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LONGTERM PREMIUM COSTS
Several changes benefit operators, says CM insurance expert John C. Vann, and they should take advantage of them in the battle against costs. Improved no claims discounts is a route towards reducing premiums for some hauliers
0 BTAINING insurance cover for a business is costly and the haulier is no exception; the more vehicles an operator runs the more it costs. Fortunately, fierce competition among insurers, tends to keep premiums at a reasonable level.
In today's economic climate a more than usually tight rein must be kept on costs and expenses, and the prudent haulier is ever on the watch to cut his bills. What can he do about his insurance costs?
Initially, let's look at the vehicle insurance scene.
What about the haulier running, say, up to five lorries? This normally takes him outside fleet rating. In recent years several changes in goods vehicle insurance have benefited users; many policies have been up-dated.
Sun Alliance last year introduced its revised commercial motor insurance policy, with wide overall cover. Its cover for damage to a third party's property is unlimited, and so is the cover for manslaughter defence costs. Accessories and spare parts are covered in the vehicle or garage.
Sun Alliance improved its no claim discount (ncd) scale, going from 15 per cent after one claim-free year by stages to 40 per cent after four. A step-back discount provision (as applies under most private car policies) has been brought in whereby one claim leads to only partial loss of a discount earned over three or four years — and even two claims do not "kill" a four-year discount.
As an example, if you are earning 35 per cent after three claim-free years, your need is reduced to 15 per cent following one claim. But if you happen to be on 40 per cent, your need will only go back to 35 per cent after one claim and to 15 per cent after two claims.
Norwich Union surprised the market when announcing its re-vamped goods vehicle policy because of the attractive no-claim discount scale. Twenty per cent discount is achieved after one year's claim-free driving, rising by 10 per cent a year to 50 per cent after four years. In the event of a claim, only two years' entitlement is lost — 50 per cent reverts to 30 per cent and 40 per cent goes back to 20 per cent.
For new policies where, say, a haulier has just acquired his first vehicle, Norwich Union will give an introductory discount of 15 per cent if the main user is over 24 and has an accident-free and conviction-free record during the previous 12 months. This discount also applies in the case where an extra vehicle is included under an existing Norwich Union policy.
These improved no-claim discounts could be a means of reducing premiums for some hauliers. Another route for a premium discount is by way of a voluntary excess. For instance, Allstate Insurance offers a discount of 10 per cent if you are prepared to bear the first £25 of any accidental damage to your vehicle, with 15 per cent for 150 and 20 per cent for 1100.
With a voluntary excess watch that the figure is added to any compulsory excess which might apply. For example, when a driver under age 21 is at the wheel, you will be called on to pay the first, say, £50 or more for own damage — on a compulsory basis. If you have a voluntary excess as well, you could be meeting the first £75 or a much higher amount if damage occurs. Now we can focus attention on fleet insurance. Sun Alliance treats five to 12 vehicles as a minifleet. To make up the number there can be any combination of commercial vehicles and private cars. For rating purposes, experience is considered over a five-year period, and the mini-fleet discount can exceed the collective no claim discount — reaching 70 per cent for some renewals.
For a large fleet owner there may be a little point in buying insurance in the conventional way. It may be better to meet repairs and third party claims as they occur, with a form of insurance as a long stop — to provide protection in case claims in the aggregate should exceed a predetermined figure during the year. Dependent on the fleet, it may be decided to meet the first, say, £500,000 of claims in a year, with "stop loss" protection being provided beyond that figure.
An insurance company, with its network of engineers, contacts with other insurers and so on can be used to handle claims. It could be useful in handling third party claims and in making recoveries from others or their insurers.
Under fleet insurance in particular, the premium charged depends to a large extent on the claims record over the past three years (or five years in some cases). A poor record will usually involve a heavy premium loading.
Not all that long ago the Royal Society for the Prevention of Accidents (RoSPA) aimed a campaign at commercial operators, based on the concept that better driving saves money.
If normal standards of good driving are followed, the result in cost terms will be fewer accidents, less damage in those accidents which do occur, lower insurance premiums, less wear and tear on components such as tyres, brakes and clutches, longer drive-train life, better fuel consumption, less driver and vehicle downtime, and fewer fines and timewasting court appearances.
One company running a 30-vehicle fleet of articulated lorries estimated that it made a net saving of more than £68,000 over three years by going all out for defensive driving.
Carrot-dangling usually works wonders. The offer of worthwhile bonuses and/or other perks for a year of accident-free driving encourages drivers to be safety conscious.
RoSPA courses on defensive driving consist of a day's classroom theoretical tuition and a day's individual practical instruction.
Although vehicle insurance is a major item on the insurance list, the wise haulier will arrange other insurance cover — in fact, employers' liability insurance is compulsory if there are employees.
For this non-motor cover, combined insurance policies for businesses have been in vogue for many years, and usually referred to as package deals.
I cannot now run through all the combined insurance contracts on the market. Instead, let us consider a new package policy aimed at industrial and commercial businesses launched recently by Sedgwick UK, the UK's leading insurance broker, under an unusual name — practical insurance.
"We aim to provide our clients," said a Sedgwick spokesman, "with a service that is functional, efficient, skilful and experienced — in a word, practical".
Sedgwick has operated a combined in surance scheme for some years, but this new contract has several improved benefits and a more effective administration system.
"We've analysed very carefully the needs of clients buying general insurance cover," the spokesman continued, "and we believe that their need is for a policy which is broad, clear and cost-effective. This is a formula which sets competitive premiums opposite a tailored approach to our clients' insurance requirements — and that is basically the key to our practical insurance concept."
Sedgwick's claims that its practical insurance contract offers the widest cover potential available in the insurance market, allowing tailoring to specific needs.
"Additionally," added the spokesman, "the premium charged has been proved to be competitive in the general insurance market by virtue of the spread of insurers involved."
The practical policy is the end-product of the "package" process. It is designed to provide cover for damage to property, for consequential loss, employers' liability, public liability and products liability, worldwide goods in transit, employee infidelity, motor, personal accident, engineering risks, statutory plant inspections, legal expenses, and directors' and officers' liability. All this cover comes within one policy, placed with one insurer (as appropriate), to minimise insurers' disputing liability, gaps between individual policies, and loss of purchasing power caused if an account is spread through the insurance market.
Although there is a basic package wording, each practical policy is tailored to suit the requirements of the individual client, says Sedgwick. For any haulier the basic package policy would be amended as necessary for the particular company concerned. In addition, there is a wide range of options under every section to ensure that a client's business is adequately protected.
What about accounting? Basically, only one invoice is issued each year. Wherever possible, any additional or return premiums arising during the year are incorporated in the following year's renewal premium. This cuts administration to the minimum.
While it has been possible for many moons to pay life assurance premiums on a monthly basis, the old tradition has been that non-life premiums are paid annually. This is not always convenient, bearing in mind cash-flow problems. Many non-life insurance companies now accept instalment premiums. Some insurers allow premiums to be paid over five months, whereas others spread the payments over as many as 12 months. Interest charges are modest, so there is a great demand from policyholders to pay by instalments.
The main long-term method of containing overall insurance premium costs is to keep claims at a minimum, which calls for sound management.
Defensive driving is needed, and this safety approach needs to percolate the whole outfit. Keep a watch on all security measures; install the right locks on doors and windows and provide an adequate number of fire extinguishers. There is much more to it than just providing proper servicing and maintenance for vehicles. Everybody should be involved and think in terms of safety. Is this too much to hope? I hope not — not in 1985.