Fleet could crack

Andy Keane, Motor underwriting manager, Norwich Union

It is no secret that the motor fleet market - worth £1.8bn at last count, according to the Association of British Insurers - is struggling to achieve rates at a level that will deliver satisfactory profits.

Our market - though thoroughly unsuitable for it - is, in the main, following the private car market. That means it is in danger of being treated as a commodity where the focus remains on price. As insurers, we must share some of the blame for conditioning customers to focus on price.

In the wider context of a continuing appetite for compensation, the number of claims involving a third party bodily injury element is increasing - with the proportion of the total claims spend mushrooming to 45%, from 25% five years ago. So, if we cannot control the propensity to claim, we need to focus on reducing the number of accidents through risk management.

Coupled with that is the current reliance on reserves, with future pricing decisions being shored up by unprecedented releases. But you can only dip into the pot for so long.

Actuaries EMB observed that back in 2004 the market experienced unprecedented reserve releases for historic claims. And yet this was again surpassed in 2005.

Clearly, this is not about the industry abandoning the principles of trading - but there needs to be more substance backing up the proposition. Now is the time to place an emphasis on technical underwriting while remembering that the core element for the fleet customer is managing costs, reducing vehicle downtime and minimising disruption by dealing with claims promptly and effectively.

A closer working relationship between insurer, broker and client is needed to shift the focus away from price and onto value. Brokers and insurers should be working together, sharing knowledge, expertise and, most of all, improving the outlook for all parties.

Certainly, it is in everyone's interest to improve the understanding of a client's needs. However, the broker needs to have confidence in the insurer to allow access to their mutual customers. It is all about ensuring each party develops a sustainable relationship for the longer term.

Added-value elements

At the smaller end of the fleet motor market, the emphasis on price is probably even more apparent. However, equally, those managing fleet vehicles at this level - invariably part-time fleet managers juggling responsibilities - have neither the time nor resource to manage their fleet as they would like.

This is where the added-value elements offered by brokers and insurers are even more important.

Among the bigger risks there is a demand for pricing and servicing alternatives. This might be a large excess or retro-rebate-pricing options, in which, for a longer-term arrangement with insurers and a well-managed risk, the broker and customer can share in the benefits. Equally, this end of the market places other demands on suppliers, such as insurers recognising the use of bespoke repair providers.

Ultimately, it is about understanding the policyholder's needs thoroughly, looking for the unique aspects of each fleet operation and not treating motor fleet business as a commodity.

So, what are the priorities in the fleet market this year when it comes to risk management? As an industry we are, generally, getting the message across about risk management, with an increasing number of fleets addressing the critical issues to some degree. Yet more fleets need to implement at least basic risk management, including driver vetting, induction, licence checking and implementing robust accident procedures.

The fleet surveys undertaken by Norwich Union Risk Services reveal that many fleets are simply trying to avoid legislation rather than tackling it head on.

Even for those who are equipping themselves with a health and safety policy, there is a tendency not to re-assess or re-visit it. Like any process, it has to be reviewed and monitored, especially in line with business changes. Too many driving-at-work policies gather dust on the shelf, when they need to be live, pragmatic documents.

Some use the issue of high staff turnover as an obstacle, questioning the value of repeating the same risk management mantra time and again. Is it worth it? Of course it is.

Transport companies - for whom driving forms the core of their business activity - are more likely to manage the demands of legislation. However, where driving is simply a necessary evil, the management of risk within the fleet tends to be less rigorous.

The worst offenders often rely on ignorance as their best defence. For example, the regulations governing the use of trailers - affecting who is allowed to tow what - changed years ago, yet many companies are still ignoring them. Ignorance is no excuse when there are many places customers can access this information.

Organisations should make sure that whoever is given the responsibility for the fleet has the time and resources to keep up-to-date with the relevant legislation.

Identifying problems

Brokers have a big responsibility in this process. In the best interests of their client, they should be open to working alongside risk advisers to help identify any problems. For underwriters, field-based risk advisers are their eyes and ears, helping to control and manage costs, improve risks and ultimately reduce the impact of accidents.

For those brokers who want to continue offering an extra level of risk management expertise, there are excellent training resources available, some of which can lead to nationally recognised qualifications. Brokers can raise their own skill levels to understand more about what the fleet operator needs. Legislation changes can be complex, so the broker can become the client's expert adviser. Feedback from our risk management workshops tells us that brokers and clients are walking away with a 'kitbag' of new approaches to help reduce risks.

Another opportunity for fleets is investigating the role of vehicle tracking device telematics, which can assist in the management of the duty of care for drivers.

Anecdotal evidence suggests that fleet managers have been slow to embrace this type of technology. It is not surprising when the principal opposition often comes from those the telematics system is meant to help - the drivers.

Fleet managers have to convince drivers that it is more than the alleged "spy in the cab", and that it is there to protect them. Used effectively, collated information does have a part to play in changing and influencing driver management as well as driver behaviour.

The historical way of selling telematics has not helped matters. Some fleets have ended up being tied in to costly, long-term deals with systems that do everything, despite the fact that they may only need a small number of specific functions.

Companies should be able to select the telematics functions that are most relevant to their business and this might involve running a pilot scheme.

Once proven, this should create a greater number of telematics users, genuinely happy with the systems and who become ambassadors for the concept generally.

That means, however, that fleet managers actually need to use the data provided by the system. Incredibly, some companies are paying for the service but failing to analyse the output, so missing out on the benefits it offers.

Developing offerings

Looking ahead to next year, the first group of drivers will be affected by the Drivers Certificate of Professional Competence. Bus and coach drivers will the first to come under the requirements of the scheme, developed as a requirement of the EU Directive 2003/59, which is designed to improve the knowledge and skills of professional LGV and PCV drivers throughout their working life.

Drivers will need to undergo 35 hours of training within a five-year period in order to maintain their vocational licence to drive LGV and PCV vehicles

The trend within companies has been to have people trained internally, so they can control when and how it happens. Businesses have different needs and risks and that is why internal risk management and training may work better.

Brokers need to be looking at what they can do to develop their offerings above and beyond the competition. Insurers are constantly exploring new areas of business that should help with this process.

Case study - Driver fatigue and Duty of Care

A firm that encouraged a culture of long hours was found liable for a road accident in which one of its workers was paralysed.

Kitchen fitter, Michael Eyres, was able to sue his employers for damages after being flung from his van when falling asleep at the wheel. His final award will be reduced by 33% because he was not wearing a seat belt and knew he was at risk of falling asleep after working for 19 hours. Lord Justice Ward, at the Court of Appeal, said Eyres was "in that predicament because his employers had put him there". Next to him, fast asleep in the van, was Craig Atkinson, the managing director of Atkinsons Kitchens and Bedrooms, Bradford. Lord Justice Ward said: "Mr Atkinson saying 'eating's cheating' and 'you can sleep when you're dead' summed up the company's philosophy."

This case illustrates the dangers of driver fatigue, and how the culture of a company can influence the accident record. This particularly affects van and car drivers, as their driving hours are not as well regulated as LGV drivers.

Though, in this instance, Eyres' claim - as the driver - will fall on the employer's liability insurers, any injuries to passengers or other third parties would fall on motor insurers.

It is important for every policyholder to be aware of the issues and introduce an effective policy to combat driver fatigue, particularly if the operation includes high mileages and a large amount of motorway and night-time driving.