The fleet market’s been stuck in the garage for years and the only thing that will help, according to brokers and insurers, is higher premiums. Chris Wheal reports.
The drive to raise prices in the fleet insurance market has shifted up a gear. After several years of plummeting premiums, insurers and brokers are resisting any further cuts. Insurers are unable to make a profit, brokers’ commission has been hit hard and claims inflation is running as high as 6%.
Underwriters are demanding across-the-board rises but most accept that they will be ratcheting up the premiums for fleets with poor claims records first, while trying to soften the impact on customers with good records.
Barry Grainger Insurance, a specialist non-standard fleet broker, provides a classic example of the cuts. “There was a 25% cut in rates two years ago and further 10% cuts this year,” says David Harvey, the broker’s managing director.
“One of my clients paid £97,000 in 2006 and only £57,000 in 2008 – and that was with a few extra cars. OK, so he has had no big claims but I’ve lost £5,000 in commission.”
Harvey says it is vital premiums rise because, in his market, it is no longer possible to charge a broker fee. He relies on insurer commission.
“A 5% increase in premiums would be a six-figure sum for me. That’s money I have lost over the past few years,” he says.
Simon Baker, head of commercial motor at AXA, agrees that something has to change. “We believe the market as a whole is making a loss. In 2007 the commercial motor market had less premium income than in either 2002 or 2003 and the number of vehicles has not significantly changed,” he says.
Claims inflation isn’t helping. “Half of all claims are for personal injury and the claims inflation estimates are between 7.5% and as high as 12.5% – realistically as high as 10% a year. About a quarter of what we pay out is on third-party property damage and claims costs are rising there because of credit repairers and credit hirers getting in before we can manage the repairs and provide a courtesy car,” says Baker.
“The smallest part of what we pay out for is the cost of repairs to insured vehicles. The rises there are slower – only in line with inflation – as is the cost of replacement cars.
“Overall that means we have claims inflation of 6% so we need premium rises ‘ ‘ that are well over that. My personal opinion is that we need three years of double-digit price rises.”
Jon Dye, head of commercial motor at Allianz, is also calling for a rise in premiums.
“We are seeing signs that since last year there is a price correction coming through,” says Dye. “We have seen a 5% rise across our book in just the first six months of this year. It’s a start, but it’s not enough.”
He says that across the industry, combined operating ratios are only being held up by companies releasing reserves. And no vehicle can run on the reserve tank for long.
At least part of the problem is that newcomers keep entering the market. Harvey explains: “We’ve got somebody who has entered the market not known for fleet. They have come in with no legacy and are knocking 10 points off the prices we’ve got.”
Dye is less concerned about the newcomers, pointing to their small size. “The new entrants and the capacity they bring, while it’s not welcome, is not substantial. In the short term it doesn’t help, especially if they are trying to buy capacity,” he says.
It will mean the lower risk fleets will still be able to find bargains. But insurers are determined to charge a more realistic price to those with poorer claims histories.
“The main thing brokers can do is to convey the message to the customers that the insurance industry is not picking on them, or being greedy, but that they have benefited from low rates for the past few years,” says Baker.
Many brokers are using websites and call centres to help place small fleet business more cheaply. Ipswich-based firm Call Connection helps find motor quotes, including fleet, for 82 insurers and brokers. About 60 firms put customers through to Call Connection when they cannot place a risk quickly themselves.
The company then matches those risks against the profiles of 50 member companies that want to receive business and have stated the kind of risks they believe they can place. The caller is put through to the most appropriate choice, possibly with a back-up number of a second firm just in case.
“If I were running a company and needed fleet insurance I would want my broker to give me advice rather than just the cheapest quote.
Jon Dye, Allianz
A leading website dedicated to fleet is the Kerry London auction site Directfleetinsurance.co.uk (see box). AXA and Allianz have both placed business through the site but are concerned that brokers might do a better job themselves.
“The problem with auction sites is, how do you compare the quality?” says Allianz’s Dye. “Generally you are producing bespoke fleet policies for individual customers. It is not a commodity.
“If the client simply takes the cheapest price, where’s the view from the broker in terms of quality? What kind of claims service will the cheapest bidder provide? Does this insurer really suit their needs, not just in the short term, but are they a long-term recommendation – will they even be around for the long term?
“If I were running a company and needed fleet insurance I’d want my broker to give me advice rather than just the cheapest quote.”
AXA’s Baker agrees: “The services insurers offer do vary, but a very strong focus is on price because price is easy to compare. It is harder to compare a claims service and how much work the insurer is doing to keep down the costs of claims so they can hold down premiums in the future.
“That is where a broker can add value to the customer by advising them. One insurer may outsource claims handling and another may have invested heavily in their own claims handling, in reacting quickly and in minimising costs.
“We spend a lot of time backing clients with potential claimants, getting hold of third parties as soon as we are notified but before they have claimed, and offering them a courtesy car and a guaranteed repair, because that is so much cheaper than them going to a credit repairer and credit hirer.”
Reporting claims to a broker rather than direct to the insurer can lead to expensive delays. Insurers would ideally like to phone the third party on their mobile at the accident site and sort out recovery, a replacement vehicle and any medical treatment there and then.
Graeme Trudgill, Biba’s technical executive, says many brokers are happy to have clients report claims direct to insurers. Fleet business can take up a lot of administrative time, so brokers are also encouraging clients to do their own reports to the Motor Insurance Database set up by the insurance industry to catch uninsured drivers. All insurers must provide policyholders’ details to the database, which is used by the police.
Dye says this makes sense. “A client can do it quickly direct. What does the broker add by doing it? Brokers need to concentrate on where they can add value and get the clients to do the rest.”
He suggests brokers also look at which insurers demand new referrals for every driver under 25, for example, and which insurers don’t. All of these considerations can make life much easier for the broker, making the business better value though the commission remains the same.
Not all brokers are convinced. Jason Markham, a partner in Quotemetoday.co.uk, says he concentrates on small fleets because he has been given the runaround by insurers when pitching for larger fleets.
“You spend a lot of time putting together the pitch and go to several insurers. Then an insurer will tell you they have given you a preferential rate but you find out they have given five other brokers different ‘preferential’ rates for the same risk, all of them cheaper than they gave you,” he says.
But it is not all bad: “We have some good friends among insurers on the small fleet side as we are careful about what business we take on.”
Markham has words of warning for insurers keen to ramp up premiums. “They have to be careful in the current financial environment,” he says. “We have clients who had five or six vehicles a year ago and are cutting back to just two now. We have clients who don’t even want to pay a deposit on the premium finance because they’re so hard up. You will get people shopping around and simply defaulting on policies.”
Kerry London believes rates must rise by at least 20% in 2009. But the trick will be ensuring that premiums are raised carefully so that the clutch isn’t popped on the fleet market altogether. IT
Allianz has already added a Goods in Transit product and more related products will go online soon. Brokers are requesting commercial combined products, for example.
The priority will be to get online documentation and accounting for the fleet business first.
How Directfleetinsurance.co.uk works
Directfleetinsurance.co.uk is a live auction site for fleet risks run by broker Kerry London. It is a little like eBay, except the bids get lower each time rather than higher.
Brokers or fleet operators can post details of their risks and state the closing time for bids. Insurers then bid against each other to win the book of business. Just like eBay, bidders can ask questions and seek clarification before bidding.
There are 170 brokers registered and Kerry London says one third of those had placed risks on the site in the past three weeks. The insurers registered include Allianz, AXA, Brit, Groupama, HSBC, Highway, NIG, Norwich Union (NU) and Zurich. Quinn and RSA have yet to go live. Kerry London says it also has two insurers lined up who are looking to write fleet business for the first time.
More than 1,300 fleets had insurance placed through the site since January, with a total premium value of 1.75m pounds. About 60 risks go on the site each week and about 19% of business placed on the site is converted into a sale.
The average size of closed premiums is about 7,000 pounds, with the biggest so far topping 80,000 pounds. The smaller ones come in at about 2,000 pounds.
The site has been adopted by NU for its Club 110 of 250 smaller independent brokers, of which 30 are users so far. Allianz has already added a goods in transit product and more related products will go online soon.