How to handle a high(er) excess motor policy

How to handle a high(er) excess motor policy

In the hard market, clients will often be faced with rising premium costs and look for advice from their broker as to how best alleviate these pressures.

When a client is considering less cover or an increase in their excess, both opportunities and challenges will present themselves for brokers.

Taking higher levels of self-insurance, by increasing excess levels, will be the most common strategy of managing these premium increases.

With an increase to the basic excess on commercial motor policies, the first and obvious outcome is generally a premium saving. Primarily the saving comes about because the projected claims cost for the insurer is reduced.

However, when a client selects a higher excess they forgo not only the “insurance risk transfer” of the amount of the excess – i.e. now self-insuring from a traditional excess level of say $500 to the new excess of say $5,000, but also a raft of benefits that a lower excess policy provides.

Most policy wordings in Australia will generally include often overlooked and behind the scenes services, such as:

  • Management of recovery from at-fault third parties
  • Accident repair assessments
  • Repair guarantees, and
  • Defence of frivolous third party demands when the insured is alleged to be at fault

Typically, the client who elects to take a higher excess to save premium is the one incurring claims and would benefit most for the loss-handling services provided by an insurer.

Therefore, when a client does elect to take a higher excess, the question needs to be asked – Who will be performing these tasks that were previously provided by the insurer and paid for within a policy premium?

Some, if not all of these tasks may be able to be performed by the:

  • Client
  • Broker
  • External loss assessing or claims adjusting firm
  • Law firm of the clients choice, or
  • Insurers

There will be a cost associated with the client outsourcing these services – larger brokers are now commonly offering most of these services in their “value add” proposition.

Depending on the style of the client, they may be quite capable of undertaking some of these tasks themselves as well as, or even better than, their insurance provider and only need to use an external party in some circumstances.

Clients who operate a fleet as a core function of their business will generally be able to manage accident repairs either in-house or with their favoured smash repairers. They may not however have in-house expertise in dealing with and negotiating with third party claims or recoveries. On the other hand some clients will have sound in-house legal and commercial expertise to handle third party disputes, but not the motor trade skills to manage the repair process.

A key consideration when determining an appropriate higher excess level will be the expected number of additional self-insured incidents and establishing what claims handling procedures may need to be put in place.

Smaller clients moving to a higher excess for the first time may only have a fraction of the self-insured incidents of a large fleet with significant claims frequency. Large fleets however, typically have internal fleet managers and review yearly their level of self-insurance and associated loss handling.

Most fleets of 25 – 50 units will likely have around 4-8 extra self-insured incidents to manage if they move the excess from $1,000 to $5,000.

These low numbers do not warrant there being a robust loss-handling system put in place, but rather need the broker to be able to respond quickly to client requests for things such as:

  • Providing written market valuations on vehicles
  • Conducting and reporting on an independent assessment of a repair quote (of either the clients damage or a third parties demand),
  • Producing Pro-forma Letters of Demand and Denial

Maintaining records of self-insured losses is very important. In future years, if a client seeks to reduce the excess level, prospective insurers will want to understand the exposure represented of losses below the expiring higher excess level.

Incident reporting and recording should be maintained as though an accident was a traditionally insured loss – have incidents or claim forms completed and retained, and take photos! This information will prove vital in third party recoveries and negotiations on fault.

In the hard market, moving a client to a higher excess policy is an entirely appropriate approach for the skilled broker.

Utilising some of the tools mentioned in this piece, they will be able demonstrate the role played in recommending not just what cover a client may buy, but what the considerations are of buying less cover and as a result taking more self-insurance.

Fleet policies or individual covers???

Fleet policies or individual covers???

Fleet owners with more than 20 units will overwhelmingly purchase Fleet Motor policies with comfort in the security these very broad policies provide. For clients with smaller unit numbers, 5, 10 or even 20 units, the decision of moving from individual policies to a Fleet cover, will require the broker to carefully advise the client.

It is very tempting for a broker to encourage a client’s move from individual policies to a fleet policy covering all of the insured’s vehicles under a single policy. Initially this seems beneficial as there may be overall premium savings, and a reduction in the administration workload seems worthwhile.

But there can be a sting in the tail that brokers should alert their clients to when considering moving to a fleet!!

Many clients or their brokers have the arduous task of managing individual policies with due dates scattered throughout the year.

Each of these policies will have a per vehicle claims history rating, some vehicles on maximum no claim bonus, some on lower ratings if they have been acquisitions or suffered claims.

Some individual policies will even include no claim bonus protection benefit – where the unit will maintain its maximum premium discount even if it has claims.

The coverage under individual policies are generally of a fairly high quality (the Insurance Contracts Act prescribed contracts stipulates minimum standards which are generally offered), but overall, they will be inferior to a Fleet wording.

Fleet policies provide generally broader benefits, including automatic additions cover for purchases and a raft of possible extensions i.e. principles indemnity, employee’s vehicle cover. The administrative ease of a common due date is also of great value to most clients.

Fleet policies are primarily underwritten based on their loss history. Very simply, the fleet premium will incorporate most if not all the clients cost of claims.

Clients can, however, after a couple years enjoying their new fleet policy, find that the impact of their losses far outweigh the benefit of broader coverage and ease of administration!

Under individual policies the premium no claim bonus impact will be the same for $2,000 or $15,000 claims. And if a lifetime no claim bonus is in place, these losses may not result in any premium variation at all.

Whereas under a Fleet policy the premium rating will expect the client to pay back that loss whether $2,000 or $15,000 over 3 or 4 years.

Premium impact under an individual policy may be a move from say a 60% NCB at $700 per unit to 40% at $1,000. Under a Fleet rating the full impact may see the per unit premium increase from the $700 premium to $2,000 per unit.

An insured can’t hide from their loss history under a Fleet policy!!

When this applies to a fleet of 15-20 vehicles producing premiums of $30,000 to $40,000 it can be very tempting for the client to consider returning to individual policies and purchasing from the numerous direct online insurers.

A previous article by Fleetsure on re-evaluating a client’s fleet tender outlined some of the strategies that may be considered during the fleet renewal process – see link Broking Commercial Motor Accounts in a Hard Market.

Emerging Motor Risks

Emerging Motor Risks

The Australian Commercial Motor Insurance market is facing a series of emerging risks – some global and others unique to Australia. Brokers can help clients identify these risks and assist clients in understanding the impact these exposures are having on premiums.

Kangaroo Impact – with much of eastern Australia now in drought, impact collisions with kangaroos have and will continue to increase significantly. The presence of kangaroos, even during daylight hours grazing or moving along the roadside is much more common than in usual seasons. As well as country areas, outer urban areas now face a much greater risk of kangaroo collision. As an aside, European car manufacturers faced the unusual problem of writing software for Vision technology that could identify the unusual spring of the kangaroo, not just the 4-legged gait of deer and other northern hemisphere animal risks on the road. These same technologies that make vehicles safer, also result in much more damage from front or side kangaroo impacts. Skipometric, or macropod metrics indicates that the increase in these losses will continue.

Flash Tradies – The Fringe Benefit exempt status of utilities driven by many business people has seen a huge take up of “luxury utes”. The Hilux SR5 once the king of the high-end utility market, is being challenged at a similar price point by the “Euro-ute” contenders – VW’s Amarok and now the Mercedes Benz X Class. Insurers and brokers will have to deal with the repair cost impact of these very prestigious brands becoming much more common in fleet schedules. The days of $700 premiums for a tradies ute are gone along with the Australian made Holden and Falcon utes.

Theft of Exhausts – targeted theft of expensive catalytic convertors in exhaust systems, notably in Isuzu trucks, has increased dramatically. Thefts from truck yards of numerous exhausts has seen many claims of tens of thousands of dollars – a single unit can cost up to $12,000 to replace. A simple way to mitigate this risk has seen owners starting to spot weld the attachment bolts holding the exhaust units in place.

Metal Fatigue in ageing concrete pumps and reach stackers – many of the units imported to Australia a decade ago are starting to experience collapse losses from metal fatigue. The quality of metal alloy being used in certain countries of manufacture, while keeping original prices down, has seen a reduced life span of the machine and often experiencing collapse losses as the items age. Most insurers have now identified these units and cover is becoming harder and harder to source.

Traffic Control & Attenuators – the widening of existing motorways and new tunnel projects sees a huge amount of road work being undertaken alongside busy high-speed roadways. Attenuators (vehicle mounted crash barriers) used for protecting areas around road workers are becoming commonplace in the fleets of many civil and roadwork related accounts. These units are designed to absorb the impact of crashes and are a very cost-efficient way of avoiding injury and saving lives. However, these crash magnets are expensive to fix after being hit by a speeding car!

Free WindscreensThere is no such thing as a free lunch!
Excess free windscreen claims have historically had little impact on overall fleet claims costs and in turn premiums. Until a few years ago windscreen claims were generally a few hundred dollars, hence the excess free benefit being provided by most insurers. Windscreen supply companies have for years said to clients “claim your free windscreen from your insurance policy”. These replacements were usually undertaken without alternative quotes being obtained or an assessment process. With many vehicle windscreens now having inbuilt vision, temperature, light and rain sensors, replacement and claim costs have increased from a few hundred dollars up to a few thousand dollars in many modern & most luxury vehicles. These larger repair costs have a direct and substantial effect on premiums.

Free Hire CarIt was your fault so I want a free hire car!
The supply of Hire / Replacement vehicles to innocent third parties, has seen the birth of an industry (Credit Hire) of often unscrupulous vehicle providers who are attempting to gouge the “At fault” clients insurance policies. In addition to Third Party demands for repairs of their vehicles, demands are now being made for Hire Costs from Credit Hire Companies for replacement vehicles at exorbitant costs. Whilst most clients and the entire insurance industry happily accepts the liability for the fair cost of “making good”, the emergence of the gouging by vehicle providers is creating an unprecedented expense that will be built into premiums. We recently received a demand for a $45,000 car hire following damage to a 2014 Audi Q7 – the hire cost alone surpassed the pre-accident value of the damaged unit. The impact of these type of rorts will be ultimately factored into insurers pricing.

## Skipometric analysis is not a real thing 😊

Tips on presenting increased motor premium terms to your client

There is no doubt that the commercial motor market has hardened and brokers will be presenting premium increases to clients.

The following tips will help in preparing your renewal report or client visit.

  1. Early communication – don’t be delivering surprise bad news only a week or two before due date.
  2. Year on year comparisons – make sure the client knows what the per unit premium cost or % rate for the last few years (ideally 5) has been – it had to go up at some stage!
  3. Understand any change in the make of vehicles in the fleet. Are expensive to fix European brands becoming much more prevalent in your client’s fleet for example?
  4. The sniff tests? – how much should you really pay to insure a $50,000 Ute or $100,000 Rigid Truck? It’s a lot more than $750 & $1500.
  5. Should check quotes be obtained, even if the premium is coming off a very low expiring base?
  6. Offer alternatives – options with different excesses may be worth considering.
  7. The client’s Loss History is the key driver of premiums and analysis of current data for the last few policy years is crucial. Remember to factor in yearly fleet number size when considering loss trends.
  8. Understand what external factors are pushing up premiums across the board, that your client will have to share –
  • “Weather events – floods, cyclone, fires
  • More congested roads
  • Large infrastructure exposures – such as tunnel accidents
  • Safer, yet- more expensive technology in vehicles
  • Replacement of, instead of repairing vehicle components

Also see this link to Broking commercial motor in a hardening market

Now more than ever the Fleetsure offering of consistent accessible expertise is of value to you and your client.

Pick up the phone to our underwriters now!

Broking commercial motor in a hardening market

Broking commercial motor in a hardening market

picture1Things are getting tougher, and brokers need to know some alternatives to protect their clients

Premiums in the commercial motor market are taking a sharp turn upward, and brokers are being faced with an entirely different set of propositions for their clients.

These premium increases are now a reality across most accounts –not just for clients under distress in short-tail classes – and provide brokers with both challenges and opportunities.

Pricing on commercial motor has recently been greatly impacted by the prudential regulator raising concerns about insurers’ underwriting losses. The message of “fix the book or allocate more capital” is very clear.

There have also been significant changes in and to market participants.

The repricing of a couple of insurers’ big motor portfolios that were acquired a few years ago, and the exit of a player adds to the brokers’ current challenges of offering palatable pricing terms to their clients.

It’s a much more difficult conversation to now have to explain a premium increase when for a number of years’ brokers have been able to offer year-on-year rollover or reductions in pricing – even when clients had less than ideal loss histories.

In the soft market a change of insurers may have been required from time to time, but the same levels of premiums were able to be maintained.

As insurers take action to correct unsatisfactory loss ratios, badly performing accounts are being exposed to increases, restrictions in cover or even, in some cases, declinature of renewal terms.

At the same time, well-performing business is being aggressively fought over as insurers try to maintain market share all while jettisoning what they regard as poorer business.

A lot of premium increases are simply corrections back to sustainable pricing that for various reasons was ignored in the past few years

The reasons for increases may be due to any of the following:

  • Previously under-priced
  • Insurers exiting segments
  • Blowout in claims costs
  • Blowout in claims frequency
  • Increases in fleet size
  • Moving from no-claims bonus rating to fleet rating.

Depending on the underlying cause/s of the premium increase, the broker’s strategy to meet the client’s expectations will need to be determined.

When a client faced with a 20-40% premium increase asks, “what else can we do?”, the broker should have a few options available.

Clients usually expect their brokers to undertake marketing exercises to obtain alternative quotes when significant premium increases are tabled. But marketing business to insurers is also now happening in a different environment.

As insurers become inundated with quote requests, the preparation and format of the quotation slip will determine how much attention an account is going to get from a busy underwriter.

A slip with a cumbersome 18-page PDF schedule, for example, will receive a less favourable approach than a slip with usable data provided in an Excel attachment would.

Slips with past underwriters, claims history, fleet size history and details on vehicle usage are more likely to go to the top of the underwriter’s pile.

Utilising fleet questionnaires for distressed accounts will also become more important. In previous years, very competitive terms were often available on very scant and often outdated underwriting information.  Today accurate and current exposure profiling is key to gaining the attention of prospective insurers.

Other premium containment options that will help demonstrate a broker’s ability to think outside the box include:

  • Reduce sums insured – but be careful of average clauses in some of the antiquated policies that still have this trap.
  • Reduce to third party only – be careful of financed vehicles.
  • Increase excess – be careful of claim-handling of “just above excess” losses

The broker’s ability to offer and explain different policy structures is vital.  Burning Cost and Aggregate Excess polices [see panel] which have not needed to be considered when very competitive full risk transfer flat premiums were available will now become more common.

In the vast majority of cases a traditional flat policy structure, often with the holding insurer although at increased premium rates, is the likely renewal option that clients will take.

If a holder broker doesn’t consider these options, they should be aware that attacking brokers will certainly discuss them with the client.

 

Burning cost policies:

The client will pay a deposit premium that is then adjusted with a minimum and maximum band using an agreed formula, driven by the overall claims cost of the policy.

For example:

The deposit premium is set at $200,000; with a maximum premium of $250,000; and a minimum premium of $150,000 (adjustable at, say 100/70). This level will vary between insurers based on commissions, costs required returns and the like.

Therefore, whatever the claims amount to, the premium will not be higher than $250,000 or below $150,000.

A good way the broker can explain this arrangement to the client would be to point out that for every $70 in claims the client would pay $100, but no more than $250,000 or less than $150,000 in total.

Putting it another way, due to its variable nature, the client can have some added ownership over this (burning cost) premium and share in the overall cost as compared to a standard flat premium depending on what their claims are like.

Key burning cost buying decisions to consider:

How high is the maximum premium compared to a flat premium? So, what is the worst-case scenario?

How low is the minimum premium compared to a flat premium – In other words, the best-case scenario?

It’s good for clients who have had an unusually bad recent loss history.

Advantages:

The premium could possibly be lower.

There is a clear incentive to minimise claims cost.

Disadvantages:

The premium could be higher, and as it will be generally collected at the end of the policy year it could affect cashflow.

Not only that, but it may be harder to arrange premium funding.

 

Aggregate excess policies

This is a good option for clients who have the ability to handle losses themselves and have a fairly consistent loss history.

The client pays a lower premium but pays the first agreed amount of losses incurred in the policy year. This amount is in addition to the standard excess that applies to each individual loss.

For example:

The premium is $120,000; the aggregate excess is $100,000 per policy period; the inner deductible (standard excess) is $1,000 per incident.

The client pays the $120,000 premium and then will have claims paid after he has paid $100,000 of his own losses (excluding the excess per incident).

Advantages:

  • Lowered upfront premium.
  • The client has a large incentive to minimise losses.
  • The client has a large incentive to a be key part of the repair /claim process.
  • Repair costs are generally lower if the client deals on a “cash basis” with a repairer.

Disadvantages:

  • Cashflow if the client has large losses early in the term of the policy.

 

Fleet Risk Management

Fleet Risk Management

Fleet Risk Management can deliver a measurable benefit to brokers and their clients by identifying key problems, recommending changes and supporting with business enhancements.

Many companies monitor their business operating performance and profitability, and are comfortable with setting business targets. Fewer organisations will include safety performance as part of their business monitoring. What is even less common is businesses going above these standards to include the safety, performance and financial accountability of their motor fleet.

Here we will look at some of the aspects that highlight both good and bad traits of a typical motor fleet along with some methods which can be utilised to improve on or reduce any shortcomings.

Fleet Performance Management involves regular reviews of events involving work vehicles, and assessing incident reduction measures. It incorporates a number of risk management techniques and measures, ranging from loss reduction goals, incident investigations, analysis of events data and statistics, management of insurance, and specific driving related performance gauges.

The Board should also be made aware of the fleet loss performance and actively promote incident prevention controls ensuring there is a top down approach.

When analysing a motor fleet, an insurer will generally try and identify and categorise the following aspects:

Positives

  • Regular reviews of crash data and fleet safety, reports submitted to Senior Management/Board
  • Cascaded responsibilities to departments within the organisation.
  • Higher “self-insurance” like higher excesses which helps encourage better internal incident prevention.

Negatives

  • Below average results in audits of fleet performance.
  • Infrequent reviews of loss/claims /incident results.
  • No specific targets to reduce numbers of incidents.
  • Unco-ordinated approach to managing the fleet from a safety perspective.

To help create measureable objectives and Key Performance Indicators for Drivers in respect of fleet safety and crash reduction the Company can:

  • Implement Driver Incentive Programs
  • Encourage a suitable culture within the organisation to promote crash avoidance
  • Introduce Fleet Safety Guidelines
  • Establish regular reviews of claims/crash data to establish trends, and identify suitable intervention measures, like a targeted loss reduction.
  • Develop a Methodology for Determining the Preventability of Accidents

Overlaying the specific methods above with more holistic measures like those listed below will help ensure a well-balanced and robust fleet management platform:

  • Seeking approval from the Board, and submitting analysis reports on a periodic basis.
  • Involve the skills of Senior Departmental Management, Safety Officers and Fleet/Maintenance Managers.
  • Review of the organisation’s “risk appetite” and review deductibles/excess, insurance cover etc.
  • Develop methods for Reporting, Recording and Investigating Motor Vehicle Accidents
  • Conduct Self-Review of Management Responsibilities for Fleet Safety.

We will expand on these topics and techniques in future newsletters, but this overview should go a long way in helping to improve the safety of your motor fleet, but more importantly your drivers.

Importance of Driver induction to Fleet Safety

van

Setting the expectations for drivers through orientation and an initial training process is the basis for fleet safety.

Sedan & light commercial fleet vehicles are one of the largest contributors to work-related death and injury across the country. Yet, Occupational Health & Safety data suggests this is one of the least well-managed areas. 

Any new employee, who will drive a company vehicle, should be given a formalised orientation or induction to provide training and outline the guidelines on the use of the vehicle.

Safety has to be integrated into operations to minimise the impact of both direct and indirect costs. Keeping drivers safe and on the road increases profitability and minimises the “soft” costs of doing business.

The true costs of accidents to organisations are nearly always higher than just the costs of repairs and insurance claims. 

The benefits of managing work-related road safety can be considerable, no matter the size of your clients business.

Complying with road laws is not necessarily a guarantee of optimum safety and this should only be considered a minimum safety standard. Industry best practice should be the goal.

Potential losses from a vehicle crash can be financially and emotionally devastating to both the employer and the employee.

The major benefit of an orientation program for drivers is to clearly set out the framework surrounding the use of vehicles on company business.

Other potential benefits of an orientation process:

  • First opportunity to let employees know safety is the main priority
  • Employees can meet other team members, which can help build loyalty
  • Learn job task performance methods the safe and correct way to develop employee productivity

Orientation courses not only send a clear message from management on the importance and value of the fleet safety program, but help articulate the company’s overall safety program as well.

During the session, employees should have an opportunity to ask questions and clarify any aspects of the company’s fleet program they are unclear on.

The orientation program should be well defined and formal, with objectives of the session explained to the participants.

At a minimum, the following topics should be covered:

  • Permitted use of the vehicle
  • Required licence type
  • Acceptable driving record
  • Prohibited actions
  • Defensive driver training
  • Mobile phone use and related driving policies
  • Accident procedures
  • Vehicle garaging
  • Maintenance responsibilities
  • Security procedures where required

All staff who have access to a company vehicle or otherwise drive on company business should attend a driver orientation program. If training is not provided, new employees can be left to rely on casual training from fellow employees for required information or worse still, learn through a costly process of trial and error.

Providing driver orientation is a wise investment for a company that has any type of vehicle operations.