How to cut fleet insurance costs during COVID-19

With businesses in lockdown, corporate cashflow under pressure and many company cars and vans at standstill, fleets and insurers are investigating premium rebates, discounts and holidays on insurance policies.

Two months (at least) of no traffic due to coronavirus equates to 16-17% of annual insurance premiums with no risk to the insurer. The question is how to share this profits windfall with fleets.

Suspend MTPL

If vehicles are parked with no opportunity to drive them, especially rental and leasing companies with their own large car parks and depot-based fleets, then it is possible for owners to suspend Motor Third Party Liability Insurance (MTPL). This is the compulsory ‘green card’ insurance that covers any damage to a third party vehicle which is not at fault for a collision.

Casco questions

The second element of insurance is ‘Casco’, which covers the driver and third parties from injury and accidental death in the event of a crash, as well as any damage to the vehicle. Casco also insures the vehicles against fire, theft, floods, hail, earthquakes and acts of terror. These risks decline substantially, but not completely, if vehicles are not utilised.

“If you have a small fleet it doesn’t make much difference [to suspend Casco] but if you have 500 or 5,000 vehicles it’s a different scenario,” said insurance expert Eric Scrayen, owner of Solves Bvba. He added that legal assistance and roadside assistance insurance policies are also unnecesary while vehicles are not in use.

Home-based company cars

For company cars and vans parked at the homes of employees, businesses could continue to pay MTPL – which accounts for about €400 of a typical €1,000 annual premium – and suspend Casco, legal and roadside assistance, suggested Eelco van de Wiel, managing director, fi insurance. With no risk exposure for insurer or leasing company from locked down cars, this type of arrangement should be straightforward to negotiate, he added.

Negotiate annual premium adjustment

But for a longer-term revenue-saving solution, van de Wiel advised fleets to use this lockdown period to negotiate multi-year insurance policies with annual premium adjustment clauses based on claims history. If claims drop below a certain percentage of the premium, then the premium itself automatically falls for the following year.

This would see insurers calculate their premiums for 2021 based on this year’s claims experience, which should be much lower given the reduced used of vehicles and smaller traffic volumes. A premium adjustment also avoids the insurer having to make a premium refund today, helping its cashflow; retains the fleet as a customer without the acquisition costs associated with securing new business; and should give the fleet a significant premium reduction next year, when premiums in general are expected to rise as insurers seek to recover losses from their life policy lines.

Insurer reaction

Across Europe and North America, there are already indications that some insurers are looking to work with their clients to share the financial savings of vehicles being off-road during the COVID-19 crisis.

In France, MAIF has calculated that the eight-week national shutdown has generated savings of €100 million through a dramatic fall in vehicle accidents, and is proposing a flat-rate reimbursement of €30 per insured vehicle to its 3 million policyholders. Customers will have the choice to accept the refund or donate it to one of three associations heavily involved in fighting the coronavirus pandemic. Generali France has extended its ‘Flottes auto’ policy to cover the private vehicles of workers who now have to use their own cars for work.

In Spain, MAPFRE is supporting its 740,000 self-employed and SME clients by discounting the ‘professional activity’ element of its premiums during the national state of emergency. The amount will be automatically discounted from the first bill that its customers have to pay after the state of emergency comes to an end, in an initiative that will cost MAPFRE €30 million.

And in the UK, Ageas has developed a temporary solution for its fleet clients, offering fire and theft cover to laid up vehicles, althought the vehicles must be officially registered as SORN (StatutoryOff Road Notification) with the Driver and Vehicle Licensing Agency.

US premium refunds

Across the Atlantic, insurers such as Allstate and MAPFRE are giving rebates to customers.  Allstate’s Shelter-in-Place Payback will return more than $600 million to vehicle insurance policyholders, due to the reduction in traffic and accidents during April and May, while MAPFRE’s Insurance Staying Home Refund, will return 15% of annual motor premiums to personal policyholders (subject to regulatory approval) for the same period, representing about $40 per vehicle. Tackling the same issue from a different angle, GEICO is cutting the cost of any car policies up for renewal before 7 October 2020 by 15%.