The risk of premium increases
The fleet insurance market is facing inflationary pressures. While recent premium increases have been modest, underlying costs are rising due to more expensive personal injury claims, higher insurance premium taxes and new government regulations. But it’s not all bad news - on the plus side, new technology is providing fleet operators with powerful new weapons in their risk management armoury.
Naturally, no single narrative covers the whole of Europe. The insurance markets in individual countries are at different stages of development and face unique, local conditions. According to the new European Motor Insurance Markets report, published in November by the European insurance and reinsurance federation, Insurance Europe, “Average motor insurance premiums differ between EU member states. This diversity in premiums reflects factors that are linked to a member state’s regulatory, risk and economic environment, which all have an impact on the costs of claims and the frequency and severity of accidents. Insurers must thus account for these factors in the calculation of their premiums in order to build appropriate financial capacity to cover their risks.”
But certain common themes are emerging across borders. The mounting cost of personal injury claims, for example, is a growing worry for insurers. While the number of bodily injury claims accounts for just under 14% of all motor third-party liability claims recorded by European insurers it represents 48.4% of all claims expenditure, said the European Motor Insurance Markets report.
“What concerns insurers is the spiralling costs of bodily injury claims,” said Simon Kay, chief underwriting officer motor, Axa Corporate Solutions. “In France and the UK there are issues on annuity payments, and there are issues on providing third party care to bodily injury victims of severe accidents.” He forecast that the cost of settling larger bodily injury claims will continue to outstrip inflation in 2016, but expects premiums to maintain their low trajectory of 2015 with increases of just 2-3%. These benign market conditions have stifled the expansion of fleets self-insuring, but it’s a strategy that is always under corporate consideration.
“Markets have been very competitive and suppressed, and clients have been able to get reasonable, conventional guaranteed cost deals from insurers which has meant they have not really needed to look at self-insurance levels,” said Kay. “I think that will come back, but whether it happens in 2016 remains to be seen.”
High insurance premium taxes (IPT) could be a key driver for larger fleets deciding to carry more risk themselves, said Eric Scrayen, Aon’s director automotive & logistics, CEE-CIS region.
“In Europe, insurance premium taxes keep on increasing,” he said. The average IPT in western Europe is 20%, but this masks a huge spread, from zero in Poland and Ireland to 32% in Sweden and 43% in Denmark.
By self-insuring, corporate fleets avoid this tax. Moreover, as larger fleets continue to expand, businesses have the chance to amortise their risk over a greater number of vehicles, which makes self-insurance more attractive, especially for damage repairs. Eric Scrayen added that developments in data reporting through telematics and vehicle connectivity are also making it easier to manage self-insurance.
“Large fleet-owners of 250-plus vehicles will take higher risk retention,” he predicted. “That can be high deductibles [excesses], annual aggregate stop-loss, self-insurance for motor-own damage or even captive solutions where they have their own insurance regulation within the group, mainly for international pan-European fleet owners.”
Assessing the European market, Eric Scrayen identified a variety of market conditions, from dramatic premium increases in Poland to greater stability in more mature markets. All insurers, however, are facing tighter regulatory conditions that could lead to fleets paying higher premiums.
Following the meltdown of financial markets in 2008, regulators now insist that, “each and every insurance line should be profitable,” he said. This means insurers can no longer cross-subsidise their operations, and sectors like motor fleet that have traditionally operated on wafer-thin margins are under pressure to increase rates in order to ensure their profitability.
“My best guess would be that premiums will increase for the next few years,” said Eric Scrayen.
This forecast places a greater responsibility on fleet operators to manage their risks and reduce the frequency and cost of collisions. Unfortunately, few fleets are seizing the opportunity to do this, said Andy Price, practice leader, EMEA, motor fleet, Zurich Risk Engineering Europe.
“There is a growing realisation that driver behaviour telemetry can make a difference, although that hasn’t necessarily resulted in an uptake of that technology because of the realisations of what an organisation has to do with that data to make it a success,” said Andy Price. “It’s a struggle to get organisations to understand they can manage work-related road risk, if they have an appetite to do it. The people that are doing it well are few and far between.”
His experience is that even well intentioned employers, which are prepared to invest in risk management, are failing to see results because they are investing in the wrong areas. “They do not put enough effort on management and especially line management and the influence they have over their direct reports. And they put too much emphasis on training. It’s good that they want to manage risk, but frustrating that they are spending time, effort and money and it is not having a massive effect on their collision claim rates.”
There is hope, however, in the cascade of active vehicle safety systems, such as autonomous emergency braking and lane departure warnings, from executive saloons to essential user company cars. These systems have the capacity to reduce the frequency of crashing into the car in front by 38%, according to Euro NCAP.
Seizing such opportunities will be key to corporate fleets minimising their exposure to premium increases in 2016.