In the first of a two-part feature, Ian Jerrum offers an introduction to motor fleet insurance, focusing initially on third party only cover

Motor fleet policies provide what is effectively a blanket arrangement covering all vehicles owned by a company - often without any restriction on who may drive them. Depending on the premium paid, some restrictions will normally apply in practice, but the overall intention is administrative simplicity and freedom of use.

Insurer definitions of what constitutes a fleet vary. Some will offer fleet cover for only 20 or more vehicles. Others go as low as five.

Since underwriters rate motor fleet based on statistical analysis, the greater the fleet size the greater their confidence on pricing. This also tends to mean that insurers require a minimum three years' documented claims experience before quoting.

For large fleets underwriters may feel confident in quoting on a burning cost basis, that is, allowing themselves to be guided by the fleet's past experience alone (with only minor adjustments for factors such as inflation). But smaller groups are less predictable and insurers prefer to treat these more like vehicles in their main accounts, on a book rate less bonus basis.

Under this approach, instead of each vehicle having its own no claims discount (NCD), it benefits from a fleet discount reflecting their collective experience.

The smaller the fleet on which this discount is calculated the greater the likelihood that a single claim could leave the policyholder worse off than with a conventional non-fleet NCD. In practice the insurer's approach often reflects a combination of the two approaches outlined above.

Single policies
All encompassing fleet policies are a relatively recent innovation. Previously companies would hold one policy to cover commercial private cars and one or more separate policies for other types of commercial vehicle such as vans and lorries.

Although single motor fleet policies (even for small fleets) are increasingly commonplace today, the policyholder is still likely to receive more than one type of motor insurance certificate, reflecting the considerations applying to cars and the various other types of commercial vehicle.

Since the intention of a fleet policy is to provide administrative ease and flexibility, certificates are normally issued on a blanket basis covering "any vehicle (of a given type) owned, leased or hired to the insured under a hire purchase agreement" driven by "the policyholder and any person driving on the policyholder's orders or with the policyholder's permission".

Following the introduction of the motor insurance database (MID), however, details of vehicle changes must be advised to the database within 14 days or a fine of up to £5,000 may be imposed on the fleet operator.

As with other types of motor policy, there are four main types of fleet cover: Road Traffic Act (RTA) only, third party only (TPO), third party fire and theft (TPFT), and comprehensive. In practice however RTA-only cover is
virtually unheard of in a fleet context. Traditionally comprehensive fleet policies were relatively common, especially for higher value vehicles.

However, fleet managers have become far more risk-management aware in recent years (and can turn to accident management companies offering cost-effective damage repair services), resulting in a swing towards third party only cover. Larger fleets in particular now tend to self-insure against the more predictable and consistent own damage risks, buying third party cover only because it is legally required and/or to protect against catastrophe injury claims.

In addition to the normal features of third party motor insurance, third party fleet policies may also provide a range of other covers. These include indemnity to other persons, which indemnifies the driver and any passengers and their legal representatives should an action be brought against them for negligence rather than against the policyholder. Indemnity will also usually be extended under this heading to a principal for whom the insured is working, if contractually required - provided the claim is not due to acts of the principal or his servants.

Fleet policies typically contain a cross liabilities clause. This recognises that the insured often comprises more than one party (for example, partners in a business, holding and subsidiary companies). The cross liabilities clause agrees to treat each as if they were separately covered and protect their liabilities to one another. If, for example, one of the subsidiary company's vehicles reversed into one of the parent's, the parent could be treated as a third party.

Unauthorised movement cover protects the policyholder against liabilities incurred in the course of moving a vehicle parked in such a way as to obstruct the normal course of their business. A contingent motor extension protects the policyholder (and only the policyholder) against third party liabilities arising where an employee uses his own vehicle on company business without adequate cover in place - excluding liability cover for the owner or damage to the vehicle itself.

Typical exclusions under a third party only fleet policy include damage to the policyholder's own property, for example, the vehicle and any items carried inside, such as the driver's possessions, losses covered by any other policy, and death or injury to the driver (viewed as an employers' liability risk), though any employee passengers are covered as prescribed by the EC's Third Motor Directive.

Third party only cover also normally excludes liabilities arising from loading or unloading off the carriageway by persons other than the driver or attendant, and from damage arising from use of mechanical plant as a tool of trade (for example, a mechanical crane) in circumstances where the RTA does not apply.

Additionally third party fleet policies typically exclude indemnity for policyholders who knowingly allow unlicensed drivers to use their vehicles (though insurers are normally understanding if the person concerned has simply forgotten to renew the relevant licence).

Finally, liabilities arising from airside risks (use in areas where vehicles may come into contact with aircraft) and gradual pollution (such as a tanker leaking chemicals over a large area) are also excluded in recognition of the massive scale of the costs that could result from such claims. IT

' Ian Jerrum is managing director of Searchlight Solutions. This feature is based on materials available on Searchlight's market-leading e-learning system, Tick.

Test yourself on fleet insurance
Q1 - Insurers typically require a fleet to include a minimum number of vehicles to qualify for a fleet policy. Between which figures does this minimum normally vary?

Q2 - Following the introduction of the motor insurance database details of vehicle changes must be entered on the database within what period of time?

Q3 - What cover indemnifies the driver and any passengers and their legal representatives should an action be brought against them for negligence rather than the policyholder?

Q4 - Against what type of liability does a contingent motor extension protect?

Q5 - What piece of legislation requires that employed persons carried as passengers are covered for death or injury?

A1. Between five and 20. A2. Fourteen days. A3. Indemnity to other persons. A4. Third party liabilities arising where an employee uses their own vehicle on company business without adequate cover in place. A5. The EC Third Motor Directive