White Paper SAVING MILLIONS BY PREVENTING ACCIDENTS AND REDUCING NET REPAIR EXPENSES

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1 White Paper SAVING MILLIONS BY PREVENTING ACCIDENTS AND REDUCING NET REPAIR EXPENSES For years, under pressure from senior management, the fleet world has been scrambling to cut expenses. To their credit, fleet managers have responded to the challenge in a variety of ways, from rightsizing to extending the service life of their vehicles and making their fleets more fuel-efficient. Another approach, however, has yet to be fully exploited by the fleet industry at large: reducing the costs associated with accidents. Now, with the advent of telematics and in-vehicle crash avoidance technology, fleets are hoping to reduce operating costs even further by preventing accidents. While promising, the full potential of these nascent technologies and their cost-benefit ratio has yet to be determined in practice. Fortunately, though, there are proven methods already in place that can achieve dramatic reductions in the cost of accidents. Here, we ll cover four: reducing the cost of repairs, reducing replacement vehicle expenses, increasing recoveries from third-party drivers, and preventing accidents. Throughout, we ll be referring to our own experience to illustrate the potential savings from each method. Reducing Repair Costs At CEI, we ve found it possible to reduce fleet repair costs by between 8% and 12% year. For fleets with a 25% accident rate, and at an average repair cost of $2,400, that could mean annual savings of between $48,000 and $72,000 a year for every 1,000 vehicles, and well into six figures for larger fleets. How is that possible? A few service providers focused on accident management, like CEI, have a full complement of licensed physical damage appraisers who scrub every repair shop estimate for savings on parts and labor. Experienced experts in collision repair, who have had successful careers as body shop technicians, estimators and managers or insurance industry appraisers, can assess how extensive damage may be, even in places not immediately visible in images of damaged vehicles. They are also adept at recommending the most cost-effective way to return these vehicles safely to the road. For example, they can judge when parts can be repaired instead of replaced at a higher cost; when an OEM part must be used, or when a less-expensive certified after-market or used part can take its place. They look for opportunities Fleet Driver Management The CEI Group 4850 East Street Road Suite 200 Trevose, PA (877)

2 2 to complete two or more repairs with just one removal step, to save redundant labor charges, and to use less-expensive paintless dent repair rather than traditional methods. They also know when a repair that only affects the vehicle s appearance can be postponed (as well as when damage that only appears to be cosmetic ought to be repaired). Cutting Rental Expenses Money spent on temporary replacement rental vehicles is often overlooked for savings potential. At roughly $40 a day, the difference between a 10-day repair cycle time and 12 days is $80, and between 10 and 20 days is $400; multiplied over hundreds of repairs, the excess expense easily reaches into the tens of thousands of dollars. When those extra days are due to a complex repair or parts being in short supply, the cost is justified, but not when they re the result of lapses that could have been avoided. The key to keeping rental costs low is to keep cycle time the time it takes for a shop to complete repairs short. Shops should be held accountable to meeting agreed-upon repair schedules, which comes only with close monitoring. This best practice can be difficult to accomplish for fleets with limited human resources; but it s an accident management service provider s business to bring the necessary resources to bear on this effort. Monitoring can only work, however, when the repair customer has leverage over the shop, and leverage is limited unless the shop receives meaningful volume from the fleet. Fleet accident management companies often have this leverage because, representing a large number of fleets, they re able to provide volume repeat business that shops rely upon. Fleets themselves sometimes contribute to unnecessarily longer cycle times when they delay authorizing repairs. Large fleets, where repair decisions are shared by a headquarters and local fleet manager, can run into this problem. In these cases, it s important for all players to remember that every extra day it takes to authorize repairs is costly, and potentially by more than just one day of extra rental for each day of delay. Shops can be counted on to reserve a repair slot only so long before they put in another customer s vehicle. In this case, it may be several more days before the fleet s repairs can begin. Increased loss recoveries It takes time and effort, but effective recovery of repair and other related expenses from third-party drivers significantly reduces the net cost of fleet accidents. Fleets that collect every dollar they re due from accidents caused

3 3 by non-fleet drivers can offset repair expenses by as much as 20% to 25%, according to CEI statistics. For a 1,000-vehicle fleet with a 25% annual accident rate, that can mean some $150,000 in recovered funds. Unfortunately, it s relatively rare that a fleet is sufficiently staffed with personnel trained and skilled at loss recovery, which is a semi-professional, paralegal process. The laws on whether and how much you can recover from a thirdparty driver vary from state to state, and unless the demand for recoveries is properly prepared, documented, negotiated and expedited, fleets can be and often are frustrated in their attempts to recover what they are rightfully due. The best accident management service providers, on the other hand, operate departments of loss recovery specialists, experienced in negotiating their way through the laws and procedures, and trained in ways to overcome obstacles. Typical performance we have achieved may serve as basis of comparison for fleets that pursue damages with their own internal resources: recovery potential is found in one out of every four claims. Coverage recovery is 95% of the funds we seek, and it s achieved, on average, in less than 60 days after we launch our demands. If a fleet isn t achieving that kind of performance, money is being left on the table. Preventing Accidents Taking into consideration the cost of repairs alone, preventing an accident saves more money than spending less on repairs and recovering damages for some fraction of annual accidents. The savings are much greater, however, when you consider the real costs to a fleet sponsor that go beyond repairs and rentals. These so-called hidden costs of fleet accidents don t appear on a fleet s books, but are nonetheless real, costing the organization through lost productivity, medical expenses, workman s compensation claims, and administrative expenses. For accidents with serious injury or fatalities, add in legal costs and liability. The Network of Employers for Transportation Safety estimates that the sum total of all business costs for the average accident is nearly $16,600, while for one involving an injury it s $76,300 and for one involving a fatality more than $504,000. Sophisticated in-vehicle crash-avoidance technology is designed to compensate for driver error and, in some cases, take control of the vehicle to avert an accident. While adoption of this technology is not yet widespread, driver monitoring and risk assessment systems have already been proven to prevent fleet accidents and reduce accident rates by as much as 35%.

4 4 These systems work by delivering timely and widely publicized consequences for poor driving behavior. They create files for every fleet driver that contain data that describes their driving performance; the sources are, typically, state motor vehicle records (MVRs) and accident history, but may also include traffic camera violations, information from toll-free driver reporting services, and incidents of high-g forces and speeding from telematics systems. The files are updated as new data is received, and each event is assigned a point value. Drivers are then sorted into ascending risk categories. Whenever an event moves them to a higher risk category, they are immediately sent an letting them know that their risk status has changed, are are assigned remedial training, or are subject to other sanctions. At the same time, depending on the severity of the most recent event and protocols established in cooperation with the fleet, the fleet department, the driver s manager, and the safety, HR and legal departments are also notified. The result is a virtual safety committee that meets not monthly, quarterly or annually and is burdened with paper, but one that harnesses the power of current information technology. It s on duty 24/7/365 and provides actionable data soon after events occur regardless of the driver s status within the organization. As a result, knowing that their driving performance no longer flies under management s radar, drivers change their driving behavior for the better, in a phenomenon known as the Hawthorne effect. The name derives from an experiment conducted at a Westinghouse company factory in Hawthorne, Illinois in the late 1920s and early 1930s. Management wanted to know what kind of lighting had the greatest positive effect on worker productivity. The experiment showed that all the different lighting systems tested had an equal and beneficial effect. The conclusion was that when workers performance is closely monitored and measured, and they know that management expects better performance, they improve their performance. Demonstrated savings The two charts on the following page illustrate what fleets can accomplish by adopting these cost-reduction methods. The first summarizes the accidentprevention record of a vocational truck fleet with 10,000 vehicles that implemented our accident prevention program. Starting with an accident rate of 35.7% (numbers of vehicles in service divided by the number of accidents per year), after seven years the rate fell to 24.9%, a decline of more than 30%. The program prevented more than 3,500 accidents, for $9.2 in avoided repair expenses, and more than $58 million in total costs.

5 5 The second chart shows the results that a sales fleet of some 2,700 vehicles achieved over seven years using all of our company s cost-saving programs. Its accident rate declined by 25.2% as 1,341 accidents were prevented. In addition, the fleet saved more than $762,000 in completed repair costs, and recovered more than $5 million from at-fault, third-party drivers. In all the fleet saved an average of $1.3 million a year in repair expenses, while the company realized an estimated $22.3 million in hidden costs. 40.0% 1000 Accident Rate 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 35.7% % % 28.7% 27.7% % 24.9% Accidents Prevented Chart 1 Energy technology and services fleet/ 10,000 vehicles Six-Year Summary 3,525 accidents avoided $2,600 avg. cost peraccident $9.2 million in avoided repairs Hidden cost savings: $58.5 million ( = 3,525 avoided accidents X $16,600 NETS estimated cost per accident)

6 6 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total Accident rate 43.5% 34.9% 37.1% 37.5% 34.8% 37.6% 33.3% NA Accidents Avoided ,341 Avoided Repair $ $0 $773,024 $546,532 $466,528 $646,037 $424,000 $630,452 $3,486,573 Repair Savings $9,750 $118,089 $84,730 $95,218 $131,933 $183,985 $136,517 $760,222 Subro Recoveries $924,090 $795,033 $786,607 $644,882 $687,045 $632,154 $559,992 $5,029,803 Savings Grand Tot. $933,840 $1,686,443 $1,418,080 $1,206,808 $1,465,263 $1,240,302 $1,327,204 $9,277,939 Chart 2 Sales Fleet/ approximately 2,700 vehicles Seven-Year Highlights Accident rate reduced by 25.2% 1,341 accidents avoided $9.3 million in total fleet savings Hidden cost savings: $22.3 million ( = 1,341 avoided accidents X $16,600 NETS estimated cost per accident) Conclusion Most likely, fleets will always be expected to control and further reduce costs. Emerging technologies offer the promise of lower accident rates. Meanwhile, there are proven methods for reducing the costs attendant to accidents that the fleet industry at large hasn t yet fully exploited. These include systems that reduce accidents by changing driver behavior, and services that save money on repairs and offset annual accident repair expenses by improving their collecting from at-fault third-party drivers. Fleets owe it to themselves to consider obtaining these services, which have the potential for saving them and their organizations millions of dollars. Fleet Driver Management _05.2 The CEI Group 4850 East Street Road Suite 200 Trevose, PA (877)