Over the past several years, it seems like commercial auto rates have continued to rise.
That is because the insurance companies have been taking a beating! Most carriers have tightened the belt and sharpened the underwriting pencil when offering coverage to new clients. Losses have been much higher than projected in the recent past due to ratings factors that have not been accurately reported. Clients should be prepared to answer in-depth questions related to their commercial auto activity. Each of the following factors can have an impact on their rates.
Radius is one of the easiest ratings factors to measure, yet it’s often one of the most inaccurately reported. Plainly, the radius a vehicle travels is the distance from where it is garaged to the furthest distance it will travel during the course of normal business. The thresholds vary by carrier, but for all practical purposes, vehicles with a local radius travel 0-50 miles. Vehicles with an intermediate radius travel 50-150 miles. Vehicles that travel 150+ are considered long haul. The more miles that a vehicle is on the road, the greater the chance that vehicle will be involved in an accident. Now that companies are able to use tools like GPS telemetry, carriers are oftentimes requesting these reports per vehicle to verify the radius of travel that the agent has reported on the applications. Be prepared to answer questions when there are discrepancies. Carriers have been burnt by this.
Vehicle use classification is another factor causing heartburn to the underwriters. The difference between a service vehicle and a commercial vehicle could mean thousands of dollars in premium per year across a fleet. By most carrier standards, a service vehicle makes no more than 2 stops per day. A commercial vehicle makes more than 2 stops per day. Using the same logic mentioned above, the more stops a vehicle makes, the more it is on the road. The more it is on the road, the higher the chance for an accident. Once again, underwriters are diving deep to see if the numbers reported match up to the actual vehicle use because agents have gotten lulled into the habit of reporting all vehicles as “service” when that isn’t really the case.
Employees using their personal vehicles in the course of business is another potential rating problem. A responsible employer should check the MVR of all driving employees on an annual basis whether they drive a company vehicle or use their personal vehicle for company business. In addition, the employer should have defined requirements for underlying insurance for each employee who drives their own vehicle. These requirements should be verified annually in an effort to mitigate the risk of an employer. While most companies will have hired and non-owned auto liability, it is typically excess of a personal auto policy. If the employee’s limits are too low, the company’s policy will attach at that lower limit and end up paying out more. Consulting a good agent will assist a company in determining the correct criteria for all drivers in their organization.
These are three of many ratings factors that can and will affect the cost of a company’s insurance coverage. Seeking the counsel of an experience risk management consultant and insurance agent is vital in controlling the ever increasing cost of commercial auto insurance.