Premium approach: How technology can cut fleet insurance costs
The Association of British Insurers estimates that £11bn was spent on car insurance last year, and from the end of this year, fleets will be hit by a 3.5% hike in insurance premium tax. As a result more organisations than ever before are now investing in the latest in-vehicle technology and telematics services in an attempt to bring premiums down.
The usage‐based insurance (UBI) or pay as you drive (PAYD) insurance models are expected to be used by 36% of all insurers by 2020, and a number of leading insurance companies, including Admiral, Allianz and Direct Line – already use ‘black box’ telematics units to offer bespoke insurance premiums based on driver performance.
Black box telematics systems collect vehicle data and help set premiums based on the type of vehicle used, measured against time, distance covered, driver behaviour and location. UBI differs from traditional insurance by attempting to differentiate and reward ‘safe’ drivers, offering lower premiums and/or a no‐claims bonus after a sustained period of safe and careful driving behaviour is logged.
“Telematics technology has the potential to shake up the motor insurance industry,” explains Nick Walker, managing director of RAC Telematics. “Until recently, UBI has mostly been aimed at the young driver consumer market. But this is changing and the benefits are now being recognised by business. By analysing the stress on the brakes, the average speeds and the health of key components and parts, the insurer will understand a lot more about how the policy holder is driving the car and the condition of the car.”
Regular analysis of telematics data allows insurers to gain a clearer picture of the risk profile of individual drivers, helping to set appropriate premiums and recommend driver training where needed to further improve driver skills. Some black box suppliers claim use of the units can reduce premiums by up to 30%, saving up to £1,000 in extreme cases.
Creating a culture of safe driving in the workplace is vital if a fleet hopes to decrease accident rates and benefit from reduced insurance premiums, as Nicholas Kitchen, head of casualty and motor at insurance firm Zurich, explains: “Often too much emphasis is placed on training, but if the driver is then subject to operational and/or management pressure to achieve a business objective, and they have to take risks to do so (an example would be unrealistic delivery schedules or appointments), then they are still going to have collisions.
“Rather than the drivers themselves it is their line managers who probably need training first, to give them the tools and skills needed to engage with their direct reports, understand the risks faced and conduct driver debriefs following incidents or collisions.
“Probably the biggest obstacle preventing the wider adoption of telematics is the need for managers to do something with the data, whether this is logging on to a Management Information System or using exception reports. Without manager engagement, employees are unlikely to modify their driving in the medium to long term.”
Car servicing and repair company Kwik Fit recently fitted telematics devices to eight company cars driven by managers responsible for the Kwik Fit Mobile operation. Explaining why the fitting of telematics units to managers’ vehicles was important to the company, fleet operations director Simon Lucas, says: “Kwik Fit believes it is one of the first organisations to fit telematics to company cars at management level.
Telematics has a role to play in improving driving behaviour and having equipped the Mobile vans, we are now equipping management cars. My car will be the first to be equipped, so I am leading by example.”
Risks increase in the winter months
According to motor insurance provider Accident Exchange, there are more than 258,000 vehicles written off annually, with a value of almost £2bn. More than one in 10 car crashes result in a total loss, with accidents found to be more prevalent in November than any other month of the year, with the final quarter notching up 30% of the annual total. An analysis of 40,000 car insurance claims handled by Accident Exchange revealed a clear summer/winter divide of the frequency of serious accidents, with the summer months – May, June and July, seeing the fewest total losses.
The higher frequency of accidents in the winter months, and November in particular, can be attributed in part to the change from BST to GMT and a higher percentage of rush hour traffic travelling in the dark. This results in reduced visibility and the increased potential for drivers to be dazzled by the headlights of oncoming traffic, as well as exposure to adverse weather conditions such as heavy rain and ice.
This could have a negative impact for drivers using black box systems in the future – American telematics company Octo Telematics recently announced a partnership with The Weather Company to refine the risk‐scoring algorithms insurance providers use to set premiums.
Partnered insurers will be able to view average weather conditions and cross reference information with trip data to determine the driver’s exposure to weather‐related risk. Ice, rain, hail and snow will all increase the driver’s risk score, and while premiums won't be hiked for bad scores influenced by weather, motorists will not qualify for black box discounts if they regularly drive in adverse conditions.
Driver performance solutions
The deployment of in‐cab coaching and sustained driving training can be an effective way for fleets to achieve favorable insurance premiums or no claims.
Information management services supplier Iron Mountain has reported a 36% reduction in insurance premiums over the past five years, following its partnership with a driver behaviour software supplier.
Safe and cost‐effective driving was particularly well represented on the fleet in 2014; with 20% fewer collisions reported versus the previous year and a 34% decrease in related costs.
Iron Mountain also reported a drop in speeding violations as a result of GreenRoad’s Speed by Speed Zone software, which has been particularly effective at decreasing instances of drivers exceeding speed limits in lowspeed
“Through clear, in‐vehicle feedback and strong change management support, speed violations dropped significantly,” reveals Rory Morgan, Iron Mountain’s head of logistics support, Western Europe.
“I think that averaging less than one often‐minor incident per fortnight per vehicle, for a fleet that covers eight million miles per annum, is just phenomenal but we will continue to work with the drivers to reduce this further.”
Driver safety aids
Developments in driver safety aids such as Autonomous Emergency Braking (AEB) are also generating opportunities for fleet operators to improve driver safety – and therefore potentially reduce their fleet premiums. AEB uses sensors to identify objects in the road ahead to warn the driver and if necessary to brake to avoid or reduce the speed of a collision.
A wide range of cars are now available with AEB in urban mode (for incidents up to 25mph), in Highway mode (for use at speeds over 20mph) or both. “The latest devices go even further and can help spot pedestrians or cyclists,” explains Simon Baker, head of commercial motor at insurance specialist AXA.
“In fact, to qualify for an NCAP 5 Star rating, a car must be fitted with at least one of these so in the last year over half of all new models launched offer AEB as an Option or Standard.”
Real world data reports released by Thatcham Research Centre suggests a 38% reduction in rear end collisions and an 18% reduction in Third Party Claims from vehicles equipped with AEB Technology.
“Simply by changing the model of cars or paying a little extra for optional AEB you could start to improve your claims experience and ultimately the cost of your motor fleet insurance policy,” says Mr Baker.
While the availability of AEB is not as widespread for vans, some manufactures are starting to make the technology available – especially on smaller vans. “AEB and other advanced driver aids are starting to change the picture and will allow you to risk manage your fleet right from the point at which you decide on your vehicle replacement cycle and vehicle choices – something that is probably worth discussing with your vehicle suppliers and your insurance advisors,” Mr Baker adds.
Severity of accidents
As driver assistance technology becomes more effective, Zurich’s Nicholas Kitchen believes that we should see a gradual decrease in the frequencies of many low‐speed collisions, but the severity of high‐speed collisions will be largely unaffected, potentially leading to higher claims costs when an accident does occur.
“Looking at the issue in a positive light, technology zuch as AEB and Adaptive Cruise Control will certainly reduce the number of low speed incidents, but severity is likely to increase as a consequence and when something does go wrong it could tend to be bigger,” he says. “Therefore, the increasing use of Periodic Payment Orders (PPOs) from courts for catastrophic bodily injury claims will also significantly increase the claims costs from such events.”
Evidence for insurance claims
According to a survey of 500 UK businesses by RAC Business, 18% of companies have used telematics data to prove that a driver wasn’t at fault for an insurance claim, and a further 17% have used the data to successfully appeal against a speeding fine.
“These findings point to clear benefits for fleet managers using telematics technology,” says RAC Telematics MD, Nick Walker. “Speeding fines and insurance claims can be difficult to contest and often result in fines being incorrectly imposed as well as leading to damaging increases in your insurance premiums.
“This was tested in Macclesfield Crown Court last year when telematics data was used to disprove a fraudulent insurance claim worth £54,000. Or, conversely, if a driver or employee has committed an offence but is trying to cover it up, the telematics data will show what actually happened.”
The research also shows that telematics systems can reduce fleet costs by encouraging safer driving.
Some 58% of companies reported that telematics had reduced the amount they paid in speeding fines, 47% said that they had led to a drop in insurance premiums, and 68% of firms said that telematics had cut their combined fuel bill.