Archive for the ‘Transportation’ Category

Rhode Island’s Beacon Mutual: Promises, Promises

Tuesday, August 7th, 2007

In response to a workers comp crisis, state legislatures are often tempted to set up their own insurance companies. Unfortunately, the insurer of last resort frequently becomes the one and only insurer: bloated by patronage and the recipient of unfair market advantages, the state fund can become a monstrous leviathan, dwarfing other carriers and all but eliminating competition in the marketplace.
Take Rhode Island. Beacon Mutual dominates the market. It would be nice to report that the dominance is based upon fair pricing and sheer competence, but it isn’t. Studies last year (one by Guiliani Associates) revealed that the fund made political payoffs, undercharged companies with ties to politicians and misspent millions. (See The Insider’s perspective when the scandal first broke here.) Rhode Island might be small, but when it comes to corruption, they think big.
Governor Carcieri did not mince his words:

Specifically, this market conduct examination shows that Beacon Mutual’s former leadership fostered a corporate culture that suffered from weak management and controls; inappropriate producer, agency and vendor relationships; favoritism and bias in pricing; inappropriate and lavish spending; and a total disregard for public oversight and for Beacon’s public mission and purpose. In short, Beacon Mutual’s conduct was completely inappropriate and reprehensibly abusive of the public trust.

Underwriting for Gangsters
In response to these rather embarassing findings, Beacon Mutual has made a a lot of promises. You can find 79 specific recommendations and Beacon Mutual’s response here. Let’s focus for the moment just on the underwriting process: the way an insurer evaluates risk and prices policies. It’s supposed to be objective and fair. It’s supposed to operate the same way for every risk in a given class. Here’s how it operated under Beacon Mutual:
Underwriters priced accounts any way they liked. If you were well connected, you might enjoy a substantial discount over your competitors. Two companies, same work, very different cost of insurance (with no relationship to prior losses).
– Now Beacon Mutual promises to file pricing plans and rigidly apply the same criteria to all risks.
The former head of underwriting had no background in insurance or underwriting. He maintained a “VIP list” of companies that should receive favorable rates, including the companies of board members and those with ties to high-ranking managers and certain Rhode Island politicians. Apparently, the only risk assessment he was concerned with involved not getting caught. (He screwed that one up, too.)
– Now Beacon Mutual has hired a professional underwriter as a Vice President.
The unusual underwriting process at Beacon Mutual involved a committee comprising, among others, of the human resource director and the VP for information Systems. I’m sure that those folks had interesting things to say about risk, but their opinions were on the level of the proverbial “man in the street.”
– Beacon Mutual promises more “transparency and control” in the underwriting process.
There were no written procedures for underwriting. The process was whatever political expediency dictated at the time.
– Beacon Mutual now has an underwriting manual. (Gee, I hope they follow it.)
Documents at Beacon Mutual had no date stamp, so it was pretty easy to retrofit documentation when the need arose.
– Beacon Mutual now has a date stamping machine (and they promise to use it).
Finally, if Beacon Mutual liked an agent, they cut a bigger commission check. Conversely, if an agent dared to write a policy with some other carrier, they would likely see a reduction in their future commissions. Agents had to think long and hard about writing business with an outside carrier.
– Beacon Mutual now promises to eliminate higher commissions for preferred agents.
Open Market in RI?
Until recently, if an outside carrier offered a policy to a RI company, Beacon could arbitrarily lower their rates to keep the business. No one can compete against that kind of advantage.
So is Beacon Mutual really going to play fair? Is this a good time for other carriers to re-enter the RI marketplace? Maybe. Beacon Mutual has made a lot of promises. They have committed to the kind of transparency that governs virtually all other comp carriers. Beacon Mutual has long ruled RI, the way a bully rules a neighborhood. Bullies don’t like to give up control. Only time will tell if Beacon Mutual and the state’s traditionally lax regulators are really serious about leveling the playing field.

New attention on trucker wellness

Monday, July 16th, 2007

Truckers are too fat, they smoke too much, they don’t sleep well and many have such big bellies they can’t even fasten the buckle on their seat belt. That’s according to a recent Associated Press story by Emily Fredrix, who points out that truck drivers account for 15% of the nation’s work-related deaths, and poor health is often a contributing factor:

“As many as half of drivers are regular smokers, compared to about one-fifth of all Americans. Many truckers are obese, and only about one in 10 get regular aerobic exercise … Sleep apnea, which is linked to obesity, is rampant too. An industry study a few years ago found 28 percent of drivers had it; that compares with about 4 percent in the general population who have the disorder.”

The Federal Motor Carrier Safety Administration (FMCSA) is increasingly concerned about the health and wellness of the nation’s trucker drivers – particularly those who drive large trucks. Today, health conditions like severe high blood pressure or severe heart conditions can be a bar to obtaining commercial driving licenses. FMCSA is now considering tightening its rules to encompass other health conditions, such as diabetes and high blood pressure.
It’s no surprise that regulators would be looking at this issue. Both on the job and off, truck-related crashes take a high toll. In 2005, 5,212 people were killed in crashes involving large trucks, more than 12% of all traffic fatalities. Of these, 78 percent were occupants of another vehicle, 15 percent were large truck occupants, and 9 percent were non-occupants. The annual death toll from truck-related crashes is the equivalent of 52 major airline crashes every year, one crash every week resulting in 95 deaths. (Source: Truck Safety Coalition).
A May 2007 circular – The Domain of Truck & Bus Safety Research – cites a 1990 National Transportation Safety Board Study which described crashes fatal to drivers of heavy trucks:

” … 19 of 185 fatally injured truck drivers (10%) in the core sample studied had such severe health problems that NTSB pinpointed health as a major factor in, or the probable cause of, the crashes studied. Seventeen of those 19 crashes (89%) involved a form of cardiac incident at the time of the accident, e.g., sudden incapacitation of the driver due to an acute heart problem. NTSB said that percentage might be a conservative estimate because information in other accident reports indicated possible cardiac problems that were not confirmed because autopsies had not been conducted.”

According to the Large Truck Crash Causation Study 2006 report, which analyzed multi-year data of a large number of crashes involving trucks to determine cause, 88% of the critical reasons for accidents were assigned to drivers as opposed to vehicle failure, environment or other reasons. Critical reasons for driver-related crashes were further analyzed, and 15.6% fell into the category of “non-performance” issues – such as the driver being asleep, disabled by heart attack or seizure, or other disabled by some other physical impairment.
Voluntary wellness initiatives
Many employers are taking health issues seriously. Fredrix’ article explores ways that some employers are implementing a variety of work-based wellness initiatives aimed at improving health, such as paying for screenings for sleep apnea, high blood pressure and cholesterol and offering weight loss and nutrition programs. Such programs can have a very favorable cost-benefit ratio, such as the drop in workers compensation claims and the 75-80% reduction in lost work days experienced by Con-way Freight of Ann Arbor, Mich., after implementing trial wellness programs. Other experts point to a $3.14 return for every $1.00 invested in wellness programs.
Additional Resources
U.S. Department or Transportation – Analysis & Information Online
National Large truck Crash Facts – view national data, or click map for your state’s data
OSHA Trucking Industry Safety and health

Commercial Drivers: Unsafe at Any Speed?

Tuesday, January 2nd, 2007

We begin the new year, alas, with a nightmare: You’re barreling down a three lane highway at 70 mph, when a tractor trailer rig pulls up behind you. All you can see in your rear view mirror is the ominous grill of a Mack truck. What runs through your mind? Do you console yourself with the notion that the driver is at least trained to operate the 10 ton rig? Can you safely assume he knows what he’s doing? Maybe not.
Commercial drivers are supposed to go through an elaborate training and certification process. They are drug tested randomly and after every accident. Prior employers must fully disclose their actual job performance. They must pass bi-annual physicals – and if they fail, there is no protection from the ADA to put them back behind the wheel. That’s reassuring, isn’t it? Well it would be, if the system were being run the way it’s supposed to.
In an alarming article by Stephen Franklin and Darnell Little in the Chicago Tribune, we learn that there are literally thousands of commercial drivers on the nation’s highways who obtained their licenses under suspicious circumstances. In the last five years, the federal government has discovered licensing fraud in 24 states. The payment-for-license schemes usually center on so-called third-party examiners who are hired by states to perform driver testing. In other words, the aggressive driver coming up behind you in a 10 ton rig may have no idea what he’s doing.
There are about about 1.5 million commercial drivers operating in the country. That’s up from just 200,000 in 2002. Commercial driving is one of our fasting growing occupations. Trucking tends to pay well, so it attracts a lot of people who might not otherwise qualify for the jobs. The gap between available jobs and skilled workers gives rise to the entrepeneurial spirit. If you look closely at states with relatively lax enforcement (Illinois under disgraced Governor Ryan, Missouri, Wisconsin), you will find CDL license mills that offer phony certifications (for the right price).
How many commercial drivers are operating with fraudulant licenses? At one point the federal government tallied up 15,000 licenses nationally that it believed were obtained under suspicious circumstances. But it didn’t have any details from the states on nearly 7,000 of those drivers. They have become highway ghosts, beyond detection and potentially lethal. If the government is pretty sure that one percent of the drivers are not qualified. It’s no great extrapolation to assume that as many as three or four percent may be illegitimate: that’s anywhere from 45,000 to 60,000 drivers operating, in the words of one judge,”10 ton torpedoes.” One study of 300 drivers with illegitimate licenses found that 200 of them were certified to haul toxic waste. Does that make you feel any different about the truckers who surround you on your morning commute?
Safe Driving is Essential
One of Lynch Ryan’s fundamental themes is the importance of safe driving. We recommend that employers annually check the licenses and driving records of any and all employees who drive during “the course and scope” of employment, whether or not they operate company vehicles. Your great salesman might be a terrible driver – and because employers are responsible for the actions of their employees, that salesman might become a huge liability. (We blogged one dramatic example here.)
Even if you are confident that your people drive safely, their ultimate well being is dependent upon the actions of other drivers on the road. Given the fraud and abuse in the CDL system, that’s not exactly a reassuring thought.

Ben, why weren’t you wearing a helmet?

Tuesday, June 13th, 2006

Earl Weaver, the eminently quotable Baltimore Oriole Hall of Fame Manager and World Series winner, once said of the young Carl Yastremski, my boyhood idol, “He’s the best player in baseball – from the neck down.”
Weaver’s quote came to mind this morning when I learned that, while riding his Suzuki Hayabusa motorcycle (the fastest “street-legal” bike on the market, according to Susuki), Ben Roethlisberger, of the reigning Super Bowl champion Pittsburgh Steelers, had been seriously injured when he drove into the side of a Chrysler New Yorker that was making a left turn in front of him in downtown Pittsburgh.
Following surgery to repair his injuries, which were mainly to his head and face, the Pro-Bowl quarterback was listed in serious, but stable, condition.
Harken back to Newton’s first law of inertia, the one about a body in motion remaining in motion until something stops it. In this case, although the the fastest street-legal motorcycle on the market stopped nearly instantaneously when it hit the New Yorker, Roethlisberger kept going until he also plowed into the side of the car (somewhere in America someone is going to refer to this as the “mother of all sacks”).
Unlike Sunday afternoons in the fall and against the advice of his coach, Bill Cowher, the quarterback was not wearing a helmet.
I’ve been planning to write about motorcycle helmets for nearly a week ever since learning that the Michigan House of Representatives, by a vote of 66-37, had voted to repeal the state’s 37 year old helmet law. But Big Ben going belly up yesterday has gotten me off the mark.
One could write for hours, days even, about the psychology involved in deciding to leave the helmet behind, but I won’t, because the science and the medicine and the logic here seem so simple. Even most of the people who don’t wear helmets will admit that they save lives, but, as an otherwise intelligent Massachusetts Representative told me a few days ago when we were debating this motorized russian roulette, “Citizens should have the ‘freedom of choice’ to decide for themselves.”
One could also write about the millions of dollars it takes to treat and care for even one victim of a serious head injury, but I won’t do that either, because the numbers have been trumpeted for decades and they don’t seem to resonate with the audience that needs to hear them.
And one could write about the statistically significant increase in motorcycle fatalities in the 20 states that have totally repealed their helmet laws and in the 26 others that only require helmets for young operators. In fact, since 1967, motorcycle deaths and serious injuries have been directly proportional to the on-again, off-again efforts of congress to either reward or penalize states regarding helmet laws. Since late 1995, it’s been off-again, and fatalities have risen 89%. The Insurance Institute for Highway Safety has an excellent summary of the history of helmet laws in the US.
In 2004 alone, more than 4,000 people died in motorcycle accidents – an 8% increase over 2003, according to the National Highway Traffic Safety Administration. And NHTSA also reports that the per capita rate of motorcycle fatalities was 41% higher in states without helmet laws.
But none of this doom and gloom stuff penetrates what must be the really thick cranial tissue of the people who count – the ones who, above all else, want to feel the wind moving through their hair (and the bugs through their teeth) at 65 mph.
As a diehard New England Patriot fan, I really want to see Ben Roethlisberger on the field challenging my team for all he’s worth. So, I hope he makes a miraculously speedy recovery and is his old self by the start of training camp. But what would be really great, better than any football game, is if Big Ben, as soon as he’s sitting up and able to mouth coherent speech, were to make a big-time television public service announcement. A TV spot in which he would tell every kid and every football fan in America that he was wrong, that he was stupid, that he is not immortal and that he will never, ever again ride a motorcycle without wearing the best helmet made in the universe.