The compounding force of safety: a 10 CPM advantage

September 4, 2024

There’s a rumor that Einstein once referred to compound interest as the “most powerful force in the universe”. Even if he wasn’t the one to say it though, the idea has some weight to it—that you can set an investment in motion and, over time, it can snowball into something significant. In a recent webinar with CarriersEdge, KSMTA COO Chris Henry discussed the compounding force of safety for driving profitability in your business—and he dug into why turning your safety goals into regular habits will, over time, unlock some surprising financial benefits.

To see what’s going on, it’s important to understand

• What’s special about safety
• The 10cpm advantage
• How to get your fleet there

What’s special about safety?

Every company that does safety well has it built into its culture. However, Henry suggests that “while many companies claim this kind of thing, the really good ones actually see safety as a place to maximize profits and they actively work toward managing it.”

The trick, though, is that safety as a profit center is a ‘slow burn’. Although you won’t see the payoff right away, if you can get into the right habits and let them progress over time, you will start to see the compounding effect. “It’s like working out consistently over the span of years,” Henry says. “You won’t see a benefit on the first day or even the first week, but over time, the results will be there.”

The 10cpm advantage

Henry says that the real payoff comes in your insurance cost-per-mile. So what kind of numbers are we talking about? If we were to give an extreme example, we could compare a company that is absolutely terrible on safety with a company that is an elite, top performer. Between them, the bad company might be shouldering upwards of 24-25 cents in their insurance cost per mile, while the excellent company might be looking at something as small as 2 cents per mile.

Those are outliers, though. What about the average fleet? For the companies that Henry works with that are in the top 50% of performers, he points out that companies that are taking safety seriously might reasonably enjoy a 4 cent per mile insurance cost, while companies that aren’t paying as much attention to it are closer to the 14 cents per mile range. “That’s where you get the 10 cents per mile difference.”

This is to say that, among companies who are already doing lots of other things right, there is a potential 10 cent per mile advantage when they pay specific attention to managing safety.

How to get your fleet there

When calculating your insurance cost per mile, there are going to be a number of factors that affect it, some of which you can change, and some you are unlikely to. Those ones that are unlikely to change include the type of freight you haul, as well as your fleet size, operating region and annual mileage.

To effectively make some change, the factors you’ll want to look at include the skills and development of your drivers, any enhanced safety measures you might use, as well as direct-effect insurance factors like claims history and coverage. Here’s how:

• Driver training and safety record
  Your drivers are the ones on the road, so of course they are going to be at the leading edge of getting your safety numbers in line. If you engage your people with a more robust training program (more content more often, better tracking on completion and re-certification, etc.), you’ll start to see better, safer runs from them over time.
• Enhanced safety measures
  Telematics can give you a more granular look at what’s happening on the road—where things are going right and where they’re not. As Henry points out though, “Simply putting dashcams in won’t get you there—actually taking safety seriously requires lots of follow-up programs to generate lower incident rates.” Whatever you are learning from that new data, you’ve got to be ready with the right interventions and follow-up programs.¹
• Claims history, and more
  By investing in all of those other safety factors, you’ll start to see a reduction in accidents and incidents and, ultimately, the number of claims you need to make will decrease. Safety audits will run smoother. Your risk profile with your insurer will improve. As for purchasing additional liability coverage, what about that extra cost? Henry says that “even if you are taking on this additional coverage, a 4 cpm insurance cost is still realistic for a company of any size—it’s about reinvesting, how you’re deploying your safety investments and tools, and that you’re giving safety a seat at the decision-making table.”

As each of these factors (and others) fall into line your insurance costs will improve.The additive, compounding force of all of these elements grinding away over the long term uses the same idea as compounding interest – set the process in motion, keep an eye on it, and let the benefits build and grow until you’ll begin to see progressively better value in your insurance cost per mile.

And you don’t need to be Einstein to make that math work.

¹ A note about telematics: additional technology doesn’t give you answers—it just lets you ask better questions. So when you’re ready to invest in a tech ‘solution’, what you’re really investing in is a tech ‘magnifying glass’—done right, it will allow you to intervene and fine-tune exactly where you need to improve rather than guessing or making everyone in the company do extra training they may not need. Be ready to follow up on all the new insights and information you’ll be getting, rather than just expecting it to solve your problems.