Why Investing in Risk control is Important

There are risks inherent to trucking; managing those risks effectively is not free. Motor carriers understand this fact very well because the effort required to avoid, prevent, and mitigate losses may require spending money to save money.

This thinking may sound contradictory, especially to those who might view safety as a cost center. Still, successful motor carriers realize that investing in risk control may help generate revenue by improving the company image, maintaining high levels of customer service, and ensuring business continuity.

In a related post, we discussed the total cost of risk, particularly risk transfer, and the role insurance plays in risk management. In this, the second part of this series, we will look at risk control and the strategies motor carriers utilize to proactively manage risks, even after an incident has occurred.

5 Key Strategies of Risk Control

Risk control typically involves five key strategies: avoidance, loss prevention, loss reduction, segregation of exposures, and contractual transfer. While you read about each risk control strategy below, ask yourself if your company practices these techniques, and if not, why? Remember, insurance may not cover every potential loss, and risk control may not prevent every loss, but combining these efforts may help reduce your exposures and better protect your company.

AVOIDANCE

Avoidance is choosing not to engage in an activity that increases the risk of a loss. For example, a motor carrier may choose not to haul hazardous materials because of the inherent risk and added costs for insurance, equipment, training, etc. Similarly, re-routing drivers to reduce the number of left turns they must make to deliver a load is an example of risk avoidance, as is ensuring your company complies with federal regulations and state laws to avoid violations and fines.

Remember that avoiding a risk may be best if an action could have a negative impact on the organization. However, some risks may be positive and lead to desired results. With careful analysis, a motor carrier might view a risk as a favorable opportunity—like gradually adding trucks to take on a new piece of business—if the carrier has the controls to manage the risk effectively.

LOSS PREVENTION

Loss prevention involves identifying threats and vulnerabilities (i.e., loss exposures) and using proactive measures to reduce the risk of a loss. For example, road testing applicants and tenured drivers is a loss prevention strategy.

Likewise, purchasing personal protective equipment (PPE), installing inward- and outward-facing cameras, and conducting regular safety training are loss prevention techniques that will cost time and money to implement but may potentially save the company even more money if an incident can be prevented.

LOSS REDUCTION

Loss reduction involves implementing measures to mitigate or decrease the severity of a loss that has already occurred. For example, developing an emergency action plan to evacuate a building during a fire is one way to reduce potential losses. Implementing a return-to-work program to help injured workers, installing sprinklers in a warehouse to reduce the spread of a fire, and providing an eyewash station in the maintenance shop for mechanics are similar loss reduction techniques. In each case, taking proactive measures to help minimize the severity of unexpected events may be well worth the investment.

SEGREGATION OF EXPOSURES

Segregating loss exposures is another risk control technique that involves isolating an exposure from other exposures, perils, or hazards. Segregation can be accomplished either by separation or by duplication. For example, motor carriers in southern states understand the inherent risk of natural disasters. During tropical storms and hurricanes, they often relocate their fleets from a terminal in the storm’s path to another terminal or state in a safe zone. They separate their fleets from the hazard to reduce the risk of a loss.

Duplication relies on having backups, spares, or duplicates of crucial assets. Utilizing cloud or off-site data storage can help protect and recover critical company data in a catastrophic event.

CONTRACTUAL TRANSFER OF RISK CONTROL

As Warren T. Hope mentions in his 1998 book "Introduction to Risk Management",  “Contractual transfer for risk control means transferring the legal and financial responsibility for a potential loss from one individual or organization to another.”

This is different from risk transfer involving insurance; contractual transfer of risk control involves a noninsurance contract or agreement where one party, who may be better positioned to control the risks associated with a service, assumes responsibility. For example, if two motor carriers agree to interline freight, they should have legal counsel write up a contract specifying who is responsible for the cargo while in each motor carrier’s trailer.

CALL TO ACTION

• Implement risk control measures to avoid, prevent, or mitigate potential losses.