Positive action against risk
Feature
With motor fleet premiums usually representing a high percentage of overall insurance spend, are there ways to keep costs a minimum? Allan Briscoe looks at a risk‑based approach
The cost of operating motor vehicles is a major area of expenditure for most organisations, with motor fleet premiums usually representing a high percentage of overall insurance spend. As a legal requirement, apart from the rarely suitable option of going down the deposit or security route, there is no alternative for vehicle operators but to arrange insurance cover to protect against at least third party liabilities, so how can costs be kept to a minimum?
Motor fleet insurance premiums are claims driven and regardless of the level of coverage chosen, deploying an effective strategy aimed at reducing the frequency and cost of incidents is the only way in which total cost of risk will be controlled. It is not just the visible costs of incidents that impact an organisation’s profitability but also hidden costs such as absenteeism, lost productivity, time wasted on unnecessary administration or loss of brand reputation.
These hidden costs will occur regardless of whether the incident involves a company‑provided vehicle or a vehicle owned and insured by the employee.
Risk management
Driver buy-in and behaviour will ultimately determine how successful a risk management strategy is. Instilling a safe driving culture takes time and requires full commitment and support from senior and middle management. Engaging drivers, asking them to contribute to the development and implementation process, is likely to produce a more successful outcome than simply imposing a set of control measures, some of which may prove ineffective or even impossible to actually put into practice.
Incident reporting, recording and investigation procedures are a very important element of the loss control programme. Timely reporting helps the insurer to mitigate costs and comply with the required claims handling protocols. Thorough investigation of incidents demonstrates to drivers that all occurrences are treated seriously by the organisation and not simply regarded as an inevitable consequence of vehicle usage. Using the findings from investigations to implement actions aimed at preventing reoccurrence, either for the individual driver or the wider driving force, is a crucial and expected measure. Similarly, encouraging drivers to report any potential risk hazards, such as difficult delivery locations, or ‘near miss’ incidents helps build up a fuller picture of the risks they face on a day-to-day basis.
Recording of full and accurate incident data facilitates ongoing analysis that can help with early identification of adverse and/or worsening trends and multi-incident drivers. This enables possible intervention measures to be identified and, if deemed appropriate, implemented swiftly. The information recorded and reported by insurers and accident management companies can usually be tailored to the requirements of the particular client and need not be too detailed. As long as the incident date, driver name, vehicle registration, incident circumstances and financials are recorded, that is sufficient for meaningful analysis to be undertaken. It is important that the same criteria be used to record details of self-funded losses, so that the two data sets can be easily combined and the full cost of risk quantified.
Technology
Advances in technology are undoubtedly making vehicles safer, cleaner and more efficient to run. As well as helping to reduce operational costs, using output reports from measurements of things such as speed driven, heavy acceleration, harsh braking, excessive idling and general fuel consumption, can help convince drivers that they need to change driving behaviours when compared to their peers. There appears to be far less resistance amongst drivers to the use of such devices than was previously the case. Indeed the younger generation seem keen to embrace the technology and have a better understanding of the benefits that can be derived.
Your insurance broker should be able to help you organise the fitting of the device.
Evidence provided by the systems, whether it be confirmation of a vehicle’s location or the pictures captured by visual devices, can be invaluable in defending disputed liability, exaggerated or simply fraudulent claims. This cuts out unnecessary and unwarranted costs for both the insurer and the vehicle operator and is definitely a positive benefit to drivers who might otherwise be wrongly held responsible for an incident.
Bringing it all together A driver’s incident record (and it is important to know about all incidents not just those occurring during working time) and outputs from in-vehicle technology systems are only two elements of their overall driving profile. Combining this information with that taken from licence checks, details of any health issues, vehicle type driven, estimated annual mileage, results of any risk assessments undertaken and training completed, provides a more accurate indication of potential risk level. This allows the organisation to focus on those individual deemed to be in the higher risk categories. Most organisations already have a lot of information on individual drivers but don’t always bring it all together. If some of the information isn’t known, a simple driver questionnaire can be used to obtain it.
Improving the claims record of the fleet will not only lead to lower premiums but also provide a more stable platform for assessing future programme design options. This is usually a move to a higher level of self‑insurance. Purchasing cover for own vehicle damage is of course purely optional but whilst third party cover is a compulsory requirement, it is possible for companies to ‘self-insure’ a certain proportion of the risk through a reimbursement arrangement with insurers.
Apart from analysing claims data to identify adverse trends, a good insurance broker will use historical claims information to project future loss levels. This determines the most likely cost-effective level of risk retention based on the corresponding premium level offered by insurers.
This exercise is relatively easy to undertake where higher than current levels of retention are being considered, as adequate data is usually available from insurers. However, where lesser levels of self-insurance are to be assessed, data on losses within the current retention level is required from the fleet operator and it is surprising how man organisations currently struggle to provide this.
Weighing it all up
Whilst retaining more risk will result in lower insurance premiums and reduced insurance premium tax, this obviously has to be offset against the additional cost of claims that the operator will incur themselves.
Also, other extra outlays, such as increased claims handling fees or the possible need for letters of credit, need to be factored into comparable calculations.
Past loss history cannot of course guarantee what future results will be.
There is a possibility that overall programme costs may be higher if the claims experience turns out to be worse than anticipated and for this reason, ‘stop loss’ protection can usually be built into the programme, self-retention, thereby limiting the organisation’s aggregated exposure to a maximum amount in any one year.
Cost is often cited as a barrier to implementing workable and effective control measures. However, insurers are generally becoming more receptive to requests to contribute towards such cost provided they can see evidence of positive actions being taken to improve the risk. In the long term, the return on investment will invariably outweigh implementation costs and from a duty of care perspective, this is an issue that fleet operators just cannot afford to ignore.
Your insurance broker is ideally placed to work with you with these risk management issues.
Allan Briscoe is former Chairman of the British Insurance Brokers’ Association (BIBA)’s motor panel and works for Aon Risk Solutions.
