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I nsurance is a legal necessity for hauliers, and one that

6th July 2006, Page 53
6th July 2006
Page 53
Page 53, 6th July 2006 — I nsurance is a legal necessity for hauliers, and one that
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Which of the following most accurately describes the problem?

takes a big chunk out of the hank account, Typically it can cost a 10-vehicle operator between £2,500 and ki5,(X)0 per vehicle per year, the sort of money that no small business likes to payout. So the question for many hauliers is how they can minimise their insurance premiums while retaining the cover that they need: an excess can sometimes he the answer.

The concept of an excess is straightforward enough: it simply means the amount that the insured party will have to pay out before they make a claim.

Industry standard

For the majority of operators. this arrangement makes sense. Indeed, most have little choice.Terry Marshell, m anaging director of Anthony Jones insurance brokers, points out that a £250 excess per vehicle per year is the industry standard and that it is usually written into the policy.

"There isn't a product available I know of that will give you a policy free of excess. Excesses are a fact of life," he says.

Deciding how much of an excess to have is a straight trade-off between the size of a premium against the potential of having to make a claim, adds Marshell.

Grahame Cook, of RHA Insurance Services, says: 'Most people will take an excess because it makes economic sense for them to do so.They have to calculate how much risk their business can afford to bear and whether any claim they might make would put up future premiums hy more than the claim itself" So the real question for most hauliers is not whether to have an excess, but whether to increase it in order to cut their annual premiums. Cook estimates that a haulier paying a total annual insurance premium of L30,000 on 10 vehicles with a £250 excess per accident could cut this premium to £27.(XX) if the excess was doubled to £500.

He explains:"The haulier has to consider whether they are likely to make more in claims than.they would save on their premium [by increasing the excess]."

The answer to that is likely to depend on what type of work the haulier does.A haulier who is engaged on long-distance work using mostly motorways will probably have fewer accidents than one operating a higher number of shorter trips.

"To decide what you are going to do with insurance, you really have to look at the profile of a fleet," says Cook.

To keep your insurer happy, it is also worth remembering that insurers are not keen on companies that make lots of little claims— even if the total amount comes to no more than one large claim.

Cook says:"From the insurer's point of view, a minor accident could just he seconds away from a major accident. If an operator is suffering from a lot of small accidents. the insurer will feel that a major accident may be just around the corner."

Rising premiums

Lots of claims also mean that future premiums will rise, so firms that have lots of small accidents may be best off trying to avoid them in the first place rather than minimising their insurance excess.

Cook says:" We had one client who had lots of small accidents: when we looked at why, we found that most of them were happening when the trucks left his own depot — it was in a very congested area.The client got around it partly by giving warehouse staff incentives to help direct trucks moving around the yard. Accidents went down, so the problem became more manageable."

Avoiding accidents may be a good way of keeping costs down, but nobody is going to avoid premiums completelyThe good news is that they are historically low at the moment, perhaps due to competition between insurers. Some owner-operators are getting annual comprehensive insurance for below £2,000 for a 44-tonner,the lowest figure for many years, although brokers warn that rates are now likely to rise again over the next three or four years. The relatively low level of premiums at the moment is an important factor in deciding whether to increase an excess.This is because the discount on an excess is generally given as a percentage of the annual premium, so a 10% saving on a £5,000 annual premium for increasing your excess from £250 to £500 is a lot more in absolute terms than a 10% saving on a £2,000 premium. Increasing your excess today may therefore be less attractive than it was five years ago.

Standard policies

In reality, most smaller owner operators stick to standard policies with a £250 excess and usually they are sensible to do so. It is larger fleet operators who are both willing and able to bear accident costs themselves who tend to have the larger excesses— some are happy to accept excesses of £10,000.

Cook says:"Most hauliers are family-sized businesses that can't afford to take on the risk within their own balance sheet, so they will stick to standard policies with a £250 excess."

And if the size of the haulier is important in determining its attitude to insurance, the nature of its business is even more so.

Martin Ecott,divisiona I director of Heath Lambert, the broker for members of the Freight Transport Association, says: "It's not just the likelihood of an accident that matters with insurance; it's the likely consequences. If you are carrying milk the consequences will probably not be as had as if you are carrying hazardous goods."

No amount of excess is likely to cover the potential third-party consequences of a hazardous cargo accident, which underlines one of the major reasons why insurance is a legal requirement — not just that it might help pay for a new truck after a major accident, but because it might need to cover any damage your vehicle might cause to someone else.

Third-party claims are the stuff of bad dreams for insurers, says Econ.

"Supposing," he says,"a truck ran into a coach carrying the Arsenal football team. Imagine the potential damages."


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