Risk management is key to cutting insurance premiums

There’s a simple equation when it comes to calculating insurance premiums: the better run a fleet, the lower the accident rate; the lower the accident rate, the lower the insurance premiums.

A fleet’s insurance premium reflects its ability to manage, and minimise risk. If premiums in general are going up, but you are controlling, and improving, your risk profile, then your own premium could be falling.

Ross Jackson, managing director of consultants Fleet Operations, says: “Insurance companies are looking for evidence of business’s commitment to reducing accidents and costs. Many are asking for fleet policy details and information on risk management.

“Many also now have risk management ‘partners’ or divisions. Where this doesn’t exist, premiums are becoming unattractive.”All fleets will face pressure on insurance premiums as cars become more expensive to repair and personal injury costs escalate.

Andrew Fletcher, commercial motor underwriting manager at Groupama Insurances, said: “Most fleet insurers have had an unprofitable time in recent years – they need to improve their underwriting results by increasing premiums.”

For every £100 revenue generated from motor premiums in 2006, insurers paid out £111 in claims and expenses.
In addition, accident claims costs are rising, with average parts and repairs costs increasing from £592 in 2005 to £708 in 2007.

And these are forecast to rise by a further 17% by 2013. It all has an impact on premiums.

For fleets whose accident record is in order, there are ways they can reduce premiums, such as reviewing the level of insurance taken out.

Vehicle fleets are often more over-insured than under-insured. If that’s the case, it’s worth considering self-insurance – paying for your own repairs while being covered for third-party costs.

It can reduce insurance costs by more than a fifth, but it needs economies of scale to keep repair costs down and the funding to pay for them.

Aon’s Allan Briscoe says: “Fleets can make savings of around 20% as they are not paying for the profit margin and overheads of the insurance company. But it is vital that your claims history is understood and the firm is committed to a full risk management programme.”

Jackson adds: “If risk isn’t properly managed within an understood strategy, claims costs spiral: self-insuring can become ‘under the radar’. Culture and zero acceptability of accidents is the point at which real change starts.”

Fleets can also look at increasing their excesses to reduce premiums, offsetting any cost in the event of an at-fault accident by charging a proportion of the claims cost to the driver.