Insurance premium rises during pandemic takes fleet owners by surprise

Insurance premium rises during the first year of the pandemic, at a time when falling mileages might reasonably have been expected to lead to a fall in premiums, surprised many fleet owners, some of whom looked to change insurers as a result. So says independent insurance advisor, Eelco van de Wiel, head of Fleet Insurance bv, who has over twenty years’ experience in the European fleet insurance market.

Van de Wiel, who works with a number of major fleet owners, including Fleet Logistics, and operates in around twenty countries, says that many fleet operators were angered by the premium increases, which were typically in the region of 2-10%.

“With fewer miles being driven during the lockdowns of the first year of the Covid pandemic, fleet owners might reasonably have expected insurance premiums to have fallen and that insurers would share the benefits with them.

“Instead, premiums increased in 2020 and many insurance companies made huge profits – to the annoyance of many fleet operators,” said Van de Wiel, who typically achieves savings of around 20% in insurance costs for his clients.

Some fleets looked to move away to other insurers or set up their own insurance companies as a consequence, said Van de Wiel. But major insurers, alarmed by the projected exodus, have, since the start of this year, been offering ‘Covid bonuses’ to larger customers to entice them to stay.

“I have heard of a bonus of €1m on a total premium of €10m offered to one very large fleet to try and retain their business, and many examples of smaller sums being offered” said Van de Wiel.

Another consequence of the pandemic has been that claims costs for most fleet operators have fallen, typically as a consequence of fewer miles being driven and therefore fewer accidents and lower claims frequency. However, this has not always been matched by falling premiums.

But, if economic activity and related claims costs and frequencies return to pre-Covid levels - and every indication is that they are heading back towards near normal levels in many European countries - many fleet owners could benefit from claims cost reduction programs which will have positive impacts on their future premium levels.

“Above market benchmark premium levels in the future can be avoided with investment in claim cost reduction programs where a change of insurance structure is implemented,” said Van de Wiel who has been advising a number of clients on the benefits of changing their insurance structure, with generally positive results.

“Claims cost reduction programs are beneficial in all future claim cost scenarios and are especially relevant when fleet owners participate in the risk,” he said.

For fleet owners who would like to see claims costs stabilize at the lower levels seen during the 2020-2021 pandemic, there are three possible options to help achieve that objective, believes Van de Wiel.

The first is the introduction of a high deductible or excess, that could be as high as €100,000 per claim for larger fleets. This has the effect of reducing premiums and insurance premium taxes, and provides possible savings in excess of 25% on the total cost of insurance.

Another option is a profit share with the existing insurer through premium restitution or the adjustment of the premium for year one based on the cost of claims in 2022.  This method  can result in savings in excess of 15% on the total cost of insurance.

The third option is self-insurance, where the fleet owner self-insures the fleet, covering all claims and accidents costs themselves. This has the effect of eliminating the profit margin for insurers along with all insurance premium taxes. Savings in excess of 35% on total cost of insurance are possible using this methodology.

Van de Wiel recently carried out a review of his client base, which includes a number of fleet owners, leasing companies and rental suppliers, the majority of whom were using traditional insurance structures.

Following his advice, some 40% of those reviewed switched to a new structure employing a high deductible (excess), while 47% decided to retain their traditional structure, and 13% were undecided.

“It takes 12-18 months before the impact of claims cost reduction efforts as outlined are visible in claims costs,” said Van de Wiel.

“If the claims costs and frequencies continue on the lower levels for another few years, then insurers will start to base premiums on the fleet owners’ claims experience. And fleet owners with lower than average claims costs can then expect to achieve lower than average premiums,” he added.