INSURANCE: Paying the premium

Date: Wednesday, October 18, 2017

Insurance premiums are rising, but is there anything fleets can do to maintain or decrease their costs? Rachel Boagey investigates

It’s bad news on the van insurance front, with premiums expected to rise by almost 30% year-on-year as new compensation rules and tax increases come into effect.

The prediction comes from research consultants Consumer Intelligence, which says prices have soared this year after regulators reduced the discount governing payouts in major personal injury claims (known as the ‘Ogden rate’) to -0.75% from 2.5% in March, meaning insurance firms have to pay more in compensation.

John Blevins, pricing expert at Consumer Intelligence, says that this, along with tax rises and claim costs, are adding to the pressure. “Before the Ogden rules came into effect in March, prices were rising by around 1% a month and then rocketed by 11.4% in April, with the Insurance Premium Tax rise in June [up from 10% to 12%] adding another 2%,” he tells What Van?

Caroline Hurst from fleet management and software company Lytx warns that with small fleets an entire business can be wiped out with one severe collision. “Premiums can become prohibitively expensive, making the cost of doing business untenable,” she explains, adding: “Larger fleets are likely to be self-insured, which means every collision claim comes off the bottom line. Those that are insured through a third party can see premiums skyrocket if the fleet has a bad year with multiple catastrophic collisions.”

How to reduce policy costs

To counter accelerating premiums businesses will have to look to implement some cost-reduction policies.

Blevins explains that the first step is choosing the correct cover. Opting for ‘carriage of own goods’ not only ensures you have the correct cover in the event of having to make a claim, but also, he says, will mean reduced premiums. That’s due to insurers rating customers who use vans for work as a better risk – compared with those who, for example, tick the ‘social, domestic and pleasure’ box – because they are more likely to be careful with their vehicle as it’s vital for their livelihoods.

Shopping around is also sensible, Blevins advises, “as prices vary month by month and between providers”.

He adds that as most general insurers operate on a non-advised basis – essentially, they offer their cover options to the customer and the customer decides what best suits their own needs – businesses should consider cover levels in terms of the maximum amounts different insurers will pay out as each firm “will know through experience how much their tools or goods carried are worth”.

“One area where they can look to keep their premiums down is in the vehicle they choose to purchase,” says Blevins. “The insurance group of the vehicle will be an important factor. Ways to keep the grouping down is by choosing a lower engine-size vehicle – the higher the engine capacity generally means the higher the group. For example, 1,600cc will be a lower group than 2,000cc.”

The performance of a vehicle is also a factor: the faster it can go the more likely it is to be in an accident, so the higher the grouping, Blevins says.

Weight, he continues, is also an indicator for grouping: the heavier a vehicle, the more difficult it is to drive, again leading to higher grouping.

If you don’t have one already, it’s worth considering fleet insurance over individual policies, as Blevins explains: “Your fleet policy would generally be cheaper than individual policies, given you are effectively buying in bulk.” There’s also the added benefit that all vehicles are covered under a single policy offering them all the same level of cover and a single renewal date.

Despite these suggestions, Blevins is not convinced that anything can compensate fully for the rate at which insurance prices are rising. “These are all worth a shot and may sound optimistic,” he says, “but, unfortunately, it seems the only way is up.”

Furthermore, there are many other factors that contribute to pricing van insurance and which cannot be altered – for example, the driver’s age, where they live, claims and conviction details, and occupation.

Blevins also argues that in terms of policy cover there is little difference between the owner and drivers. “The same cover is generally provided for all named drivers whether you are the registered owner or a named driver. The ‘driving other vehicles’ policy extension is only for the policyholder, but other cover remains the same overall,” he explains.

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