Risk and insurance management in transportation business
Risk and InsuranceManagement in RoadTransportation BusinessPresented by,MAHESH B. PAWAR
Overview of Transportation Industry :• With the changing economic scenario, factors such asglobalization of markets, international economic integration,removal of barriers to business and trade and increasedcompetition have enhanced the need of transportation.• The Road Transport Industry (RTI) has always been backbonefor the economic growth of a nation.• Transport volumes in India remain much less than those in thedeveloped countries. India has still to go a long way instrengthening its transportation network.
Transport on roads can be grouped into two categories:Transportation of People Transportation of Goods
In todays business big or small ,domestic or global, the value of time isclearly immense. Business today isfocusing on how it can deliver goodsand services to global markets in atimely and reliable manner. Besidesefficiency in pick up , timely delivery ,timely information and availability ofother infra structural facilities forefficient handling of cargotransportation have become the need ofthe day.
The Road Transport Industry is judged primarily on thefollowing key parameters: Speed of Distribution. World wide Service. Security and Reliability. Value added service. Customer care.
Problems facing by road transportationindustry: Most of the Indian roads are unsurfaced (42.65%) and are notsuitable for use of vehicular traffic. One major problem on the Indian roads is the mixing of traffic. There are multiple check-posts, toll tax and octoroon dutiescollection points on the roads. There is very little attention on road safety and traffic laws arewilfully violated. There has been no stability in policy relating to highwaydevelopment in the country.
Risk: “Risk refers to the uncertainty that surrounds future eventsand outcomes.”Risk Management: “Risk management is a process of thinking systematicallyabout all possible risks or problems before they happen and settingup procedures that will avoid the risk or minimise its impact orcope up with its impact.”
Risks in Transportation Business:Operational RisksRoad Accidents:-According to the MinistryOf Road Transportand Highway in year 2012 inthere are 497686 roadaccidents in India.
Percent share in total road accidents by type of vehicle involved (2011-2012) Other Vehicles/objects Two Wheelers 9.4 7.6 Auto Rikshaws22.4 23.7 Car, Jeep, Taxisr Buses 8.7 6.9 Truck, tempos, 21.3 Mavs Other motoe vehicles
Causes of Road Accidents: 2012 2% 1% 2% 1% 2% Fault of Driver15% All Other Causes Defect in Road condition 77% weather condition Defect in Condition of motor vehicle Fault of Pedestrian Fault of Cyclist
Political Risks and government relatedrisks:Transportation Policy:
Multiplicity of Laws:Laws Governing Access Control to National Highways:National Highways Act, 1956.The National Highways Authority of India, 1988.National Highways (Land and Traffic) Act,2002.Laws Governing Inter-state movement of goods:Central Sales Tax Act :1956 .Various State Sales Act/State VAT.Various Local/Municipal Acts governing Octroi and Entry Tax.
Laws Governing Inter-state movement of Vehicles (i) The Motor Vehicle Act (MVA), 1988 The Central Motor Vehicle Rules (CMVR), 1989 (Amended in1994, 2000 and in 2002) . The various sections/provisions of MVA relate to regulation ofsafety/quality, axle, load, emissions etc.
Other Risks:Competitors Risk.Credit and default risk.Maintenance Risks.Seasonal Risks.Drivers Shortage.
Risk Management in TransportationBusiness:•Driver’s Management:Elements related to the drivers which include the driversrecruitment,trainning, evaluation, behaviour changeperformance monitoring, etc. Drivers RecruitmentRoad Transporters shall have a policy and procedure inplace to address the requirements in recruiting new driversand to recruit the best driver available.
Drivers Training:A system in place to ensure that the training needs of Drivers areidentified and satisfied in an appropriate and adequate manner so thatoperations are carried out competently and safely.Driver Monitoring:The company shall have a formal system and procedures to monitorand promote safe driving behaviour and performance. Unsafebehaviour and traffic violations shall be counselled anddisciplinary actions taken on repeated offenders.Drug and alcohol policy:
Provide medical facilities to the drivers :e.g.-The German project DocStop was initiated to improve medicalfacilities for long-distance professional drivers while at work.Motorway rest areas serve as DocStop centres, which have anetwork of doctors that are convenient for drivers to consult whileon the road, without seriously disrupting their schedules.
•Journey Risk Management:Elements related to the routes used for the delivery and itassociated risks and mitigation actions.A Journey risk management plan is in place taking into accountNational and Local authority on routing of hazardous substances.To identify risks and restrictions on the road that might be imposedby tunnels, bridge regulations. Within the constraints imposedabove, select the routes that offer the minimum traffic hazards.
•Vehicle Specifications:Elements related to the vehicles specifications the variousstages of inspections “fit for purposes’’ and maintenancesprogram.A system shall be in place to ensure all equipment areappropriate for the products to be stored, handles andtransported. The equipment must be maintained in goodconditions and “fit for purpose”.
The company must have tire policy, which include tireinspection procedure, change and management. Tire Inspections and replacement frequency. Tire types and use on specific axle. Twining of tires (checks regarding equal wear on each tire) Regulations of tire pressures
Fuel Efficiency Management: Ordering Fuel: Manager is responsible to ensure fuel stock are regularlychecked in order to maintain and adequate supply at all times. Supplies should be obtain form a recognised approvedsuppliers. Fuel tanks Inspection: Fuel tanks must be checked weekly . Fuel leaks must be reported immediately and repairsimplemented.
Equipment calibration: Fuel tank monitoring equipment should be calibrated ororiginal installation. Fuel pumps should be maintain and calibrated on a regularbasis.
Safety Management:Guidance on the minimum protective clothing and safetyequipment required to be carried on all heavy goods vehicletransporting company products, and the provision of suchequipment.It is the responsibility of Transportation companies to ensure thatall the necessary protective clothing and safety equipment isprovided to drivers
Minimum Safety Equipment ListCertain items of equipment are required irrespective of load: Two self-standing warning signs (e.g. reflective cones ortriangles or flashing amber lights that are independent from theelectrical equipment of the vehicle). A suitable warning vest or warning clothing for the driver.One Intrinsically safe or explosive proof hand lamp. Two fire extinguishers (5kgs). First Aid Box. Safety helmet. General purpose industrial gloves.
Risk or Damages covered and not covered by insurancepolicy:Covered Risk:The different types of loss or damage usually covered under theinsurance contract can be classified according to the nature of thedamage. Road Accidents:There are various insurance policies available for covering theaccidental loss . Risk of theft:
Risk of Drivers:There are many life and health insurance policies available fordrivers of transport company.Risk of customers’ goods :
Uncovered Risk:There are various risks or damages which are not covered underany insurance policy. Political risks and governmental risk: Weather Condition: Fuel price hike:Competitors risk:Seasonal risk:
Insurance for Transportation Business:There are various Insurance policies are available to thetransportation business.Driver Insurance Policy: Driver insurance policy insures the drivers life during any accident or any health issue happened during the transportation activity. The following policies covers the issues relating to the driver: o Life insurance policy. o Health Insurance. o Accidental policy.
Vehicle Insurance:Vehicle insurance is purch for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection againstphysical damage and/or bodily injury resulting from trafficcollisions and against liability that could also arise there from.The specific terms of vehicle insurance vary with legalregulations in each region.To a lesser degree vehicle insurance may additionally offerfinancial protection against theft of the vehicle and possiblydamage to the vehicle, sustained from things other than trafficcollisions.
Errors & Omissions (E&O) policy (including late deliveryof freight):This policy protects the transportation company for theprofessional liabilities incur in providing services to theircustomers. It typically protects companys interests anywherein its trading area, wherever that may be.This policy insure the any error and omissions takes placeduring the delivery of goods.
Commercial General Liability (CGL) policy:This policy covers Transportation companys officeexposures, while company also take a separate propertypolicy to cover loss of building or warehouse.
Carrier’s liability insurance:Carrier’s liability insurance provides protection against liabilitiesthat arise from transport contracts. The liability of forwarders ofgoods is also distinguished from that of the actual carrier.Sub type of Carrier’s liability insurance Forwarder’s liability insurance:Insurance regarding the liability of the party which isorganizationally responsible for the collection, shipment anddelivery of goods, as opposed to the actual transporter (carrier)
Road carrier’s liability insurance:Insurance covering the liability of the road carrier (roadhauler) which physically transports the goods.Motor Truck cargo Policy:As a trucker, you may have a "motor truck cargo" policyto cover losses to goods on your vehicles during transit.This cover is not part of the standard auto liability policyand must be purchased separately.
Combine policy:Fortunately, some insurers that specialize in the transportationfield now combine several related covers into a single manuscriptpolicy.For example, some insurers will combine errors & omissionsinsurance with cargo liability, motor truck cargo, and all-riskcargo insurance into a single form.
Insurance policy related to the third party damage orinjury:Some insurance policies also covers the third party damageor injury to third party during the transportation. Policy relating to the failure in contractual liability: Policy for covering the loss of business interruption:
Conclusion:At present transport companies’ managers are facing with abewildering array of uncertainties, as the environment withinwhich they operate changes at an increasing rate. Risk management is dealing with uncertainty in order toreduce threats and maximize opportunities. It can be seen as away that enables to create sustainable competitive advantagebut no risk management process can create a risk-freeenvironment
Managers who lead transport companies should be able todemonstrate their ability to deal with frequent and oftenchanges caused by market development, politicalevents, technological inventions and environmental hazards.Poor risk management may lead to bankruptcy whereasgood risk management practices can excel companyperformance outcome.
Suggestions: Develop a comprehensive employee training program:Properly train employees in transportation safety techniquesand requirements. Transportation operators are able to practicesafety procedures and timely respond to external risk factorswhen they have adequate training and experience.
Ensure that transportation equipment is in optimal condition when in operation: Hire talented equipment maintenance personnel to perform routine vehicle checks and servicing. Regularly replace outdated transportation equipment. Develop a written company safety policy and procedure to manage operational risk: A transportation organizations policies and procedures should be based on both applicable transportation laws and customary industry procedures.
Obtain insurance: Risk exposure is a constant in the transportation industry. No amount of training will completely eliminate the risk potential inherent in transportation operations. Securing adequate business insurance is a form of managing risk. It is designed to mitigate a companys cost exposure when claims of damages or injuries arise. There are certain insurance requirements on transport operators required by law. There are also optional insurance policies available for greater risk coverage.
To attract and retain the best drivers:An organization must develop good relationships with itsdrivers. This involves addressing many of the underlying causesof driver dissatisfaction, such as lack of convenienttraining, lack of consistent information frommanagers, inconsistent schedules, and manual record keeping. Create a system for customer feedback:Customers are able to see potential risk from their perspectivethat may be undetectable by transportation operators, managersand executives.
Insurance management in Grapes Transportation company:Laxmi Transportation companycarrying the activity of grapestransportation in Niphad, Companyprovides the transport facility tofarmers for send their grapes invarious cities likeKolkata, Raipur, Banaras, Guwahati etc. Grapes are perishable innature and its will be spoiled in 10to 12 days.
In that case grapes must be deliver at time. If grapes not deliveredin time then it will be spoiled and there are no customer ready topurchase that grapes and loss will face by the farmers. Transportergives the assurity to the farmers to deliver the grapes in specifictime. If transporter is unable to deliver grapes in specific time thentransporter will liable to compensate all losses . That cause thetransporter takes a errors and omission insurance policy for thegrapes which in transits. Many time transporter gives the reward totheir drivers who delivers the grapes before time.