Fleet News

Insurance: time to go it alone?

INSURANCE is admittedly not the most interesting dinner party conversation and, come to think of it, not often the most interesting office conversation either.

But it is one which has to be had. After all, insurance companies are the safety net if something unfortunate happens.

Motor insurance is no exception and most fleets spend thousands of pounds every year on premiums.

Many use a large insurance broker to complete the work, paying a set premium which covers vehicles fully in the event of an accident.

However, this may not always be the most economical option and large fleets are increasingly looking to save costs by insuring their own vehicles.

How does self-insurance work?

FLEETS with hundreds of vehicles on their books may be better of opting for the self insurance route.

This means taking out third party cover with an insurance company and then paying for the remaining damage to own vehicles as and when it happens.

By law, fleets cannot self-insure third party risks so this is a minimum requirement from the insurance company.

Industry expert Colin Tourick says: ‘If you have a large fleet you may be better off paying for the cost of damage to your own vehicles as it arises, rather than asking an insurer to pay this for you. You will save that part of the insurance premium that covers damage to your own vehicles.’

Size matters

CHOOSING to self insure should depend on the fleet size. A large multi-national company with thousands of vehicles and a low accident rate would probably be more inclined to choose this route.

Stewart Whyte, director of Acfo, said: ‘If you are a software company with no or few tangible assets and only have 900 cars then it would make sense to go to an insurance company for third party cover and you deal with the cost of damage to your own vehicles.

‘Size always comes into it but it needs to be done properly with someone managing it knowledgeably, putting the cash into the system, budgeting and collecting costs.’

Fleets should assess their motor insurance arrangements annually, analysing claims history data to determine whether the current method used is the most effective.

Unfortunately there is no set formula for determining whether self insurance is the most appropriate route.

A spokesman for the Association of British Insurers explained: ‘There is no high-and-dry formula for self insuring as the type of insurance will depend on a number of factors including the size of the fleet, accident rate including death rates and whether the company offers driver training.’

Advantages

IF a self-insured scheme is managed properly and the accident rate of the fleet remains relatively low then there could be cost savings associated with self-insuring.

Tourick said: ‘It is a little surprising that more companies do not self-insure their comprehensive motoring risks.

‘If you have a fleet of more than 50 vehicles, it should be worth considering.

‘Once the fleet exceeds more than 200 vehicles the financial case for self-insuring usually becomes compelling, unless the fleet has a particularly poor accident history. The premiums saved should be ample to cover the damage costs incurred.’

This means that any damage incurred by drivers eventually affects the fleet manager and the company’s budget.

‘Compare this with the normal situation where the insurer takes the immediate pain of the cost of any damage and you only incur extra costs if your premiums rise in future years. That is not much of an incentive for you to do anything about the original issue, which is that one of the drivers may have been responsible for causing an accident,’ Tourick said.

He advises fleets to combine self-insurance with a driver training programme, a scheme which rewards good driving and penalties for each incident in a bid to keep accident rates down.

Tourick said: ‘Fleets could end up with a circle that should keep accidents down, keep costs low, keep the fleet manager and the company protected against involuntary manslaughter claims and make the roads a safer place.’

Disadvantages

A DISORGANISED fleet manager entering into self- insurance blindly could end up out of pocket.

Before any decision is made, a full audit of accident statistics and current insurance costs needs to be completed alongside an in-depth look into the aspects which must be covered if self- insuring.

Tourick said: ‘If you look at alternatives to comprehensive cover, bear in mind that there are some downsides. If you do not have comprehensive cover you will have to handle some aspects of your own claims and repairs.

‘You can sub-contract some functions but will have to pay for this service.

‘Your insurer will be getting large discounts on parts and labour costs and these economies of scale will not be available to you unless you sub-contract them to a third party accident management company.’

Fleets which have leased vehicles must also be aware that the leasing company will insist that the vehicle is insured comprehensively.

Add-ons that make self-insuring easier

MOST insurers have special arrangements with suppliers, including windscreen and tyre providers, to provide repair or replacement. This is usually included in the premium of a comprehensive policy.

So if self-insuring, fleets need to check whether this is provided by the insurance company. If not, additional policies or own funds would need to be used.

More companies are now targeting fleets with extra insurance services, such as RAC Auto Windscreens’ new glass insurance – Glassure – which launched last week.

Fleets agree a set premium with the group, which will then provide the windscreen insurance. The number of claims is monitored throughout the year and premiums are adjusted accordingly

. RAC Auto Windscreens claims its service reduces administration, makes budgeting more predictable and can reduce costs, all of which are beneficial for self insuring fleets.

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