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FleetRisk360⁰
Moving to a Proactive Risk Management Culture
Clements Worldwide
Budapest, Hungary. - 2014
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ABOUT CLEMENTS
Clements Worldwide is a full-spectrum insurance and risk management firm specialized in risk mitigation and solutions of global scope. Founded in 1947, our solutions are specifically designed to meet the needs of individuals and firms living and operating outside of their home country, regardless of nationality or destination.
Company Accomplishments:
> Created the first expatriate insurance program in 1947
> Preferred insurer of U.S. Foreign Service Officers worldwide
> Insures 5 out of every 6 embassy associations
> Largest provider of insurance solutions to the international school community
> Largest provider of insurance solutions to the aid and development sector
> Provides coverage in over 180 countries
> 6 time consecutive Best Practices award recipient
> Multi-line underwriting authority with Lloyds of London
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SURVEY METHODOLOGY
An insured claim is no more a sign of risk management than incarceration is a sign of crime fighting.
FleetRisk360°
Organizational Information
Fleet Composition
Fleet OperationFinancial Resilience
Risk Management
Enterprise Risk Management
> Followed a holistic enterprise risk management approach.
> Surveyed bellwether organizationso UN Fleetso Aid and development organizations of varying
sizes.
> 25% response rate among those surveyed.
> Leveraged Clements’ existing fleet customers in more than 170 countries.
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EXECUTIVE SUMMARY
• 70% of survey respondents indicate that the fleet is mission critical, therefore fleet risks need to be managed with greater care and professionalism.
MISSION CRITICAL
• 58% of survey respondents indicate that risk management capabilities, structure and accountabilities needs to be overhauled in addition to a generally punitive risk culture.
RISK MANAGEMENT
• The total cost of ownership (TCO) is not transparent – 58% of respondents indicate postponing necessary fleet investments and 58% have no reserve funds, yet 55% indicate high financial resilience.
FINANCIAL RESILIENCE
• 78% of respondents indicate that their organizations do not have policies in place regarding concentration of risk, exposing fleets to tail / catastrophic losses.
RISK CONCENTRATION
• Reputation risk is acknowledged as the highest impact event with the highest likelihood.REPUTATION RISK
ORGANIZATIONAL INFORMATION
Key Findings
> The organizations surveyed have a special duty of care and thus an enhanced risk and reputational exposure given their line of work.
> 70% of survey respondents indicate that the fleet is mission critical, therefore fleet risks need to be managed with greater care and professionalism.
> 75% of survey respondents are headquartered in North America or Europe exacerbating reputation, currency and long-tail exposures.
> 83% of respondents do not have centralized control over fleet management, leading to diffuse accountability and lowered organizational oversight.
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ORGANIZATIONAL INFORMATION
Organization’s Mission
Fleet Importance
0 (Not Important) 1 2 3 4 5 (Mission Critical)
0% 5% 0% 26% 16% 53%
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ORGANIZATIONAL INFORMATION
4.8% 9.5%
61.9%
14.3%
4.8% 4.8%
HQ Location
Asia MENAEurope North AmericaCentral America/Caribbean South AmericaAustralia/Oceania Sub-Saharan Africa
> With the majority of surveyed headquarters in highly litigious countries, long-tail liability exposures remain a concern – albeit remote.
> The expectation that comparative duty of care will be met across regions is enhanced for firms operating from the U.S. and Europe.
> Increasing case examples of extreme vicarious liability underscore this emerging class of risk.
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FLEET COMPOSITON
Privileged & Confidential
Key Findings
> 54% of the fleet is comprised of soft bodied SUVs and double cabin pickups.
> Despite nascent attempts at leasing and rental alternatives, outright vehicle ownership remains commonplace therefore physical damage exposures remain on the balance sheet.
> 59% of the fleets surveyed are based in Sub-Saharan Africa with DRC, South Sudan, Kenya, Ethiopia, Uganda, among others, comprising high concentrations.
> A general fleet manager bias is evident throughout the survey and conflicts with prior research.
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FLEET COMPOSITON
Privileged & Confidential
Fleet Adequacy
1
(Needs are not met)2 3
(Needs are met)4 5
(Needs are exceeded)
Fleet Size0% 8% 75% 8% 8%
Vehicle Type0% 25% 50% 8% 8%
Global Fleet Reliability
1 (100% Downtime) 2 3 4 5
(100% Uptime)
0% 0% 27% 64% 9%
Fleet Condition
1 (Poor) 2 3 4 5 (Excellent)
0% 23% 31% 46% 0%
> Large scale fleet right sizing contradicts the response on fleet adequacy in meeting transport needs.
> The vicious cycle of over-utilizing new vehicles and under-utilizing older vehicles challenges this assertion.
> Large vehicle “graveyards” run counter to this survey response.
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FLEET COMPOSITON
Privileged & Confidential
12%
15%
6%
0%
6%2%
59%
Vehicle Location
Asia MENA Europe
N. America C. America/Caribbean S. America
Australia/Oceania Sub-Saharan Africa
> There is a risk management “tension” in being domiciled in N.A. and Europe, while principally operating in Sub-Saharan Africa and developing countries.
> Many of these countries have under-developed and under-capitalized insurance pools, where many forms of local insurance are more akin with taxation than coverage.
> Currency volatility, low liability limits and highly restrictive coverage territories greatly hinder fleet operations.
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FLEET OPERATION
Privileged & Confidential
Key Findings
> Throughout the survey, a well-trained driver fallacy is evident in survey responses.o “We only hire trained drivers.” o “We train drivers… o …however infrequently.”
> Fleet management software is coming of age, however archaic paper-based approaches remain entrenched.
> 76% of respondents allow for liberal personal access to vehicles and third-party transportation increasing the potential for third party / first party losses. o 54% allow third-party transportation without requiring waivers.
> The fleet lifecycle standard of 5 years and 150,000 kms disposal criteria for soft-bodied vehicles remains aspirational.
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FLEET OPERATION
Privileged & Confidential
Monthly
Quarterly
Semi-annually
Annually
Bi-annually
Only induction training
Other
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
Driver Training Frequency
76.9%
23.1%
Vehicles Allowed for Personal Use
Yes No Unknown
Yes; 76.9%
No; 15.4%
Unknown; 7.7%
Vehicles Transport Third-Parties
The best “safety device” is a well-trained driver!
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FINANCIAL RESILIENCE
Privileged & Confidential
Key Findings
> Given the funding source (“tied aid”) and duty exemption applying to more than 60% of respondents, greater accountability is placed on standards of fleet practice.
> 70% of respondents indicate vehicles are held on their balance sheets and are depreciated – indicating greater adoption of GARP/IFRS standards – a rudimentary form of fleet management.
> The total cost of ownership (TCO) is not transparent – 58% of respondents indicate postponing necessary fleet investments and 58% have no reserve funds, yet 55% indicate high financial resilience.
Yes No Unknown
33.3%
58.3%
8.3%
Are funds set aside for unexpected fleet expenditures?
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FINANCIAL RESILIENCE
Privileged & Confidential
58.3%33.3%
8.3%
Necessary Fleet Investments Postponed in the last 5 years
Yes No Unknown
Financial Resilience
1 (Weak) 2 3 4 5 (Strong)
11% 11% 22% 11% 44%
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RISK MANAGEMENT
Privileged & Confidential
Key Findings
> 58% of survey respondents indicate that risk management capabilities, structure and accountabilities needs to be overhauled.
> Punitive culture precludes proactive loss reporting and diminishes risk management transparency.
> 78% of respondents indicate that their organizations do not have policies in place regarding concentration of risk, exposing fleets to tail / catastrophic losses.
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RISK MANAGEMENT
Privileged & Confidential
Organization's Risk Management Capabilities1 (Weak) 2 3 4 5 (Strong)
33% 25% 25% 8% 8%
“Some staff are not reporting accidents / incidents in fear of the $500 charge imposed by the agency; hence they end up trying to repair the damage unnoticed, hence we cannot track the number of accidents for a certain period of time.”
Punitive Risk Culture
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RISK MANAGEMENT
Privileged & Confidential
7.7%
76.9%
15.4%
Policy Regarding Concentration of Risk
Yes No Unknown
> The absence of a policy on the concentration of vehicles and values exposes respondents to catastrophic losses.
> This is compounded by the limited ‘fiscal discipline’ in that reserve funds are either difficult to maintain or not maintained at all.
> This is further exacerbated by the reality that donor funds are usually “tied” to specific projects and not allocated to overhead.
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RISK MANAGEMENT
Low Medium
Low
Med
ium
Hig
h
Likelihood
Impa
ct
High
Physical Losses
Reputation / Liability Exposures
Fire
Physical Damage
Collision
Theft
Wear & TearActs of Nature
Expropriation
War
Terrorism
Riots
3rd Party Injury
3rd Party Property Damage
Reputation Risk
Mechanical Failure
Driver/Passenger Injury
Driver/Passenger Fatality
3rd Party Fatality
Respondent Perception
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RISK MANAGEMENT
Low Medium
Low
Med
ium
Hig
h
Likelihood
Impa
ct
High
Physical Losses
Reputation / Liability Exposures
FirePhysical Damage
Collision
Theft
Wear & Tear
Acts of Nature
Expropriation
War
Terrorism
Riots3rd Party Injury
3rd Party Property Damage
Reputation Risk
Mechanical Failure
Driver/Passenger Injury
Driver/Passenger Fatality
3rd Party Fatality
Trend Adjusted
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RISK MANAGEMENT
Expected Losses Unexpected Losses Catastrophic Losses
Fragile Domain
Risk Priority = Mitigate / Optimize
Robust Domain
Risk Priority = Transfer
Antifragile Domain
Risk Priority = Survival
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RISK MANAGEMENT
2nd Dimension
1st D
imen
sion
3rd Dimension
1D = Vertical, top-down structure, creates ‘placebo’ effect that risks are being managed, risk managers are isolated and part of the “business prevention” team. This framework is typical of financial firms. Risk management is mostly quantitative.
2D = Horizontal structure mirroring assembly line ‘defects’ management. Typically seen in the manufacturing context – the entire line is empowered to halt the system. The signal to noise ratio is a potential downside. May lead to “McCarthyism” and false positives. Risk management is mostly qualitative.
3D = Diagonal hybrid structure borrows from flat manufacturing process risk management, but filters signal to noise ratio – RMs embedded at all organizational levels as part of decision making framework, not prevention framework. Risk management is 50:50.
Mitigation
Risk
“Noi
se”
“Signal Filtering”
RISK MANAGEMENT
Risk Transfer / Discovery Period: Claims paid by Clements on a 1st dollar basis – fleet operator serves as “reinsurer.”
Risk Retention / Operational Period: Claims paid by fleet operator on a 1st dollar basis – Clements serves as reinsurance and claims administrator under an SLA.
Critical Milestones:
0-12 Months – > Validate fleet data and retention amounts.> Determine loss ratio, causes of loss.> Reserve establishment.12-24 Months – > Modify risk sharing model.> Competency building and reserve establishment.> Preparedness for “risk swap.”24 – 36 Months – > Clements migrates to reinsurance.> Fleet operator covers claims on a 1st dollar basis.> SLA claims management service creates efficiencies.36 – 60 Months – > Increase fleet operator retention of risk.> Implement reinsurance model for catastrophic losses.> Adjustment of contribution per vehicle based on actual loss projections.
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RISK MANAGEMENT
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NEXT STEPS
> Full survey findings to be made available to Fleet Forum members and the community writ large.
> A risk management primer is under development that will highlight enterprise risk management lessons, risk domains and mitigation strategies.
> Clements is committed to working with Fleet Forum in developing solutions across the spectrum of fleet sizes.
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CLEMENTS WORLDWIDE
Clements Worldwide
One Thomas Circle NW
8th Floor
Washington DC 20005
Washington D.C. | London U.K. | Dubai U.A.E
