Looking back over the past months since the Level 5 lockdown was announced, there is one sector that can be lauded for keeping the wheels of the economy moving. It is the trucking sector. Yet, it didn’t come without some serious problems and challenges. The beauty, however, is that the various sectors of the industry stood together as one in facing the challenges. Nowhere can this be better exemplified that in the actions and responses taken by Libra Insurance Brokers to the changed circumstances of its many clients. In this article, Tom Halliwell, Executive Chairman of Libra Insurance Brokers, a company which has been serving the transport sector for over 30 years, takes us back to the first two months of the lockdown – Levels 5, 4 and 3 – and tells how hands were linked to ride the storm. What stands out for FleetWatch is that it tells a courageous story of nurturing solid partnerships in times of adversity.
The impact of Covid-19 on the transport sector was brutal – and I say that for a number of reasons:
- It came unexpectedly and hard.
- The hit was relentless and the cut into revenue was deep and devastating.
- It came at a time when the transport sector was already battling to come to terms with a state of recession in our economy – and specifically in this sector.
- Cash reserves at most transport companies were substantially reduced and in many cases, depleted.
About 40% of the trucks we insure are equipped with our own telematics technology called I-Cab. This portion represents 7 300 truck tractors. Our existing software platform allowed us to pull daily reports from all these trucks, to give us the following information during the lockdown period:
- Daily usage of trucks.
- Daily kilometers travelled.
- Drive behavior
- Driving violations
- Per client.
- Per truck
- Per Libra branch (10 branches).
In Graph 1, the devastating impact of the lockdown is evident:
- Usage dropped like a brick on the 27th of March when Level 5 lockdown came into effect.
- This was followed by a slow recovery trend over the next five weeks.
- When Level 4 came into effect, the truck usage showed a substantial and continuous improvement over the next four weeks.
- When Level 3 came into effect in week 10, truck usage showed another good recovery. What is of a concern though is that according to our data, week 10 and week 11 were the best months since the start of lockdown. Weeks 12 to 17 were more erratic as public holidays and strikes impacted in a negative way. The only other explanation can be that supply and demand has reached a plateau.
Changed risk profile
When the lockdown was announced, we realized that the overall risk profile of our Heavy Commercial Vehicle book of business was going to change substantially. We envisaged three scenarios:
- Major cash flow constraints among our transport clients.
- A dramatic increase in catastrophe fire risks due to hundreds of vehicles being parked off in close proximity to each other. This could also spread to malicious damage risks due to wage disputes or political unrest.
- We also envisaged that the changing social – and political – environment could lead to widespread violence, malicious damage and unrest.
Instead of running from the problem, we ran towards it with two prime strategies. First and foremost, we set out to arrange generous premium discounts of as much as 70% off the normal premium on parked off vehicles.
Secondly, we set out to determine how many vehicles per fleet would be parked off and whether the ‘static’ fire risks on their policies were sufficient to provide full cover in the event of a total loss of parked off vehicles. We then arranged and adjusted the cover on their policies where needed. We also made double sure that our clients had sufficient political risk cover, which includes across border riot and strike cover.
Joining hands with us in our endeavours were the insurance companies which, in general, played a critical part in providing up to 20% additional discounts over and above the parked-off discounts. All this certainly added great value to our clients’ cash flow positions.
To give an indication of the premium discount assistance we received from our insurance companies, our monthly premium on our transport clients dropped by R9.2-million for the month of May – the second month of the lockdown. This drop in premium was entirely due to insurer incentives to assist their clients.
Decline in accidents
What we found interesting is that the rate of accidents declined proportionately more in relation to the decline in vehicle usage. This is illustrated in Graph 2 which shows the close correlation between our vehicles on the road and accidents. When the lockdown was implemented, the drop in accidents was, in fact, disproportionate in relation to vehicles still on the road as expected. This gave us a clear indication that the level of traffic congestion directly relates to the frequency of accidents.
Driver behavior unchanged
We also thought it would be interesting to see if the driving behavior of truck drivers would have changed with them having to share the roads with far less vehicles during the lockdown period. On a real-time basis, we monitor 11 different risks which vary from a variety of driving violations to in-cab behavior violations. To our surprise, we could not see a significant improvement in driver behavior. The spider-graph – Graph 3 – shows that the 11 risks were almost on the same score as pre Covid-19.
No move to ‘self-insure’
Contrary to what some were predicting in light of the possible severe cash-flow constraints among transport operators, we at Libra didn’t experience any transport companies opting to go the “self-insure” route by cancelling their insurance entirely. Insurance still remains one of the most practical and cost-effective mechanisms to protect your assets. This is the advice and message we gave to our clients and our policy/client retention was in the high 90%.
Certainly, the new ‘Covid-19/Lockdown’ environment and dynamics led to a great deal of uncertainty among all businesses of what to expect next and this made our clients feel extremely vulnerable. However, despite this uncertainty, our experience was that clients were more disciplined in paying their premiums perhaps realizing that they are in unchartered waters and just one catastrophic loss would add to their woes.
What was also telling was that the Commercial Banks also reached out to the transport sector by offering deferred capital payments – or total debt restructuring. This certainly eased the pressure on cash-flows which might have resulted in our high success rate of premium payments and client retention.
Yes, there were some instances where, as much as they wanted to, some of our clients just could not pay their premiums on time. On this, I want to reiterate that our insurer partners were always open for discussions and proposals in a very positive and innovative way. In some instances we were able to arrange later payment dates or double payment two months later. In other instance, we were able to arrange part payments over a period. The whole idea was to keep the policies alive to ensure that critical cover like political – and crime risks – stayed in place. We also have available a premium finance facility where the annual premium is financed – and the insurer is paid upfront for a year.
Renewal of licenses halted
Another problem we encountered which was not foreseen at the start of the lockdown, was the renewal of all relevant licenses and permits applicable on the vehicles and drivers in the freight industry.
All insurance policies are subject to the adherence and compliancy to the rules and regulations as contained in the Road Traffic Act. Non-compliance may lead to the rejection of an insurance claim. Due to closed-down Government departments such as licensing offices and testing stations, no renewals or new licenses could be issued. We arranged with all our insurers that expired documents and permits would be deemed to be valid.
Into the future
What this lockdown period has really highlighted to us is firstly, the absolute necessity of maintaining close relationships with our clients so as to better and timeously understand their needs. Secondly, that it is essential for us to continuously analyse the transport environment. By matching the transport environment with clients’ needs – a true partnership can be built that will stand the test of time and ride the storms.
So what are we looking at now to take Libra and our clients into the future? First and foremost is product development. We understand that we will have to make available products that will be able to address the issue of weak cash-flows in many fleets. We now have hands-on experience of this across the broad spectrum of the transport sector rather than just one or two clients who may have fallen on hard times during the pre-COVID normal course of business.
COVID-19 brought hard times to the whole transport sector through no fault of its own and we are looking at ways to ease the burden of our clients in such a cash constrained environment. We are ready to introduce innovative new products, which will be aimed at rewarding our clients if quality risk management processes deliver the desired results.
Big focus on technology
Technology is currently a big focus for us. Although Libra had already embarked on a journey to combine insurance and technology almost 10 years ago, we now realize the true value we can add to any fleet. We believe that effective risk management, which will deliver meaningful and valuable results, can only be achieved by incorporating cutting-edge technology, 24/7 monitoring and pro-active protocols. Our sister company, RMS, is on a dedicated drive to take our tech offering to the next level. RMS is currently monitoring 7 300 of our trucks on a 24/7 basis and we have seen some spectacular improvements on claims ratios on some fleets.
Having been servicing the transport sector for over 30 years now, Libra Insurance Brokers has seen and experienced some serious lows and some spectacular highs among our clients during these years. The COVID-19 lockdown, however, has to rank among the most serious of the ‘serious lows’. In fact, when the lockdown was announced at the end of March, we sat down to try figure out how and when this catastrophe would play out. We were deeply concerned about the devastation it might cause, including to our own business which is mostly focused on the transport sector.
However, looking back at those first two months when Level 5 and Level 4 lockdowns were in place, what we witnessed was a fighting spirit and ‘never-say-die’ attitude among our transport clients. Level 3 opened up the market to many more transporters and although we are nowhere near back to normal – if the ‘normal’ we once knew ever does come back – we are positive that those initial two months of lockdown will become a beautiful and inspirational story of survival with many lessons learnt that will lead to stronger relationships and firmer partnerships.
