Fleet operators, being forced to manage increased costs caused by higher insurance premiums, are having difficulty handling their budget with any degree of confidence.
It is in this field that insurers can offer their expertise in risk management, usually reserved for property and casualty programmes to assist motor fleet operators.
Fleet operators often fail to appreciate the benefits which effective fleet control can have on the fleet claims experience. Not only can insured losses be reduced, but more importantly, uninsured loss which can be five times greater than the insured element of the claim including for example the cost of hiring replacement vehicles or temporary drivers, can also be reduced.
More than that, however, effective fleet control can also make a real impact on other costs such as fuel costs, tyre wear, maintenance costs and so on. The potential benefits are significant.
Insurers' experience of fleets over the recent past has been poor. A "simple" answer to this is to push up premiums to try to keep pace with the increasing number and cost of claims. However, this is of no benefit to the policyholder who has to pay the higher premiums.
A more proactive approach is for the policyholder and insurer to get together to decide what action can be taken to reduce the number and cost of the accidents. Specialist fleet risk management surveyors can provide a fresh, independent view of how the policyholder runs his/her fleet and in many cases can come up with ways in which this can be enhanced. The survey can also be useful in highlighting the "hidden" cost of accidents, such as time that vehicles are off the road, injured employees or missed deliveries.
Thus, insurers are beginning to see fleet risk management as an important underwriting tool. If a policyholder is unwilling to embrace aspects of fleet management that are seen as potentially reducing costs, then any premium needs to be increased to reflect this.
Following a period of several years when market pricing was depressed significantly below economic pricing levels, a more realistic approach is now evolving.
Rate increases of 20% to 30% are now common and in some cases (particularly in unprofitable ones) much higher increases than these are being levied. There is also far less capacity in the market, especially for those occupations which are generally regarded as having a higher potential (those which tend to have higher than average claims costs) because they tend to be involved in more serious accidents and therefore more significant damage and personal injury claims ensue. This is the case for haulage companies, for example.
Pricing levels being achieved, however, although significantly higher than previously, are not keeping pace with spiralling claims costs and will necessitate further increases beyond current levels.
There is a marked increase in the number of injury claims, in particular we see a growing trend for third party damage claims to be accompanied by third party injury claims.
This is partly due to society in general becoming more litigious and partly because solicitors are increasingly proactive, in part out of necessity created by the Woolf reforms.
The average cost of a claim is rising significantly, particularly in injury claims. Issues influencing this increase in costs include: the reduction in the Ogden discount rate from 4.5% to three per cent and the establishment of the Compensation Recovery Unit, including the recovery of NHS emergency treatment costs.
Furthermore, there are a series of law reforms, which will, if fully implemented, have further major impact on injury awards. Included among these reforms are: a reduction in the Ogden tables discount rate to two per cent, an increase in the level of general damages of between 50% and 100% and a broader category of people with a right to damages following a fatal accident.
The ABI is undertaking a major study into the impact of various proposals which will be shared with insurers. From its initial findings, it is clear that claims costs could rise substantially with an inevitable impact on premiums. The retrospective aspect of many of the reforms adds an additional cost, as many existing claims will also be affected.
There is little doubt that further rate increases will be required and that more operators of large fleets will look for non-conventional programmes as premiums continue to escalate.
Exemplifying the growing importance of risk management in this sector, RSA has launched its Fleet Risk Management service, after two years in development. This is a service put together for brokers and their clients in response to the spiralling costs of motor fleet claims, and in particular personal injury claims.
It aims to reduce accidents, create a safety culture among drivers and ultimately reduce the costs of operating and insuring fleets. The service will also help brokers' customers to minimise hidden costs, such as insurance policy excesses and replacement vehicle hire charges, and control the obvious ones like vehicle damage and injury claims.
The company has also formed partnerships with a variety of leading service providers. These include BSM for driver training, Securinet for vehicle security and Careline Services for remote vehicle monitoring. RSA wants to move away from the price-driven solution to fleet underwriting and to help its policyholders derive real benefit from the expertise which has been developed, all RSA policyholders have access to these services at a discounted rate.
Policyholders have the benefit of a professional service designed to match their specific needs, and this means access to a comprehensive set of services enabling them to manage their fleet operations more effectively.