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Finance: Driving Home a Point

Understanding the Issues Surrounding Commercial-vehicle Insurance

Corey Murphy

Corey Murphy

Company vehicles are vital assets. They are an integral part of our daily business practice. For many, the expense of keeping these vehicles on the road is a significant cost center for their company. They are also a major insurance liability issue that requires your attention if the matter is to be managed effectively.
A helpful tool for managing your company’s commercial-vehicle insurance program begins with a clear understanding of how insurance underwriters calculate your commercial insurance premium. A better understanding of this process puts you in a better position to lower insurance costs and also gain the confidence that your policy correctly reflects proper protection for your commercial-vehicle liability exposure.
The International Assoc. of Industrial Accident Boards & Commissions reports that commercial vehicles traveling on highways, as a group, are a significant risk of serious injury to employees. They are also associated with some of the most costly workers’ compensation claims. Insurance data confirms that traffic accidents are the source of a large portion of the total number of serious cases involving employee disabilities and fatalities. Within this commercial-vehicle risk group are truck drivers, salespeople, messengers, and collectors.
When pricing business automobile-insurance policies, underwriters generally rely on several considerations. They want to know what do you drive, where you drive, and how well your drivers perform. How you answer these questions has a significant impact upon your commercial-vehicle insurance cost. So it is important to fully consider how you respond to each criterion.
The question of what you drive considers the physical characteristics of the vehicle. It also extends to how you use the vehicle and what or who is carried in or on the vehicle. A vehicles is first classified by its gross weight, which is usually assigned by the manufacturer. This weight assessment indicates the weight of the vehicle when empty, plus the maximum load it is capable of carrying. Vehicles used to transport people are classified by their seating capacity, not vehicle weight. Generally speaking, the higher the gross weight — or, for passenger vehicles, the higher the seating capacity — the more it costs to insure the vehicle.
There are several standard classes of vehicles in the world of underwriting. The classes include private-passenger types, service vehicles, retail, and commercial. Again, the group that best suits your vehicles will determine their insurance ranking. A car that is driven by a salesperson to sell and service clients is considered a private-passenger type. If a vehicle is used to transport tools, equipment, or supplies to and from a job site, it fits into the service-vehicle category. An auto used to pick up or deliver property to individual homes or businesses is an example of the retail class. Vehicles used to transport goods or people are classified as commercial usage. This latter group can be further subdivided depending on the cargo they carry.
Where you most often drive is another consideration taken into account. Underwriters often define this by the ‘operating radius’ your vehicles typically drive within. Most often this is measured from a vehicle’s principal place of garaging. A local radius is considered 50 miles or less, an intermediate radius is 51 to 200 miles, and 200 or more miles is considered a long-distance classification. Interestingly, private-passenger vehicles typically have no radius restrictions assigned to them.
The exception to all of this is if your vehicle is most active in a particular geographic area outside its home-based location. For example, a vehicle that is principally garaged in Chicopee but chiefly operates in the Boston area may be assigned by the underwriter to the much-higher-rated Boston territory.
Depending upon your company’s driving record, you may earn a credit. If the driving record proves better than your industry’s norm, you may qualify for a credit. Conversely, if your driving experience exceeds the norm, your premium will be debited. Typically a business with five or more vehicles is subject to this experience rating. A formula taking into account similar-type businesses or industry standards is applied to measure your performance.
It is important to obtain a copy of the rating to ensure that it is accurate. Review this carefully with your agent to identify potential errors. Inaccurate calculations can cost your business plenty.
Finally, whom you select as your drivers significantly impacts your premium. Business owners must pay close attention to their driver selection. A driver-qualification program is a great and simple tool to manage who is allowed to operate your vehicles. Make certain your drivers remain eligible to operate your vehicles and have clean driving records. It is a great way to avoid driving up your insurance costs.

Corey Murphy is a certified insurance counselor and president of First American Insurance Agency in Chicopee; (413) 592-8118; [email protected]

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