The Old Method of Insuring Commercial Fleets
When it comes to commercial insurance, organizations operating small- to mid-sized vehicle fleets have traditionally been at a disadvantage when compared to companies managing larger fleets. The reasons are simple. Larger organizations often receive preferential treatment from insurance carriers because they pay more in premiums. More dollars means more attention.
This is common sense. Historically, insuring the fleets of larger companies has come at a lower risk to the insurance company because a large company possesses a greater ability to employ higher deductibles to absorb more of the costs associated with accidents. Many times, these large fleets also leverage their size and propensity for lower risk by shopping multiple carriers for coverage—translating into even greater savings. In many cases, deep discounting occurs because the carrier wants to boast that it insures a well-known company. However, price competition also ensues because it is often more attractive to insure a larger fleet where premiums almost always exceed claims payouts.
Smaller Fleets Need to be Heard
Large corporations also present a better story to insurance companies than smaller ones via the vast resources they are able to invest in their fleets. This investment can manifest as formalized programs for safety, training, maintenance or through the leveraging of leading edge technology. Also, the larger size of the risk equals a larger premium for the carrier. Many times, this results in large fleets receiving additional loss control services and value-added benefits from the carrier. All are designed to keep insureds happy so they want to renew year after year with the same insurance provider.
While smaller fleet operations may do some of the very same things the big guys do, they very rarely get to tell their story since, in many cases, it is too expensive to send someone out to assess the company, their exposures and more importantly, their capability of controlling their exposures to loss. In essence, many smaller companies are paying fleet insurance rates comparable to those of the larger companies they are chasing. Unfortunately for smaller fleets, the significant strides they have made in recent years to better protect their drivers are going unrecognized.
Usage-Based Insurance for Commercial Fleets is Coming
However, times are changing. Usage-Based Insurance (UBI) has been available to the consumer market for several years now. Progressive Snapshot® is an excellent example of this behavior-based solution. And now, commercial fleets are warming up to the concept. If a small fleet operator wants to secure more control over his insurance costs, he will soon have it in the form of usage-based insurance pricing.
So how does it work? The process is pretty simple. All an organization has to do is agree to plug in a small device under the steering wheel of each company-owned vehicle. This black box device will collect a variety of usage data including:
- Mileage (including trip mileage and overall distance)
- Where vehicles are driven (e.g., approved zones vs. off-limits areas)
- When vehicles are driven (i.e., time of day, day of week and month of year)
- How vehicles are driven (e.g., harsh cornering, hard braking and rapid acceleration)
Conventional factors such as age of your drivers, the location in which the vehicles operate, and your drivers’ past driving history will still be documented. However, when all of this data is combined with the proof that your drivers are operating their vehicles safely, your organization realizes tremendous leverage on insurance premiums.
Many studies have already been conducted and the message is clear. Driver behavior is the biggest variable:
- Driving behavior is the most predictive risk factor and is more than 200% more predictive than fleet insurance claim costs or any other factor.
- Drivers exhibiting the highest-risk driving behavior have insurance claim loss costs that are approximately 2.5 times higher than drivers demonstrating the lowest-risk behaviors.
Usage-based insurance is the missing link that will help smaller fleets take charge of their insurance costs. It’s also a business model that will help insurance companies reduce the number of claims filed by smaller fleets – a welcomed shift in a market where payouts often exceed premiums. Empowering smaller fleets with usage-based insurance telematics technology will not only lead to maximized bottom lines but also will pay daily dividends in the form of safer and more productive drivers.
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