Fleet Motor - Fleeting opportunities

Rising premiums and a lack of understanding among customers about the need for effective risk management strategies have traditionally dogged the fleet motor market. Things are, however, looking up for the sector, and prices are beginning to stabilise.

Volvo Insurance Services launched Volvo Fleet Insurance in April 2004.

Divisional director Nick Levey believes: "Fleet customers are won and lost for a variety of reasons but price is definitely an influential factor."

Pricing is important for fleet customers, but there is more to it than just premiums, according to Kevin Edwards, head of motor underwriting for Norwich Union, who explains: "Other criteria for fleet customers include financial security, claims service, underwriting service, risk management and a degree of continuity. A fleet customer that changes insurers every year becomes almost unmarketable. Most insurers simply won't quote for the business."

Price versus service

Simon Baker, commercial motor manager for Axa, agrees. He explains: "Customers are won on price to a degree but they are lost on service." He adds: "We do see customers that will change insurer for very small amounts of money, but others, who are happy with the service, would need a considerable saving to risk moving to another insurer."

For any business, price is an important factor, points out John Briggs, motor manager for Zurich's UK Commercial business, but he too adds that it is not the corporate customer's only concern. "Our experience is that buyers consider the level of cover and the quality of the claims handling service equally important."

Roger Ball, commercial motor manager for Allianz Cornhill, observes that: "The aspects of cover are probably taken into much greater account by commercial customers than in personal lines. In the commercial sector, they are likely to be more conscious of this than a domestic purchaser of insurance."

Most in the insurance industry certainly agree that price is not the only consideration for fleet customers and it seems that the sector is becoming increasingly discerning in its choice of product. As Andrew Jackson, automotive head of sales, UKI Partnerships summarises: "Although premium is clearly a consideration for fleet customers, they tend to have a wider list of priorities than private customers when it comes to motor insurance and are looking for additional features and benefits that complement their risk. In our experience, fleet customers need to ensure that the overall package they are buying meets their needs - forsaking cover for premium may keep the accountant happy in the interim, but, in the longer term, the implications could be much more profound."

Mr Jackson believes that it is vital that customers and insurers maintain a personal relationship. "It is also important to ensure that any vehicle repairs made after a claim are completed to the standard laid down by the motor manufacturer, and that genuine manufacturer parts are used wherever possible. Not only does this help with the residual value of the vehicle, but it will also give your fleet drivers a better feel-good factor and confidence once they have the vehicle returned to them."

More interest in RM

An important factor for an increasing number of fleet customers is help on risk management. This has traditionally been a difficult area for insurers, with customers unwilling to take advice on board, but there are now encouraging signs that customers are beginning to appreciate the benefits and are actively seeking help. Increasing public awareness of workplace health and safety issues has influenced this change in particular.

In September 2003, the Health and Safety Executive, in partnership with the Department for Transport, published guidance on work-related road safety (see box). Mr Ball believes that the HSE initiative has focused a number of customers' attention on the issues, and Allianz Cornhill has carried out a series of broker seminars across the UK based on the HSE guidance. The seminars have been supported by literature outlining the key requirements of the HSE guidance and a checklist to identify how far policyholders are complying.

"Risk management is taking on increasing importance, driven by the publicity surrounding employers' health and safety responsibilities," says Mr Edwards.

"Research by fleet industry commentators suggests that fleet managers' number one priority is health and safety and they are looking to their insurers for advice on how to do it. This is currently carried out on a daily basis by NU Risk Advisers working on-site with fleet motor customers."

Mr Baker also asserts that driver safety is an important area of risk management for customers. "Employers are realising that they are responsible for their drivers' health and safety at work," he explains, adding that it is important to take an holistic approach to risk management, encompassing both fleet and occupational risks.

Alan Horemans, commercial motor and liability manager for NIG, comments: "Generally, fleet management has become a lot more professional in the last few years. Clients have got the message that if they continue to have accidents, it will affect their premiums."

Mr Horemans continues: "Businesses are now more knowledgeable about their responsibilities. Mobile phones are the hot topic at the moment and employers need to make sure they include driver guidelines on this. They also need to be aware of the number of hours that drivers are doing - making sure that drivers are not given so much work that they have to speed or become tired just to fulfil the schedule. They need to have guidelines on areas like when to take breaks and the maximum number of working hours."

Basic steps not taken

However, despite a growing realisation among customers about the need for risk management, there is still significant work to be done by insurers in convincing customers to invest in risk management strategies.

Worrying statistics from NU reveal that 85% of the UK's motor fleets are not carrying out even basic risk management. Mr Edwards explains: "Data gathered from 12,000 of our fleet policyholders during the past 18 months shows that only 15% are implementing a programme of the following fundamental risk management measures: driving licence checks; issuing driver handbooks; investigating accidents; and pre-employment checks of driver competency and experience. In addition, less than half of the 15% currently undertaking basic risk management are using any form of ongoing driver training programme to help improve driver performance and minimise risk."

Alistair Steward, risk solutions director at Cunningham Lindsey UK, believes: "It is not that insurers don't promote risk management - but from the customer side, it can be viewed as a grudge purchase." He adds: "Within the insurance industry, insurers can help themselves by ensuring risk management is on the agenda. We are receiving positive messages from insurers that they continue to be committed to this."

Stefan Smyth, business director, Total Accident Management, believes there are still two distinct camps among customers - those who are taking responsibility for risk management and those who believe that the risk is transferred to the insurer and hope to avoid the consequences of market hardening plus the impact of inactivity regarding risk.

Insurers' initiatives

Many insurers are taking steps to promote the risk management message.

This month, for example, NU is launching a work-related road safety campaign to help fleet customers implement basic risk management. As part of this, the company has developed an interactive CD-Rom containing practical advice and guidance on how to set up risk management procedures.

Zurich's Mr Briggs says insurers can help by providing risk management options as an integral part of the insurance proposition or as additional services. He comments: "We have the expertise to share and we can provide detailed claims data that helps the customer identify their specific risks."

Royal & Sun Alliance has invested heavily in the free delivery of its risk management initiatives, according to Lorna Curran, product manager commercial motor. Ms Curran comments: "Our experience suggests that many fleets struggle to respond to new legislation and their duty of care.

Often this is due to a lack of knowledge, exacerbated by low operating margins. Through proactive use of the recently launched FleetActive - RSA's risk management solution - we provide valuable support to assist policyholders improve efficiency and reduce costs, while creating a safety culture among their drivers."

Zurich's UK Commercial business has been working to help raise awareness of the need for business customers to manage the risks that business drivers face every day, says Mr Briggs. "We launched a Road Awareness Campaign at the beginning of the year working with Drive and Survive (provider of fleet risk management) to offer a practical solution to fleet customers that enables them to adopt a cost-effective risk management culture within their business. With the likes of individual driver risk assessments, group and e-learning seminars to train drivers and on-road training, the programme is targeted at driver level in helping reduce the number of incidents."

Mr Briggs adds: "Above this, and fundamental to our fleet insurance offering, is our ability to share claims data with those customers who have demonstrated an appetite to proactively manage their risk, and see the value of a long-term relationship with their insurer."

The relationships factor

As well as ultimately helping to keep claims costs down, insurers that offer help on risk management can also build good customer relationships - an important consideration in what is still a competitive market. As Mr Baker explains: "There is a lot of premium income, it pays a lot of overheads, and it is a key sector for many insurers to be involved in. There are always new entrants who believe they can make an impact - it's a dynamic market."

Mr Briggs asserts: "We operate in a competitive market place and it always has and always will be so." He adds, however, that the risks associated with driving are great and the damage and personal injury that can result from a motor accident can be severe. He explains that, to remain in this competitive market place, insurers need to be able to attract capital and provide a reasonable return to those capital providers. "This can only be achieved through understanding the risks written and to fund adequately not only for those expected losses but also those catastrophes that can happen when driving."

MANAGING WORK-RELATED ROAD SAFETY

Driving at work: Managing work-related road safety has been produced in partnership with the Department for Transport and alerts employers and the self-employed to the fact that their responsibilities under current health and safety law extend to driving at work. It contains generic advice on managing work-related road safety effectively and on integrating it into existing health and safety arrangements.

The production of generic guidance was a key recommendation of an independent work-related road safety Task Group, appointed by the government and the Health and Safety Commission (HSC) in 2000 as part of the government's road safety strategy, Tomorrow's Roads - Safer for Everyone.

The Task Group concluded that existing health and safety law adequately covered work-related activities on the road and that there was no need for any new legislation. However it felt that there was scope for existing legislation to be more consistently and universally applied. The Task Group's report can be viewed online at http://www.hse.gov.uk/roadsafety/report.htm

Source: Health and Safety Executive.