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Fleet Insurance Options
The truck fleet operator has several alternatives in structuring their insurance coverage and payment plans. But first we need to segment the various fleet sizes, to determine what makes the most sense for that operation.
We would like to break out fleet sizes as follows:
Group I and II fleets - The alternatives generally involve what payment plans are available and which make the most sense for the operation.
Generally, these fleet policies are set up on a monthly reporting form. Those are usually based on:
Each of these options has its' own advantages and disadvantages.
Gross Revenues policy, for instance, will have a premium rate (say 3%) which is applied monthly to the revenues generated for the month. This is a simple method for the operator, it allows for optimal cash flow as the premium will follow the income, and is advantageous when the fleet is growing and adding units as there is no immediate increase in the premium.
A disadvantage to the receipts policy is that if the fleet increases their rates during the year then those increases effectively increase their premium as well. Other disadvantages exist and depend upon the nature of the operations.
Mileage based policies are good if the mileage being driven can be easily verified and are fairly stable. If the miles driven fluctuate widely, especially if the miles will increase during the term, then this type policy can wind up being more expensive. The key to this type of policy is to make sure the estimated mileage being used as a basis allows for a sufficient cushion to grow a bit; that is, it not be too low. Again, this type allows for growth in the number of units without an immediate increase in the premium.
Scheduled Vehicles reporting is really good for the smaller fleet, say less than 75, where there are only a small amount of vehicle changes. This monthly report of vehicles establishes a monthly premium per unit. It eliminates any mileage or gross revenue reporting and eliminates the potential for premium increases due to higher than expected mileage or revenue. Conversely, it also removes the possibility of adding units without increasing the immediate premium cost.
In each of the three cases above, the fleet operator has a financial incentive to manage their operations better and reduce the number and cost of claims.
Group III and IV fleets - Are usually more interested in some form of risk sharing based upon their claims results. These fleet operations can Reduce the Cost of Insurance by participating in the claims process. That can be done be either placing a liability deductible or accepting a Self Insurance Retention (SIR); which brings the fleet operator directly into the claims process. Finally, the larger fleet operator may even consider creating, or renting, what's known as a Captive Insurance Company. In this case, the fleet actually manages its' own insurance company and that company gains or loses on the premium cost depending upon their results. Other benefits can accrue to the Captive option.
We will discuss each of the above approaches in our next article.
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