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By Doug McLeod

Managing commercial vehicle fleet risk isn't what it used to be.

Some of these tools are designed for specific jobs, such as collision warning or stability control. Others are more comprehensive: sophisticated mobile resource management systems, or MRMs, that use wireless GPS and telematics data to track a vehicle's position and mechanical performance as well as risky driver behaviors such as speeding, hard braking or sharp cornering. Driver safety scores computed by these systems can then be used for additional training.

Industrywide, serious crashes involving large trucks have dropped sharply: the number of trucks involved in fatal accidents fell 31 percent between 2007 and 2009, according to the Federal Motor Carrier Safety Administration.

While it's unclear how much of any improvement in transportation industry loss experience relates to MRM systems, brokers and insurers point out that companies that have adopted MRMs and other safety technologies have seen loss cost savings.

"I believe it absolutely does have a correlation" with reduced losses, said Bert Mayo, vice president of risk control with Lockton Cos. in Denver, Colo. "You're seeing them introduce (MRMs) and you see the accident rates go down."

When GPS and telematics systems first became widely available more than a decade ago, they were seen mainly as tools for productivity management and fuel cost control, allowing companies to map the most efficient routes and follow fleet movements, said Chris Carver, program manager for Liberty Mutual Agency Corp.'s Onboard Advisor, a fleet safety system that uses data from clients' third-party GPS providers.

More recently, though, fleet managers have grasped the risk management possibilities of the systems, and their use has spread at varying rates in different sectors of the transportation industry, he said.

Overall, more than 300,000 U.S. companies are using MRM systems, according to C.J. Driscoll & Associates, a consulting and market research firm based in Palos Verdes Estates, Calif. The five million MRM units in service at the end of last year will grow to 7.5 million by the end of 2014, the firm predicts.

The biggest long-haul trucking companies -- those with more than 500 vehicles -- were early adopters of the systems and virtually all of these companies now use them, said Clement Driscoll, the consultant's founder and president.

Smaller long-haul companies have generally been slower to add the systems, with adoption rates varying by type of business, transportation experts said. The cost of installing some telematics systems, ranging up to $500 or more per vehicle, has held some companies back, they said.

Those costs are falling rapidly, though, with competition among MRM vendors and plummeting prices for hardware and services. Some vendors now charge only monthly service fees without upfront installation charges; simpler devices, known as "dongles," can be installed by fleet owners themselves by plugging the units into vehicles' onboard diagnostic ports.

All this means growing use of the systems by local fleets, including service, delivery, construction and government agency fleets, according to Driscoll & Associates. MRM growth in local fleets was in double digits last year, and the 2.6 million MRM units in service at the end of 2011 represented only 18 percent of the "addressable market" of 14 million vehicles, Driscoll has found.

"As competition comes in, it becomes more feasible for these guys to get their fleets outfitted," said Craig O'Connell, vice president with Lexington Insurance Co. in Boston.

MRM systems offer an array of safety and loss control features.

The systems wirelessly transmit GPS and telematics data to fleet managers, allowing them to monitor vehicles' positions and engine diagnostics. The devices also log driver behavior, including speeding, rapid acceleration, hard braking, sharp cornering and aggressive lane changes. The systems' software then uses the data to produce safety reports on individual drivers as well as overall fleet safety scores, which can then serve as the basis for further driver training.

Some vendors -- including GreenRoad of Redwood Shores, Calif., and Geotab Inc. of Oakville, Ontario -- also provide immediate feedback to drivers behind the wheel, with dash-mounted devices that sound an alarm or flash red or yellow lights when a risky move is detected. San Diego-based DriveCam Inc. offers a system that actually records a driver's actions and the area around the vehicle with a cab-mounted camera that uploads its images, allowing managers to give drivers real-time feedback and -- in case of an accident -- see what led to the event.

"Those are the ones we see starting to change behavior," Lockton's Mayo said of such real-time systems.

Predictive modeling is another option offered by some MRM providers, including San Diego-based Qualcomm Inc. A Qualcomm unit, FleetRisk Advisors, analyzes up to three years of driver performance and other data and identifies areas of an operation likely to produce losses, including potentially risky behavioral trends and individual drivers who present higher-than-normal risks.

Other tools incorporated in MRM systems can include:

Lane departure warning systems, which use cameras focused on lane markings to alert drivers when they unintentionally drift out of a lane due to drowsiness or distracted driving.

Geofencing, which uses GPS to mark areas where vehicles should travel and to alert managers when they stray outside the designated areas, helping to prevent unauthorized vehicle use and theft.

Hours of service logging, replacing handwritten logs with an automated record of driver work hours correlated with telematics data on miles driven. The hours-of- service issue has become a hot one, especially for midsize and small operators: In 2010, the Federal Motor Carrier Safety Administration -- which sets rules for maximum work hours and minimum rest periods for drivers -- required that companies with repeated rule violations install electronic onboard recording devices to log hours of service. Last year, FMCSA proposed expanding the requirement to a much larger number of vehicle operators; a federal appeals court blocked the rule in August, but FMCSA is expected to propose a revised rule dealing with the court's objections shortly.

Regulatory compliance issues in general are another factor pushing the growth of MRM systems, experts said. Along with the hours of service rules, these include FMCSA's Compliance, Safety & Accountability program, which has created a driver safety scoring system and holds drivers and their employers responsible for correcting unsafe conditions.

In the past, the cost of MRM systems has deterred midsized and small operators from investing in the technology, noted Chris T. Demetroulis, area senior vice president of Arthur J. Gallagher Risk Management Services Inc. in Kansas City, Mo. But with lower prices and the rising regulatory burden, "it becomes a question of, 'Can you afford not to have this equipment?' "

Whether all the safety technology results in commercial auto insurance premium savings for fleet operators depends mainly on the fleet and the insurer.

Few insurers offer upfront discounts for using MRM systems. Four Liberty Mutual underwriting units offer an initial 15 percent credit to commercial auto policyholders that use its Onboard Advisor program, but the program targets local, intrastate fleets and is not available to interstate operators, Carver said. Discounts after the first year can range up to 35 percent but depend on the policyholder's fleet safety record, he said.

For many transportation companies, especially long-haul fleets, MRM systems produce insurance savings by cutting self-insured losses, making their business more appealing to underwriters and -- in the longer run -- improving loss experience enough to justify lower premiums on future renewals.

"Insurance companies are not going to give credits or discounts for what you're going to do. They give them for results," Mayo said.

DOUG McLEOD has covered the insurance industry for more than 20 years.

April 13, 2012

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