Motor insurance and goods-in-transit cover
It goes without saying that every operator needs the appropriate level of insurance cover for his vehicles and the loads they carry. But choosing how much cover and finding ways to drive down risk and the cost of premiums is not quite so straightforward. CM provides some insight into the world of insurance.
With a few notable exceptions (mainly councils, emergency services and those who opt to self-insure) motor insurance is a legal requirement for all vehicle operators under the Road Traffic Act 1988. It covers vehicle operators and third parties against the repair or replacement costs of an accident or theft, as well as personal injury claims. Goods-in-transit insurance, while not a legal requirement, is recommended for anyone carrying goods on behalf of another party and covers liability resulting from loss of or damage to the goods.
That makes these two forms of insurance critical to the activities of most truck operators. So what are the key points to bear in mind when buying insurance and how can you minimise the costs without jeopardising your protection?
Commercial motor insurance basics
When it comes to motor insurance, there are many things an insurer will look at when assessing the risk you represent and the premium to be charged. They include:
- The number and gross vehicle weight of the vehicles
- The age, condition, value and typical repair costs of those vehicles
- The type of goods carried
- The number, age, experience and training of drivers
- The way you manage and equip your drivers and vehicles
- Your geographical locations and those of your customers
- The level of cover
- Your claims history
For single vehicles and small fleets of up to five vehicles, the approach taken by insurers in assessing risk is similar to that applied to a motorist, with much depending on the age and experience of the driver(s), the vehicle(s), annual mileage and onboard security equipment.
For larger fleets, however, the biggest single factor in determining premiums is the firm’s claims history over the last three or five years. This means the number of claims you have made, their frequency and the cost on each occasion. Insurers do still take notice of the other factors mentioned above at fleet level, however.
Where a new company with more than five vehicles is looking for cover, insurers are obliged to revert to the small fleet model, says Gerry Donnachie, head of underwriting at insurer Axa. “Very often, there’s a minimum premium companies feel they need to charge where there’s no history to go on - it can be expensive for a new company with no background,” he admits. Insurers typically regard such firms as a gamble and some are not keen on taking on new start-ups at all, says Donnachie.
Whatever the fleet size, insurers welcome any steps an operator may take to reduce the likelihood of a claim or the cost of such claims. There are many ways this can be done, but the measures insurers seem most keen on are:
- Onboard cameras
- Proximity sensors
- Fleet telematics systems
- Stolen-vehicle recovery systems
- Defensive driver training
- Restricting vehicles to just one or two drivers
- Speed-limiting vehicles
Driver training and speed limiting are of particular interest, suggests Terry Marshell, MD of broker Anthony Jones in Bromley. “Insurers are very keen to understand how drivers are trained,” he says. “You can do lots of things to help mitigate a loss when it has occurred but you can’t stop the incident from happening unless the driver is trained properly.
“Restricting vehicles to 52mph makes a hell of a difference from the insurance perspective, because the vehicles can’t generally perform overtaking manoeuvres and the driver isn’t being hurried from one place to another,” he adds.
Many other measures can also help lower the risk of claims, from lane departure warning systems and better depot security to more thorough background checks on the drivers you recruit. It is almost impossible to put an absolute value on the premium discount that such measures will earn. While insurers (and system vendors) may sometimes mention particular levels of discount - typically 5-10% - for individual measures such as telematics systems, this is only a small part of a far bigger picture. Jason Ireland, team manager for heavy goods vehicles at Swinton Group points out that small fleets will get a far bigger discount - somewhere between 40% and 70% - by accruing the maximum no-claims bonus over a five-year period, making that the best single way to cut your premiums.
For large fleets, meanwhile, measures such as telematics or driver training may have no immediate impact on premiums, given that these are based on a three or five-year rolling claims history. However, if they reduce the number of scrapes your vehicles get into then your claims history will improve, so the benefits will emerge in the fullness of time.
This issue of actually reducing claims is key in determining the worth of any measure, stresses Matthew Warden, deputy MD of Towergate Insurance’s Motor Division. “You need to demonstrate that your risk management measure is going to help reduce claims,” he says. “If it is, your insurer will probably be interested. But, for example, if you’ve never had a theft problem and you’re based in the middle of nowhere and you decide to fit your fleet out with trackers I’ll probably turn around and say that as I’ve never paid a theft claim out to you, it doesn’t really make any difference.”
For the same reason, firms who have an excellent overall claims history – whether small or large – generally cannot improve their risk profile any further, making investment in such measures largely irrelevant from the insurance perspective. Having said this, even those with a squeaky clean record should shop around when the time comes to renew, says Donnachie of Axa. “That’s the kind of risk most insurers are looking for!” he comments. “One insurer might quote a £15,000 premium on a good fleet, while someone else might take a slightly different stance and write it at £13,000.”
Unlike car insurance, the make and model of the vehicle has little bearing on truck fleet insurance. It is deemed largely irrelevant to the calculation of risk, with far more emphasis placed on gross vehicle weight. Having said that, some insurers are beginning to appreciate that that some vehicles have more safety systems fitted as standard and so are less likely to be involved in accidents.
Similarly, while less notice will be taken with fleets of the individual details of drivers, insurers will still be concerned about a high ratio of young, inexperienced drivers in a company. Warden of Towergate Insurance says insurers are often also interested in a firm’s recruitment and induction processes, and even driver turnover, in assessing your driving staff. “High driver turnover may mean the worth of any driver training is reduced,” he observes.
The general type of vehicle and the nature of work are still important, however. Tippers, for instance, may be more expensive to insure than boxvan-bodied trucks because of the tipper stability issue. Multidrop urban delivery work is naturally perceived as presenting a higher risk of bumps and scrapes than purely rural operations. Vehicle age can also be an issue. Perhaps surprisingly, given their relatively low residual value, older vehicles can attract a punitive rate. This is because they are generally easier to steal and easier to maintain than newer trucks, making them ideal for export to developing countries and thus a good target for thieves.
“Newer vehicles are more sophisticated – you often need a computer to work on them – so they’re not as attractive for some export markets,” confirms Ireland of Swinton Group. Insurers may take the view that older vehicles are likely to be only minimally maintained, where newer ones are often sold with a comprehensive maintenance package, he adds.
Costs and options
Truck insurance premiums have been going up in recent times, but nowhere near as fast as car or van insurance. Nigel Frost, fleet underwriting manager at Aviva UK, says truck insurance has risen by about 10% a year in the last two years, while van insurance has gone up by over 50% in that period. As a rough guide, you can expect to pay between £2,000 and £9,000 per 44 –tonne GCW truck for comprehensive motor insurance, the exact figure depending on whether you are seen as a ‘good’ or ‘bad’ risk.
Lighter trucks attract lower premiums, but since a large proportion of the claims these days are for third party personal injury rather than bent metal, the difference may not be as great as you may think. Towergate Insurance quotes a ballpark range of £1,500-£8,000 for 18-tonners, for example.
Premiums can of course be reduced by taking less cover (third party only or third party, fire and theft cover, in particular), but again, thanks to rising person injury claims, the savings are not what they were. Towergate Insurance says third party, fire and theft cover will be about 80% of a normal comprehensive premium, while third party only would be roughly a further 7% cheaper. A few years ago, third party, fire and theft might have saved you 50%.
Taking anything less than comprehensive cover will leave you facing some or all of the liability for your own vehicles, so you have to weigh up the savings against the risk you run. Are you able to withstand the complete loss of a vehicle written off in an accident, for example?
Taking third party only cover is often referred to as self-insurance, and firms doing this generally put a large pot of money aside for their own material damage claims. Sometimes they may dip into this pot of money to settle small third party claims too, preserving a clean claims history. True self-insurance, however, means avoiding insurance companies altogether. It involves the vehicle owner depositing and keeping £500,000 with the Accountant General of the Senior Courts (within the Ministry of Justice) and then paying all claims, third party and their own, themselves. Clearly this is only an option for those with the deepest pockets.
Choosing to increase the excess on your policy will also trim the premium but increases your own exposure to risk. If your fleet typically makes 10 claims a year and you opt for a £1,000 excess, that’s £10,000 you need to have freely available every year. And again, thanks to rising personal injury claims, the difference it will make may be minimal. Towergate Insurance suggests that increasing a £500 excess to £1,000 will cut the premium by about £350.
Warden of Towergate Insurance says although there has been a 20% reduction in accidents in the UK since 2006, there has been a 40% rise in the number of third party claims in the same period. There has been a 6% increase in the number of whiplash claims submitted in the last 12 months alone. In the past, many insurers have found it easier to settle rather than contest such claims, he agrees. That attitude has now changed, thanks to the explosion of claims, and insurers are far more likely to investigate them to make sure they are justified, says Warden. This is good news in the longer run for premiums, perhaps, and certainly good news if you are the innocent party on the wrong end of such a claim.
One way to ensure that you are only liable for those claims where your drivers were at fault, would be to install forward-facing cameras within your vehicles. Cameras can not only help prove who was to blame but they can also be a deterrent to potential ‘crash for cash’ scammers. “We have found that staged accidents involving large vehicles are on the increase,” explains Warden. “Accidents are being caused deliberately by people keen to claim on insurance from haulage companies. These accidents could lead to serious personal injury as well as to substantial insurance claims, which then has a knock-on effect for your future premiums. By installing and highlighting a vehicle is fitted with forward facing cameras, you could potentially prevent being targeted.”
You can usually choose between paying your premium as a single lump sum and spreading payments across the year. Spreading the payments involves borrowing money - brokers quote 6-8% interest rates as typical, though anything from 0-12% is possible – and will also affect your firm’s credit rating. The loan itself will typically be placed either with the insurer or with a specialist finance house by your broker. Alternatively, you might consider a separate, independent loan to pay your insurance premium in one lump.
Remember that tractive unit insurance policies usually include cover for one trailer when coupled to the vehicle. Once uncoupled, however, trailers require separate cover. Towergate Insurance suggests detached trailer cover will cost £100-£200 a year per trailer, but premiums can vary considerably as they are based on the value of the trailer.
Choosing your suppliers
The choice of insurance brokers is wide, from online brokers to traditional general insurance brokers and from vehicle suppliers to specialist haulage brokers. It is advisable to find an experienced broker who truly understands the commercial vehicle business and won’t wonder what you’re talking about when you mention a mid-lift axle or a hook-loader.
Remember, a broker will need to gather all kinds of information about your trucks, drivers, routes, customers and general operation if they are to secure appropriate cover for you. They need to understand your business, so it is essential that you are open and honest with them, explaining exactly what you do and how you do it, particularly if you have taken steps to manage your risks. When it comes to making a claim, a broker who understands the nature of goods vehicle operation – the blind spots around a truck, for example – is far more likely to be able to argue your case with third parties than one who does not. Trade associations such as the FTA and RHA also offer their own branded insurance cover for their members, provided by a specialist broker, so that is one way of ensuring you deal with people who understand the haulage and logistics industry.
Marshell of Anthony Jones warns that using a cheap online broker may not provide the best solution as their quote ‘engines’ sometimes are not smart enough. “It is essential that anyone in this sector speaks to a broker,” he says. “The matrix is there with all these online engines, but none of them is sophisticated enough to look at all the variables. It’s not always true that just because it’s online, it has to be the cheapest – it can be, but I don’t think there is any substitute to talking to a professional who understands the nature of your business and is there to assist.”
If your broker is good, stick with them. A good broker will always be willing to work with you to help you reduce your costs and find the most appropriate cover. They all have access to the same range of insurers, so there is no fundamental reason to switch broker in order to shop around.
In terms of the insurer itself, it may be tempting to ‘ditch and switch’ every year in an attempt to seek a better deal. But insurers are just as interested in a long-term relationship with a customer as is a broker, not least because it gives them time in which to claw back anything they’ve paid out in a bad year. So while it’s certainly worth testing the market when you buy, the ditch-and-switch approach may work against you in terms of premiums. Testing the market and then asking your current insurer to match a particular quote if you stay with them can often yield positive results. This is more likely to work if you have already shown you are a long-term customer who takes risk management seriously.
Brokers and insurers will like you even more if you buy multiple insurance policies from them. Sourcing motor insurance, goods-in-transit, public liability or employer’s liability cover from a single supplier will encourage them to sharpen their pencils on premiums. Just be certain that this single-sourcing strategy is under-pinned by sound business reasons rather than convenience. Be careful about locking yourself in, and be prepared to routinely test their rates against the wider market.
Goods-in-transit policies are designed to cover your liability for stolen, destroyed or damaged goods. If you operate under standard RHA conditions with a liability of £1,300/tonne, that’s the level of cover you need, irrespective of the actual value of the goods carried.
When it comes to the goods in your trucks, insurers and brokers will look at many of the same things as for motor insurance in deciding what to charge – the routes you run, the value of the goods, and your claims history, most of all. Additional considerations, such as overnight parking arrangements for example, may apply.
Whatever level of cover you arrange, there will be some exemptions and restrictions. High-value, theft-attractive loads, for instance, usually come with a payout cap (the ‘inner limit’) that can be considerably below the total value of goods being moved me. Drivers’ personal effects are unlikely to be included as standard.
Loading and unloading operations are usually included under goods-in-transit cover, but make sure you know what is meant by this. A lift truck placing a load on a trailer will qualify as part of the loading operation but that same lift truck crossing the yard with the same pallet 10 seconds earlier may not. Much depends on exactly where the vehicle operator’s contractual liability starts and ends.
Restrictions may also apply to overnight arrangements: some policies will insist that overnight stops are only in secure parking facilities; others might require loads to remain ‘attended’ at all times. Take care to clarify such terms, making sure you understand the definition of a secure lorry park, for example.
The biggest mistake people make with goods-in-transit insurance is to agree to extend their liability for goods with a customer beyond that covered by their insurance, says Warden of Towergate Insurance. “If you amend your conditions for a customer, perhaps because of commercial pressures, and don’t keep your insurer aware, and there is a claim, they may well turn around and say they’re not paying,” he warns. In terms of cost, goods-in-transit insurance premiums have fallen in recent years, thanks to growing levels of competition – Jonathan Eaton, head of marine at Aviva UK, says premiums have fallen by about 10% a year in the last couple of years. Towergate Insurance quotes a typical starting point for a business with a turnover of £100,000 operating a standard 44-tonne artic in the UK under RHA liability (£1,300/tonne) of £265 a year, rising to £530 a year for cover of £5,000/tonne.
Goods-in-transit policies can be amended in many ways, including extensions for particular loads or situations (an inability to use a trailer as a result of damage from goods, for instance) and the bolting-on of other, normally separate forms of insurance - public liability and employer’s liability, for example. Tacking on combined public liability (to £5m) and employer’s liability (to £10m) cover would cost just over £210 in the scenario quoted above, says Towergate Insurance.
Owens (Road Services)
South Wales vehicle operator Owens (Road Services) is one firm that has found a change of broker can help yield substantial reductions in vehicle insurance premiums.
The switch of broker, which took place five years ago, was based on the realisation that the firm’s insurance premiums were increasing year on year, says Ian Jarman, environmental and legislation manager at the company.
Working in partnership with its new broker, Enterprise Insurance Services (Swansea), Owens has focused heavily on its claims record since then and managed to reduce the number of claims it has by 50% a year, “as a consequence of which the premium has reduced dramatically”, says Jarman.
The firm, which runs over 300 vehicles, has put a number of measures in place to help improve its risk profile and claims record, including the appointment of a dedicated member of staff to manage insurance issues on a day-to-day basis and measures to ensure every incident is fully investigated and dealt with quickly. This has encouraged drivers to be careful behind the wheel and ensured any claims get settled more quickly, says Jarman.
Owens has further gains in its sights: based on advice from its broker, the firm is looking at installing forward facing cameras on its fleet, linked into a telematics system. While its current insurer does not offer any discount for this, the firm expects others may well do so in future. It has also invested heavily in driver training and has just put most of its drivers through SAFED training.
All in all, Jarman says the firm is very pleased with its decision to switch broker. “It’s a partnership,” he says. “The service level we get off them is first-class. Enterprise has saved us a considerable amount of money and we can give our customers a first-class service because we’ve got first-class insurance behind us.”
Horley Services Group
Redhill, Surrey-based transport and warehousing firm Horley Services Group is another company to have benefited from a little help from its broker.
MD Iain Mays says that after a bad claims year five years ago, the company’s broker helped it reach a profit-sharing arrangement with its insurer that means it gets a rebate on its premiums if it keeps claims within certain pre-defined limits each year. This hasn’t actually cut the premiums but has insulated the firm from the rises it would otherwise have faced, he says. “It has held the premium down quite well,” he confirms. “Year on year, we have held the rates pretty well constant.”
Horley Services Group has an excellent relationship with its broker, whom it has been with for over 20 years and, with the odd exception, has also stuck with the same insurance company, though via its broker it does look around for quotes every year, says Mays. That relationship has doubtless been helped by buying other types of insurance through the same broker and insurer too, he adds.
“We’ve taken the long-term view. There is often a tendency for insurers to slice rates for new customers, but some have realised now that hanging on to your existing customers is probably a sensible strategy, too,” he comments.
Looking ahead, Mays says he is now contemplating the use of onboard cameras to help keep his premiums down “I know some firms are installing them as a matter of principle. We haven’t arrived at a decision to do that yet, but I think we probably will fairly soon,” he says. Even if the fitment and use of such cameras doesn’t directly affect the firm’s premium straight away, they should help tip the balance in the ‘blame game’ and thus help keep its claims history clean, he says.
Road Traffic Act 1988 requirements on insurance:
Brokers and insurers (not a complete list):
- Anthony Jones
- C&C Insurance Brokers
- Cramlington Insurance Services
- Enterprise Insurance Services (Swansea)
- Evans and Lewis
- M E French & Co
- M R Ratcliffe
- Staveley Head
- West Craven Insurance Services