Commercial auto insurance – overview, and how to effectively manage risk
Risk management considerations
In recent years, the Commercial Auto insurance market has faced tightening conditions and increased rates. To help combat rising insurance costs, companies with commercial vehicles or fleets should ensure that they have a sound risk management program to mitigate potential risks while reducing overall insurance costs. To establish an effective risk management program, companies must have a strong understanding of related risks.
Key risks in Commercial Auto by essential risk management technique:
Avoidance
Driver risk refers to the potential risks associated with a driver’s behaviour while operating a vehicle. By implementing procedures around driver selection when hiring or establishing policies for company and personal use, companies can better ensure that only qualified drivers operate their units and avoid potentially dangerous drivers.
The Insurance Bureau of Canada (IBC) has outlined multiple ways to manage driver-related risks:
- Driver screening and hiring processes (these may include minimum years of related experience, a maximum number of traffic violations and other standards).
- A detailed list of unauthorized activities.
- Driving while impaired due to drugs, alcohol, prescription medications, medical issues, fatigue, etc.
- Personal use of company vehicles.
- Driving outside of specific geographical areas.
- Implement a night driving policy that addresses issues of fatigue and stimulants.
- Define maximum allowable speeds.
- Identify safe following distances.
- Define procedures around parking and reversing.
Retention
Physical damage risk involves protecting the company’s vehicles against damage or loss from accidents, theft, or other causes. The Insurance Bureau of Canada (IBC) has outlined multiple ways to manage vehicle-related risks:
- Ensure vehicles are stored in a safe place after hours to prevent theft.
- Install vehicle alarm systems.
- Lock vehicle doors.
- Do not leave valuables in plain view.
- Ensure that indoor storage of vehicles is confirmed that ventilation and fire suppression systems, fire alarms and other safeguards are in place.
- Consider the potential risk of losing several or all vehicles in one incident and how that risk might be mitigated (e.g., you may separate vehicles by using different buildings or storage locations).
While working to manage physical damage risk, companies may choose to elect higher deductibles to retain more share in the risk and reduce premium or they may choose to cover larger losses on older vehicles and restrict coverage to liability-only coverage.
Spreading
Concentration risk includes the number of commercial units that share proximity and may be impacted from a single event including hailstorms or lot fires. If companies spread units between locations or implement overnight policies that include employees taking vehicles home where appropriate, the likelihood of severe loss involving multiple units can be reduced. Similarly, if company policy requires a time delay between one vehicle leaving the lot and subsequent vehicles, they easily reduce the likelihood of a multi-unit loss between owned or leased units.
Loss prevention or reduction
Liability risk involves protecting the company against third-party claims for personal injury or property damage resulting from a company vehicle accident. If commercial or fleet vehicles are equipped with telematic monitoring systems for statistics around driver behaviour, improved driver training may reduce or prevent accidents that cause third-party claims.
Transfer (via insurance or contracts)
Environmental risk involves protecting the company against potential environmental liabilities resulting from a company’s operation of its vehicles (e.g., spills, leaks, emissions, etc.). To prevent potential leaks, there should be clear directions for proper fuel storage and disposal. However, accidents may still happen, and pollution events may occur. Businesses can transfer the risk to insurers through environmental policies that cover clean-up, fines and penalties.
Risk management as a strategy – Fleet insurance
Fleet risk refers to the potential risks and hazards associated with operating a fleet of vehicles, such as trucks, vans, cars, or buses, for business purposes. These risks can include accidents, collisions, injuries, and fatalities that can affect not only the drivers but also other road users and pedestrians. Outside of bodily injury, fleet vehicle accidents are among the costliest of injury claims for businesses, with material damage adding to loss totals.
Fleet risk management involves identifying, assessing, and mitigating potential risks to reduce the likelihood of accidents or incidents occurring. This can include implementing safety protocols and policies, training drivers on safe driving practices, ensuring vehicles are properly maintained and inspected, and monitoring and analyzing driving behaviour to identify any areas of concern.
Effective fleet risk management is essential for businesses that operate a fleet of vehicles, as it can help to protect the company’s reputation, minimize financial losses, and ensure the safety of employees and other road users.
Travellers, a leading insurer, outlines eight essential elements of an effective fleet safety program, many of which dovetail into our essential risk management techniques:
- Identifying all your drivers
- Management commitment
- Screening and selecting drivers carefully
- Training drivers
- Managing drivers on an ongoing basis
- Managing accidents when they occur
- Establishing written policies and procedures (e.g., overnight parking, personal use)
Formalizing a plan for vehicle inspection, repair, and maintenance. By considering vehicle use and maintenance, operator behaviours, and company policies or procedures, businesses can more effectively manage fleet risk. Many become more comfortable with identifying patterns that inform decisions about risk avoidance, prevention, reduction, spreading, retention, and transfer.
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