• Carriers must understand the risks inherent in their operation, how to best manage risk, and how much of the potential losses they are capable of covering.
• There is a menu of programs that can be implemented to significantly reduce risk.

Risk management begins with risk assessment. Risk assessment should lead to determining what is needed to protect the carrier from risks. It should also lead to operational changes that reduce risks through a strategy of continual risk assessment, risk avoidance, risk reduction, and risk allocation or transfer.

Risk assessment

Risk assessment is an in-depth study of the risks the carrier is exposing itself to. Common risks at carriers are vehicle accidents, cargo claims, driver injuries, theft of equipment or cargo, breach of contract claims, and non-compliance punishment (fines). Risk assessment also involves determining the level of risk, both in terms of frequency and severity (potential loss).

The two types of risk that will require immediate attention after the assessment are risks that are either recurring (greatest probability) or have the chance for the greatest loss.

When assessing risk, it is possible to quantify the level of risk. Take the expected number of occurrences, and multiply them by the anticipated loss per occurrence. This establishes the “level of risk.” The most often occurring and largest risks faced by all carriers are vehicle accident claims and litigation. To protect against these risks carriers routinely purchase insurance. While this is a form of risk management, it is actually risk allocation.

Risk allocation

Risk allocation (sometimes referred to as risk transfer, which is a similar concept) involves sharing risk with, or transferring risks to, other parties that agree to accept the risk such as insurance companies, customers, or captive groups. For many risks a carrier can allocate the full value of the potential loss to an insurance company, but this may lead to extremely high premiums.

Risk reduction

Risk reduction is the systematic reduction of risks, and the potential losses they carry, through the use of internal management controls.

Risk avoidance

Risk avoidance is a practice of structuring the operation to eliminate, or avoid, a risk. However, not all risks can be avoided or eliminated.

Some cannot be avoided because they are intangible risks, not necessarily tied to controllable events. An example of this would be damage to a carrier’s reputation.

Other risks cannot be avoided because they are inherent to the activity.

Risk acceptance

Risk acceptance is the deliberate acceptance of risk based on a determination that the company can (legally and financially) accept the risk. An extreme example of this would be a company in Wisconsin deciding to accept any risks associated with hurricanes that may damage the home terminal.

Another form of risk acceptance that is more dangerous is the accidental or unintentional acceptance of risk. This occurs when a company is not aware that it is taking a risk, or does not have the correct protections in place against loss, but believes it does.

Self retention of risk

Self retention of risk can mean two different things. First, as discussed earlier, it can be an accidental or deliberate acceptance of risk by not having insurance coverage to protect the carrier from a specific type of risk. This can be referred to as being “self-insured.” The decision to not purchase insurance for a specific risk should be based on a risk assessment and a risk/benefit assessment.

The next step is to compare the cost of insurance to the possible loss as determined in the risk assessment. At this point the company can make an informed, reasonable, decision.

A company that has the financial reserves may even provide self insurance to comply with mandatory insurance requirements. As far as motor carrier and cargo insurance, there are processes provided in the regulations for a carrier to secure authorization to operate as a self-insured motor carrier. The carrier is retaining 100 percent of the risk.

Carriers that operate as self-insured carriers will many times secure insurance against catastrophic losses (i.e. in excess of $10,000,000).

The second strategy is the self retention of a portion of a risk normally covered by insurance. An easy explanation of this type of risk retention is to equate it to the deductible on a standard insurance policy. If the carrier is willing to accept responsibility for the first $50,000 of any loss, then the carrier can negotiate a lower insurance premium. Much like the deductible on a standard auto insurance policy, the more of the risk the carrier is willing to accept, the lower the premiums become.

Preventive programs that control risk (risk reduction)

This is a list of policies and programs that are viewed as significantly lowering risk at a carrier:

• Written safety plan developed and signed by upper management.
• Recruiting practices that seek out, screen, and hire only quality applicants.
• Mandatory orientation and training for all new employees, regardless of the level of previous experience.
• Review of all new employees’ performance after 90 days of employment.
• Annual or semiannual performance reviews of all employees verifying acceptable past performance and qualifications.
• Scheduled on-going training.
• Supervisory training programs.
• Use of electronic safety systems such as, governed vehicle speed via the electronic control module, collision warning systems, roll-stability-control systems, tire- pressure-monitoring systems, blind-spot cameras, and intelligent-cruise-control systems.
• Proactive driver-behavior monitoring programs that use data from vehicle safety systems, ELDs, and dash-mounted cameras facing the driver and the road. Designed to notify the company if the driver is operating unsafely (excessive hard braking incidents, excessive average speed, etc.).
• Safe and efficient driver incentive programs which utilize data from proactive driver behavior monitoring, service data, and fuel efficiency monitoring.
• Corrective and progressive disciplinary programs for all employees, including a remedial training program that has a mechanism to measure results.
• Aggressive vehicle maintenance program to prevent vehicle failures on the road.
• Maintain and enforce safety policies and procedures that comply with and exceed any regulatory requirements.
• Accident and incident tracking mechanisms designed to detect trends to assist in prevention efforts.
• Threat and problem sharing systems that keep all employees aware of, and involved in the prevention of, hazards facing the company. Open communications and the use of safety committees can accomplish this.