What is the cost of doing nothing? This is a question often asked by directors and managers when an organisation is considering implementing or enhancing a work-related road risk management program.
This is a difficult question to answer, so it’s important to understand the fundamental reasons why any organisation should manage the safety of their employees when driving, and then explore the implications of not doing so when collisions occur.
The risk of harm
For most organisations, driving is the riskiest activity that any employee undertakes. An employee driving 40,000km (25,000 miles) per year has a similar risk of being killed at work as someone working in the coal mining or quarrying industry.
Car drivers making a significant number (80%) of business-related road journeys are 50% more likely to be involved in collisions where someone is injured and have 13% more crashes compared to drivers with similar exposure but making predominantly private journeys.
The risks also vary by country, so depending on where you operate, the risks will be different. Globally, 1.35 million people are killed in road collisions every year, and around 93% of these occur in low- and middle-income countries. If you have employees driving in these regions, then the risks are much greater.
54% of global fatalities are vulnerable road users – motorcyclists, cyclists, and pedestrians. Even if you don’t operate these types of vehicles, always remember that your employees are sharing the road with them (and, of course, they are all pedestrians at some point) and you should never underestimate the psychological trauma associated with being involved in a collision where a vulnerable road user is seriously injured or killed.
Organisations have a moral (and in some cases a legal) Duty of Care to manage the safety of their employees whilst driving, and those that they share the road with.
If you do not have an effective work-related road risk management program in place, how can you meet these moral obligations?
Corporate Social Responsibility (CSR)
Given the risk of harm associated with your work-related road journeys, both to your employees and those they share the road with, it is clear that any effective CSR strategy should include work-related road risk management and also the risks associated with employees commuting to and from work.
The driving undertaken by your employees as part of their work will be a significant contributor to your overall carbon footprint, so anything you can do to reduce this will help with your CSR strategy; there are also strong synergies between safe driving and fuel-efficient driving and, of course, this will also reduce your spend on fuel.
Safe driving also benefits your CSR as you are helping improve road safety in the areas you operate – being a good neighbour.
Organisations that have a good road safety performance often engage in national and international road safety events and ensure that they engage with local organisations, such as schools, to promote road safety.
If you are not managing the risks associated with driving, or your carbon emissions associated with transport, then how can you have an effective CSR program?
Managing the risk of harm and your Corporate Social Responsibilities are both very good reasons to have an effective work-related road risk management program in place, but in reality, most organisations are motivated by money, so it’s important to understand the financial implications when collisions occur.
The Total Cost of Risk
The International Loss Control Institute state that for every €1 paid out by insurers there are €8-53 in uninsured losses, depending on the severity of the incident.
This is a staggering amount and one that, in all honesty, can be difficult to justify in the boardroom. Even if we use a more conservative figure – I tend to use a 2x multiplier of the claims cost when I’m working with customers – then the true cost associated with collisions is still having a significant financial impact on the business.
Before we explore the true financial implications to a business further, we first need to think about what the uninsured or hidden costs are whenever a collision occurs. The very nature of hidden costs means that they never appear on a balance sheet, which is why we can only ever estimate them, and they will vary depending on the nature of your business, but they could include:
- Lost productivity
- Late deliveries
- Missed Service Level Agreements
- Brand damage
- Increased staff turnover and associated recruitment costs
- Increased administration costs
- Reduced customer service and customer satisfaction
- Missed appointments
This is not an exhaustive list, and you may be able to think about other implications in your organisation. The biggest issue, however, which is common in all organisations, is absenteeism.
Even when a minor collision occurs, the driver will spend some time dealing with the required administration, even if this is just liaising with your leasing provider. When they are doing this, they are not doing the job you are paying them to do. In the event of a more serious collision, then there will be longer periods of absence, which will impact your business.
If we take the example of an employee in sales who is absent from the business, what are the implications? Their customers will receive a reduced level of service, increasing the likelihood that they will switch to your competitors. Colleagues may take on extra responsibilities to cover for the absence – they may provide a lower level of service to the customers, and this increased workload will increase stress levels, leading to more absenteeism. You may have to employ temporary staff to cover longer absences, with the increased costs this brings.
When you consider the hidden costs associated with absenteeism alone, the 2x multiplier of the claims costs becomes much easier to justify.
So, what does this mean financially? Let’s look at a worked example to illustrate the scale of the issue:
- Fleet size – 100 vehicles
- The average cost per claim - €1,000
- Claim frequency – 25%
- Profitability – 10%
In this example, the total cost of claims is €25,000. Using our conservative 2x multiplier to estimate what the uninsured losses are, this gives us a figure of €50,000.
The implications of this can then be explored further, by looking at the revenue that the Company needs to generate to cover these uninsured losses – in this example, €500,000.
So, using this modest collision frequency and the average cost per claim, half a million Euros needs to be generated to cover the hidden costs / uninsured losses associated with collisions.
Of course, if your collision rate and/or average cost per claim is higher, or your profitability is lower, then this figure will be even higher.
One thing to mention here is the implication of any grey fleet (employees using vehicles not owned or leased by the organisation) collisions. It is unlikely that you will know any details of collision frequencies and costs associated with these vehicles, but these drivers will be involved in collisions and, of course, many of the hidden costs outlined above (e.g. absenteeism) will still be valid.
As such, if you have a significant grey fleet in your organisation, then the hidden costs associated with collisions involving these vehicles must be considered.
But you don’t need to stop there to illustrate the scale of the financial losses. You can look at how much or your major product or service you need to sell to generate the revenue required to cover the uninsured losses associated with collisions.
This is exactly what Nestlé did when they looked at what their motor insurance program was costing them, and they discovered that they need to sell 235,000,000 KitKats™ to generate the required revenue.
Whenever I’m working with customers, and they want to put the true cost of collisions into perspective, this is what I help them do so that everyone – the CEO, senior and middle managers, line managers/supervisors, and employees making work-related road journeys -can understand the implications when put into perspective of the most common product or service that is produced or provided.
At the beginning of this article, we asked what is the cost of doing nothing? Doing nothing means that you are not minimising the risk that an employee or a member of the public who they share the road with will be killed or seriously injured in a collision. Doing nothing means that you cannot claim to have good Corporate Social Responsibilities.
But perhaps of most significance to most organisations, doing nothing means that you continue to haemorrhage money on the hidden costs / uninsured losses associated with the collisions that you are having, including any involving employees using grey fleet vehicles.
The question you should be asking is if I reduce the frequency and severity of collisions, how many of our equivalent of 235,000,000 KitKats™ will enhance our profitability rather than being a financial burden?