Insurance: Balancing the risk

Written by Ellie

Fleets can reduce their costs by opting for self-insurance ahead of comprehensive cover. But who does it suit and what are the benefits and drawbacks? Ben Rooth reports

Every car has to be insured: it’s one of the certainties of running a fleet, like road tax. However, the price of premiums has risen in recent years while the recent 0.5% rise in the insurance premium tax to 10% has increased this cost burden further.

This will hit the companies which take out fully comprehensive cover the hardest, but for some – and particularly the larger fleets – self-insurance could be a viable way to save money.

The term ‘self-insurance’ can often be misunderstood and mistaken for the scheme which involves placing a £500,000 bond with the Government (see panel, page 30).

Instead, self-insurance can also mean taking out a third-party insurance policy so the fleet takes the risk of any collision damage to its own vehicles.

“Virtually no business on the planet actually completely self-insures – the risks of having to pay a multi-million pound loss are too great for almost any commercial enterprise to bear,” says Peter Blanc, group chief executive of insurance broker Aston Scott Group.

“The term ‘self-insurance’ should really be called ‘risk sharing’ as that is a more accurate description of the arrangement,” Blanc adds.

Paul Holmes, managing director of consultancy Fleet Managers Friend (FMF), agrees.

“Self-insurance is another risk management tool, in which a calculated amount of money is set aside by the organisation itself to compensate for the potential future loss,” Holmes says.

“It is possible for any insurable risk, meaning a risk that is predictable and measurable enough to be able to estimate the amount that needs to be set aside to pay for future uncertain losses.

“This methodology requires a well-defined set of what is covered and how claims can be made and paid.”

Typically, fleets take a straightforward approach to insurance, says Blanc. They pay a premium for fully comprehensive cover and the insurer takes on nearly all of the risk – a fleet needs only to worry about paying the excess of typically £250 to £500 in the event of an at-fault collision.

The insurer picks up the rest of the bill both for repairing a fleet’s vehicle and also for any other vehicle or property involved in the collision, collectively called ‘third parties’.

Crucially, the insurer also pays for any third-party injury claims which are the most expensive part of motor insurance.

Article from Fleet News

Posted on 1st February 2017

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