Whether you run heavy trucks, pickups, or vans – insuring your vehicles has likely become painful for you. Continued rate increases, tighter coverage terms, higher deductibles, and driver restrictions are all common in the current commercial auto insurance market.
While we cannot offer any immediate remedies to nuclear verdicts, greed-driven plaintiff attorneys, funded litigation, or higher repair costs, we can provide some insight on how telematics can help lower your insurance costs.
As a preface to the following, given the important role your agent or broker plays in helping you to manage your risk, they should be your ultimate go-to for insurance advice. Combining their knowledge of your operations and account history with their expertise and market insight, your agent or broker will be a valuable source of guidance for you. That said, we do hope the following will help you have more informed conversations and enable you to take steps that can save you premium dollars / improve coverage terms.
Insurers consider an array of (sometimes complex) factors as they decide whether to provide coverage – and at what price they are willing to do so. While parameters vary from one insurance company to another, common considerations include:
- Exposure – How many vehicles are covered? What types of vehicles are they? Where are they driven? How are they used? How often and how far are they driven?
- Drivers – Insurance companies look closely at the capabilities and track records of the drivers who operate your vehicles. You are likely familiar with insurance companies’ use of Motor Vehicle Records (MVRs). Insurers use tools like these to distinguish between safer and riskier drivers.
- Risk Management – Insurance companies also look at how their policyholders run their operations with a particular focus on activities and procedures that help reduce risk. Insurance companies will often offer credits for companies with specific mechanisms in place that help to reduce risk, e.g. driver training programs.
- Loss Experience – Most insurers will consider loss information across at least two dimensions: 1) Loss Severity (i.e. how expensive the losses are in dollar terms) and 2) Loss Frequency (i.e. how often claims occur). Given the length of time it can take to resolve some types of claims (particularly Liability and Workers’ Compensation claims), insurance companies have less “certainty” on the ultimate cost (severity) of more recent claims. Therefore, insurers will generally default to a conservative view on what the ultimate cost of a claim may be until the claim is finally resolved. The number of claims (frequency) is not subject to the same level of uncertainty as accidents tend to be reported rather quickly.
Understanding the above, how can telematics (whether GPS or Camera) help you with your insurance carrier? Here are a few areas of opportunity to consider:
Exposure – Telematics capture very accurate information on your vehicles, including when, how far, and to what locations they are driven. Greater certainty about the operating patterns of an account can increase the comfort level of insurance underwriters and have a beneficial impact on the terms of coverage that they offer.
Drivers – Your GPS / Camera program also enables you to prove and document how your vehicles are driven. Being able to demonstrate low levels of (or reductions in) risky behaviors such as speeding, can positively influence an underwriter’s assessment of your account.
Risk Management – Most telematics providers offer additional features to help you manage your vehicles. Documenting use of tools such as vehicle maintenance schedules, formalized driver training, vehicle inspection reports, etc. can have a favorable impact on an underwriter’s assessment of your company’s risk management culture (and, as an added bonus can reduce costly safety violations). In turn, as noted above, you may qualify for discretionary credits that reduce premiums.
Loss Experience – The quantity and cost of vehicle accidents are among the biggest determinants of pricing and terms for Automobile Liability / Automobile Physical Damage coverage (and can also impact Workers’ Compensation rates).
Understandably, dash camera footage can be helpful in defending claims. When your driver is at fault, it can help settle a claim before costs spiral. Either scenario favorably impacts loss severity.
Given the number of accidents (i.e. loss frequency) is known relatively immediately, it can be easier to show your insurance company an improvement in loss frequency than loss severity. We would suggest reviewing your frequency trends with your agent / broker if you do not already do so.
In addition, your telematics data (and what you are doing with it) can help you to paint a compelling picture about how you strive to minimize the chances of accidents occurring in the first place.
There is a high correlation between speeding levels and accident rates. Leveraging your telematic data to take proactive measures, such as implementing a coaching program to reduce speeding, reflects favorably on your operation. Importantly, your telematics data also affords you the opportunity to definitively prove the efficacy of your program by showing your insurer low levels of speeding / favorable trends.
Marketplace – The insurance market is often subject to pricing cycles that push premiums up or down (either for particular types of business or for the insurance market as a whole). As operators of commercial vehicles have been a particular target of plaintiff attorneys in recent years, overall commercial auto insurance results have been poor. Therefore, premiums have been increasing in general. Against this backdrop it can be important to bear in mind that a “win” may not be a premium reduction. Instead, a good outcome may be a smaller premium increase than you might have otherwise received. Again, your trusted agent / broker can provide you with useful insight into the realities of the current marketplace as well as other factors to consider, such as limits, exclusions, insurer ratings, etc.
Value – Insurance may be the only business in the world where a company’s cost of goods sold is unknown until well after the sale. While underwriters are accustomed to living in this state of uncertainty, the comfort found in things that increase visibility and certainty is of value to them. Whether and how you choose to share your telematics information with your insurer is obviously a decision for you to make, but odds are pretty good that your underwriter will return the favor and recognize your efforts and performance.
Active Use of Telematics Can Help You Control Insurance Costs
- Increase underwriters’ confidence in your operation
- Provide proof of safe driving
- Reduce the chances of accidents occurring
- When accidents do happen, use dash cam footage to minimize claim costs
- Improve your risk profile to access premium credits
At the end of the day, telematics are not just a tracking tool — they can be a strategic asset. Used actively and correctly, telematics can strengthen your risk profile, reduce costs, and protect your employees and your business from harm.
