Driver shortages have implications for insurers

This article first appeared in Insurance Day, October 2021

As has been widely reported, the UK is experiencing significant shortages of HGV drivers, which is causing serious delays to the supply chain. A recent survey by the Road Haulage Association (RHA) estimated the driver deficit to be more than 100,000, caused by a combination of factors including Brexit, COVID-19 and tax reforms.

The knock-on effect is huge. Delays in delivery mean goods, particularly time-sensitive items such as fresh food, are going off while still in transit. Companies, stuck with empty shelves and unhappy customers, say contracts are being breached.

The ending of free movement of labour in the EU in the wake of Brexit has seen an estimated 16,000 to 20,000 foreign drivers leave the UK and there has been the added impact of COVID-19. Ordinarily, around 72,000 candidates a year train to become HGV drivers with approximately 40,000 passing the test, but the closure of most test centres during the pandemic has meant numbers are down substantially.

Retirement is also a factor – the average age of a HGV driver is 55.

There are also the new IR35 tax reforms, which prevent most drivers from operating as limited companies and have taken a sizeable chunk out of their take-home pay.

The government has freed up tens of thousands more HGV driving test slots as well as “streamlining” the testing process, essentially making it quicker. A new HGV training scheme, dubbed a “skills bootcamp”, with 5,000 places has also been launched, while a further 1,000 are to be trained via courses funded from the adult education budget.

Rules in relation to drivers’ hours have been relaxed, meaning they can now increase their daily driving limit from nine to 11 hours twice a week and trials are being looked at allowing vehicles with heavier loads and longer trailers onto the UK’s roads.

It was also announced 5,000 temporary visas for foreign workers would be granted to help clear the backlog but take-up of the visas – which expire in February – has reportedly been low.

Companies struggling to get hold of and/or deliver supplies may be forced to make alternative arrangements – such as using air freight instead of road or rail – and that comes at a higher cost.

But is it their insurers’ problem? No. Insurers were not held liable when fuel prices rocketed and it is similar in this situation. Just because it is costing companies more to do business and full their contractual obligations does not necessarily make it an insurance issue.

There will, of course, be exceptions. Insureds may argue that spending money to avoid a breach of contract claim is recoverable under many liability policies. Policies may also be wide and open to interpretation on this point, simply because at the time of drafting, these issues (understandably) will not have been predicted as a battleground. It will be difficult to argue staff shortages should invoke a “force majeure” clause or business interruption insurance, however (although some are sure to try).

The “force majeure” clause is fairly common in commercial contracts, but generally relates to extreme circumstances (such as natural disasters or acts of war) that are outside both parties’ control. Similarly, business interruption insurance is typically triggered by an insured event, such as, for example, the COVID-19-induced lockdowns that forced many ports, logistics centres and other businesses to close.

While the supply chain crisis is inconvenient and costly to businesses if they have to find alternative means of transporting goods, it is not a problem outside their control – just one that is more expensive to solve. Moreover, it is difficult to identify an insured event that gives rise to this crisis.

In such unprecedented times, it is heartening to see some are pulling together and trying to solve the problem without threatening to sue, although insurers may well see some claims arise.

We may see premiums pushed up or policies amended as a result. For example, some insurers may consider inserting an exclusion clause, although for what is unclear. It is likely insurers will reject claims for increased operational costs. Moreover, many liability policies will expressly exclude cover for contractual penalty clauses for delays in performance.

Insurers must also be cautious about quick fixes to this issue. If corners are cut in the recruitment, training and vetting of drivers, this could expose goods within the supply chain to a substantially increased risk of loss, damage or even theft.

This is a logistics issue – supply chains have been disrupted before and will be again – and it is a problem for the industry to solve, not their insurers.

Read other items in Marine Brief - November 2021

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