all workplace deaths in 2013, and half of all contractors who were fatally injured were working in construction and extraction occupations.
The importance of experience when it comes to HSE professionals is not so much on the increasing compliance requirements but on problem-solving and prevention, Doherty said.
The career structure and the time to competence is complex for HSE, he said, because “the discipline is not simply defined by hierarchy or level. Often the best HSE experts don’t begin in that role.” Development requires broad knowledge not only of OSHA and other governmental regulations, but also knowing the protocols of companies and specific industries.
It also depends on the span of control, Doherty said. It takes more than HSE professionals to look after safety. Supervisors often perform a compliance role and when cost pressures reduce spans or there is simply a lack of experience in the workforce, there is greater likelihood of safety incidents, he said.
“Companies need to examine the career paths for their HSE professionals,” he said, “to make sure top talent is rewarded commensurate with other critical skills. That sends a clear signal of the priority placed on safety and the environment.”
But, some companies just don’t value the position enough. When times are tight, occupational health and safety professionals are often near the top of the chopping block, and many organizations continue to look at the profession as an expense instead of a way to improve production and margin.
“This is a margin-making opportunity. It’s an opportunity for a company to look at it more as a business asset than as a cost or expense of the operation.” — James Merendino, vice president and general manager, commercial insurance risk control services, Liberty Mutual
As UL’s Harris noted, the profession has its own gallows humor: It’s always safety first … unless it interferes with production or “gets in the way of something else.”
But, said James Merendino, vice president and general manager, commercial insurance risk control services, Liberty Mutual, effective safety and risk management strategies affect both the top and bottom lines of a company.
“This is a margin-making opportunity,” Merendino said.
“It’s an opportunity for a company to look at it more as a business asset than as a cost or expense of the operation.”
It’s more than ensuring regulations are complied with, he said. It’s making safety a strategic priority of the organization, which may result not only in fewer and less severe injuries, but also in lower insurance premiums, and better terms and conditions.
It also is less disruptive of production deadlines, and more protective of an organization’s brand and an industry’s reputation.
“Safety has to be elevated to the position that production is,” said George Cesarini, vice president of construction risk engineering, ACE.
“Organizations need to elevate safety from, ‘Insurance wants this’ or ‘OSHA wants this’ to elevating it to the same level as production, to making it a core value within the organization.”
Finding the experienced professionals to fill that role, however, may continue to be a problem.
Healthcare: The Hardest Job in Risk Management
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.
“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
Berkshire 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
Healthcare 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
The 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.
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 email@example.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.
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.