Understanding and controlling business auto costs

painter-standing-next-to-vanIt’s easy to understand why prices rise for manufactured or commodity-based products. When prices for raw materials increase, the cost of the product goes up. It’s not as easy to understand the cause of higher prices in a service-based industry such as insurance. Many factors can affect the cost of insuring a business vehicle.

Rising claims costs are a major factor behind higher insurance rates. When costs per claim go up, insurers often increase insurance rates to keep pace. An automobile insurance claim may have two components: a liability portion (bodily injury or property damage to a third party) and a physical damage portion (replacement or repair of the business auto).

Over the last several years, a main contributor to increased claims costs is higher medical bills and expensive medical procedures. Increased claims litigation costs and higher awards from courts have also had an impact.

Automobile repair costs are also going up, according to data collected by CCC Information Services, a company that provides auto claims information and processing services. Severe weather has also played a part in the rise of physical damage claims. Hail and flooding are hitting all parts of the country; tornadoes and wildfires that damage other property also damage vehicles.

What can you do to hold down your auto insurance premiums?

There are actions a business can take to hold down automobile insurance costs. An early step would be to review the physical damage coverages and deductibles carried on the company’s vehicles. Selecting higher physical damage deductibles for all vehicles or dropping collision coverage on older vehicles can generate immediate premium savings.

Improving your company’s auto loss experience will – in the longer term – have a positive impact on insurance costs. Insurance underwriters take into account a company’s past automobile loss experience when pricing automobile insurance. There are numerous things you can do to reduce your company’s exposure to auto losses:

  • Review the motor vehicle reports of potential drivers before putting them behind the wheel of one of your vehicles.
  • Match the age and driving experience of the driver with the type of vehicle he or she is operating. Teen drivers and adult drivers under the age of 25 have higher accident rates than older drivers, based on U.S. Census data.
  • Institute driver safety programs and defensive driving classes.
  • Use vehicle telematics to monitor vehicle usage and employee driving behavior.
  • Establish a comprehensive vehicle maintenance program to prevent future losses before they happen.
  • Ask your independent agent if your insurer can provide loss prevention assistance, training and other information for your staff.

Are there vehicles insured on your business auto policy that are used personally by family members? Personally used vehicles, especially those driven by young people age 16-25, may raise a red flag for insurance underwriters and may be priced higher than if the vehicles were insured on a personal auto policy. Teen drivers have crash rates three times those of drivers 20 and older, per mile driven. Immaturity leads to speeding and other risky habits, and inexperience means young drivers often don’t recognize or know how to respond to hazards.

Each company’s situation is unique. Your independent insurance agent can tailor your automobile insurance coverage to fit your business needs and regularly review your coverage and driver program with you.


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