Cutting your insurance costs

Keeping costs down always matters to hauliers, and that counts double in a recession. However, insurance is one part of the haulier's budget that is going to be tough to reduce this year, largely because insurance costs have started to rise after years of downward pressure took premiums to historic lows in real terms.

In fact, some brokers say that some insurers let their rates drop foolishly low, because many were so keen to build up the volume of their business that they set premiums at a rate that was losing them money. From an insurer's point of view, the recession is the time to put that right, which means premiums are now going to start rising.

Larry Smith, managing director of the haulage division of Towergate Insurance, which acts as a broker for the Road Haulage Association, says premiums are now definitely on the way up. This is inevitable, he argues, since many insurers have been effectively ignoring the insurance industry principle that for every £100 taken in insurance premiums a maximum of 70% should be paid out in claims, with 30% retained to cover costs.

"For many insurers, the loss rate has been closer to 100%, without taking any of their costs into account," he says.

Smith adds that the fall in the stock market has not helped – many insurers' loss-leading insurance premiums used to be propped up by their profitable investment in the stock market. Not many investments in the markets are particularly profitable now, so a useful crutch has been kicked away. Some of the insurers are taking firm steps to correct low premiums, reveals Smith, who has had clients who have been faced with 40% increases in insurance on a "take-it-or-leave-it" basis.

Change of attitude

In such cases a new insurer can sometimes be found at a less-heavy premium, but Smith warns that hauliers may need to change their attitude to insurance as well as their insurer. He says: "Too many hauliers simply look for the cheapest premium when they should really be looking at insurance as risk management."

Smith says the best long-term way to manage insurance is to cut risk through methods such as profiling drivers or to use in-cab technology as a risk management tool. Putting a black box in the cab not only helps a haulier identify individual driving habits, but it can actually change them simply by being there – it encourages drivers to take more care, he explains.

This doesn't apply just to trucks. In one case known to Smith, a company running a crew bus to a construction site found that it was regularly travelling at 90mph to get there. He says: "The point was that knowing this enabled them to do something about it." Once a company does start to manage risk, premiums naturally come down, says Smith.

"I have clients paying 50% of what they were paying four years ago because they have managed risk. Lower claims will control your premium," he says.

It is also possible for hauliers to get a longer-term perspective on their insurance by fixing part of it for several years. Smith highlights one scheme originating on the Continent but now underwritten by Norwich Union (soon to be called Aviva) called Kasko, which allows hauliers to split their material damage cover from third party insurance.

Fixed-rate

Kasko covers the material damage insurance at a fixed rate for up to four years, while leaving the third-party insurance to be arranged separately and conventionally. This allows the haulier to predict at least part of its insurance bill for a longer period at a fixed rate.

For many hauliers, this sort of deal might be worth considering when their insurance comes up for renewal this year, although many operators are somewhat conservative when it comes to changing their approach. There can be good reasons for this if long-term relationships have been fruitful. Alan Ferguson, managing director of Tyne and Wear-based Ferguson's Transport, says the firm has had the same insurer for 50 years. Add to this the fact that Ferguson's is one of those fortunate (and well-run) firms whose profits are up this year and he does not expect to switch insurers, recession or not.

Pay-as-you-drive insurance seems to be a logical way of saving money on premiums during a recession. If work is thin on the ground and your trucks are doing fewer miles, it would seem sensible to link your insurance bill to the amount of work that you are doing.

Or it would be if anybody was offering such a scheme. The one major insurer to experiment with it, Norwich Union, withdrew it after trying it two years ago in a scheme that was intended to fix premiums.

A spokesman for the insurer says that using the black box technology necessary to monitor the policies did not prove cost effective.

Norwich Union trialled the scheme through around 50 brokers located across the country, and one of those who offered it says that part of the problem was that too often it was sold in the wrong way.

He adds: "Most brokers sold it on the basis of fixing the premiums. It should have been sold on the basis of giving the hauliers meaningful information about their drivers and how they might better manage risk."

Theft and fraud

Most insurers confirm brokers' warnings that premiums are going to go up, not down, in the recession. Mike Smith, commercial motor technical manager for Norwich Union, adds that hauliers may well face other recession-related problems as the downturn continues:

• Thefts of vehicles and their loads tend to increase in a recession.
• Fuel and catalytic converter thefts are also on the up, suggest Norwich Union figures.
• Fraud is another problem that often gets worse in a recession and hauliers should be aware that staged accidents are not unknown. Every haulier's drivers should be aware that other drivers may cause deliberate collisions in order to make a false insurance claim, says Smith.
• Hauliers should also be aware of the possibility that some drivers may be moonlighting and using company vehicles for extra work of their own outside normal working hours.

Checking your drivers' credentials is crucial too. Smith says: "People become desperate for a job and drivers may be tempted to cover up previous incidents and convictions."