Five key challenges for fleet insurance
Rising premiums, advanced vehicle technology, driver behaviour, new data sources and changing vehicle usage patterns will demand a fresh approach to insurance policies, says Hessel Kaastra, managing director of LeasePlan Insurance
Fleet insurance is heading into uncharted territory as transformational technology and new vehicle ownership and usage patterns challenge traditional policies.
Given that insurance is the third most expensive element of a fleet’s total cost of ownership, planning for this fast-changing future is vital, said Hessel Kaastra, managing director of LeasePlan Insurance (pictured above).
He has identified a series of major global trends that are set to have a significant impact on fleet insurance over the next decade. Understanding what is causing the market’s inflationary pressure on premiums and identifying effective risk management strategies will be vital to minimising costs.
Since 2016 insurers have found themselves under stricter regulation to ensure adequate captalisation of each line of insurance. Hence income from higher margin policies, such as property and public liability insurance, will cease to cross-subsidise highly competitive business lines such as fleet, said Kaastra.
To combat rising costs, fleets have to lower their risk profile, which involves focusing on both vehicle safety features and driver behaviour.
A growing body of evidence is starting to record how in-vehicle Advanced Driver Assistance Systems are helping to avoid collisions. Research by the Allianz Centre for Technology indicates that parking assistance systems could cut third party liability claims frequency by 45%, while automatic emergency braking systems could eliminate 36% of minor third party claims. A full suite of ADAS has the potential to avoid 75% of all third party claims and 65% of fully comprehensive claims, according to Allianz.
Combining this safety technology with telematics systems has the capacity to provide fleet decision makers with a rich source of meaningful data and reports that identify higher risk areas of the fleet and higher risk drivers, said Kaastra.
“This will be vital to achieving company safety goals,” he said. “After all, what gets measured gets done.”
It will still, however, require concerted action by fleet operators to analyse data, devise safety strategies and then implement them successfully.
“It starts with having a continuous focus on the issue at management level,” said Kaastra.
“Companies that have been successful at driving down accident frequency have clearly defined objectives, KPIs, and conduct regular reviews of how the fleet is performing. You cannot simply roll out driver training and expect accident frequency to come down.”
He also warned that access to telemetry data for fleet operators, leasing companies and insurers is under threat, as vehicle manufacturers position themselves to be gatekeepers to connected vehicle information. Forecasting that aftermarket plug-in telematics systems will disappear in the long run as vehicles leave the factory fully ‘connected’, Kaastra echoed the insurance industry campaign for free, fair and independent access to this vehicle data.
“There should be a common, open platform for these data, incorporating “privacy-by-design” to comply with applicable regulation and protect the driver,” he said.
Yet within the same timeframe, fleets and insurers are also likely to have to contend with very different vehicle usage patterns as the mobility revolution gathers pace. The development of pool fleets, on-demand rental and peer-to-peer car sharing models challenges the foundations of traditional fleet insurance cover as a monthly or annual premium, said Kaastra.
“This means that, in the longer term, vehicle type will cease to drive insurance premium. Instead the way a vehicle is used (such as mileage and location) and by whom will increasingly determine fleet costs, leading to usage-based pricing models,” he said.
“Our pricing models will have to be revisited, enabling daily or even hourly pricing. One of the big unknowns is how to take utilisation into account.”
Where a lease vehicle today currently has a nominal 100% utilisation rate, under a shared usage scheme the vehicle may stand idle some of the time and have multiple users at other times.
“And then the question becomes, who is the client, the owner or the driver?” asked Kaastra.
The answer may well be twin policies, one for when it is standing idle, and the second which is flexible enough to cover hourly or daily use.
Historically, premiums for individuals have been based on the type of vehicle (its weight and power) and the driver’s background, including their claims record as well as their home address and age. In the future, however, these assessments of risk could well be enriched by the frequency and location of where a car is used. Frequent use on congested urban roads at rush hour or in adverse weather, for instance, would lead to higher premiums.
“The holy grail resides in finding the best correlation between risk and information about how, when, where and by whom a vehicle is being driven,” said Kaastra.
