Your fleet cheat sheet for rising insurance costs

In recent years, we’ve experienced what have been referred to as ‘once in a lifetime’ natural disasters – such as earthquakes, floods and catastrophic bushfires – happening far more regularly than ever before. This has resulted in significant loss of property, possessions and, sadly, loss of life. Additionally, events in other parts of the world – particularly the Ukraine – have impacted the global economy in ways too various to list. And we haven’t even mentioned ‘The C Word’ yet.

All these events have led to the insurance industry experiencing considerable stress. Insurers are starting to consider how they can recoup the vast sums of they’ve been paying out in claims, both to satisfy shareholder obligations and prudential requirements. Raising premiums is the most obvious way to replenish the insurance industry coffers.

The average premium increase in Aotearoa New Zealand has been around three to five percent with predictions that 2022 could see an across the board 10 percent jump. Meanwhile, premiums in Australia rose by just over two percent in 2020 and, according to data released by the Australian Prudential Regulation Authority (APRA) six percent in 2021.

Just like your business’ fuel bills, the cost of insuring a fleet of vehicles is something that’s always rising and it can be an endless source of frustration. Unfortunately, the reality is there’s so much more that insurance underwriters look at when calculating your premium than whether you’ve made a claim or not.

Insurance 101

Very loosely speaking ­because A): not all insurers are the same; B): calculating an insurance premium is extremely complex; and C): we’re talking in highly generalised terms here ­– there are three main areas that insurance underwriters consider when determining an insurance premium. They are (in no particular order):

1. The likelihood of a policyholder making a claim across the duration of the policy;
2. The number of claims lodged;
3. The cost to repair or replace damaged property and goods.

The likelihood of a policyholder making a claim

Insurers tend to look at the likelihood that you could need to lodge a claim across the length of your policy. The more likely you are to claim based on a range of data and analytics – like how the vehicle’s used, how old it is, and the age of the driver, as well as where and how it’s garaged or parked overnight – all impact your insurer’s assessment of that likelihood (not guarantee, mind you) of needing to claim, and that is then reflected in your premium.

The number of claims lodged

Whether it’s for vehicle, home building and/or contents, business, professional indemnity or life insurance, when you pay an insurance premium, your money goes into a giant pool with other policyholders’ premium payments. Your insurer uses this pool to pay claims. The more often an insurer has to dip into this pool of money, the greater the need to top up that pool to meet liquidity requirements to pay their policyholders’ claims. The way that insurers top up this pool is by increasing premiums.

The cost to repair or replace your vehicle(s)

Along with the number of claims an insurer receives, the actual costs of repairing different makes and models of vehicles, or rebuilding someone’s home and replacing their contents, is a factor in determining premiums. Think of it in these simplistic terms: the premium for a $320,000 to $390,000 Bentley Bentayga is likely to be higher than the premium for a $20,000 to $35,000 Toyota Corolla because of the risk to repair the Bentley poses to an insurer’s pool of funds. This also explains why some insurers reduce your premium if you choose a higher excess (i.e. by contributing more to your repair bill, the less of a drain it will be on the funds for paying claims).

The C Word: COVID-19

There are other factors at play that have led to insurance premiums increasing, with COVID-19 and global supply chain issues being the most obvious ones. Not only have shutdowns in manufacturing led to a global shortage of new car stocks, it has also led to massive delays in repairers accessing replacement parts, particularly from overseas. The scarcity is pushing up the price of parts and pushing up the cost of repairs, which invariably gets passed on to insurers who may then pass it on to customers in the form of premium increases.

Crunching the cost of your claims

When it comes to business fleets, lodging claims for little scrapes and dings can add up. If you look at the rate of premium increases, we’re approaching a point where businesses may have to ask themselves – is it worth lodging a claim and paying the excess for smaller repair jobs, or will it work out to be cheaper by going direct to a repairer?

In some instances, going direct to the repairer may be the cost-effective solution. But some policies contain clauses that give an insurer the right to deny future claims, or in extreme situations cancel your policy outright, if any repair work is done without their okay. Bearing this in mind, it’s important to weigh up this decision by checking the terms and conditions of your current policy’s coverage and talking with your insurer or broker to clarify your options.

If your policy does allow for your vehicles to be repaired at your discretion, ensure the person or company performing the repairs is properly qualified, especially for that make and model of vehicle. Look for industry-recognised certifications, and check they’re prepared to stand by the quality of their work with some kind of warranty or guarantee.

Claim-proofing your fleet drivers

One easy way to avoid making lots of little claims is to get your drivers up-to-speed with good driver behaviour. A safety-first culture in your workplace and behind the wheel of your fleet vehicles is essential for minimising incidents and, consequently, claims.

Ensuring the vehicles in your fleet are safe and fit-for-purpose is also important. Having the right vehicle for the job and having your vehicles serviced at the manufacturer’s recommended intervals can be a major contributor to minimising the number of claims that you need to lodge by identifying small issues before they become big ones.

Telematics can be a really useful tool for fleet managers to analyse the behaviour of their drivers behind the wheel. As well as providing analytics for improving operational aspects, like a vehicle’s fuel efficiency, this technology offers insights that can reduce wear and tear on the vehicle along with the risk of an incident.

In conclusion

As insurance premiums continue to rise, fleet managers are facing a choice between lodging a lot of claims for small repairs to their cars and paying the excess or going directly to a repairer and possibly keeping their premiums lower.

Whatever the decision, thinking through tactics for reducing the likelihood of dings, such as driver behaviour training and telematics, is a significant step to helping you battle the rising costs of your fleet’s insurance.

Got a lot of little claims? Check out whether DingGo could help you reduce the cost by managing your repair tendering.

Driving Insights