Premium numbers: Ian Shaw looks at how the insurance market for LCV fleets is changing - LCV insurance - excess loss policies cover financing; includes related article

Unfortunately it's a familiar tale. The insurance payout on a stolen or written-off vehicle is less than the outstanding finance on it. The newer the vehicle, and the longer the borrowing period, the greater the actual final cost of the finance and hence the greater the deficit.

"Any insurance policy is designed to put the insured back to the position before the claim, and hence the current market value of a vehicle is used. It is not intended to take account of any finance upon a vehicle, if this is over and above the market value," says a spokesman of the Association of British Insurers

The obvious question, when household insurance and some capital equipment insurance covers the insured on a new-for-old basis, is why has no enterprising insurance company offers the same for vehicles.

In theory you can insure virtually anything, so a new-for-old vehicle insurance is by no means impossible. However, when insurance companies look at the possibility, the pitfalls are the greater risk of fraud and the premiums required to replace a five year old vehicle with a new one would probably be prohibitive.

Ironically, the way to avoid the problem, is by taking more insurance. So-called GAP (Guaranteed Asset Protection) insurance offers the operator protection against excess losses.

The product is now finding favour with van and even car operators, but is most widespread in the truck world, with its obviously higher-priced fleets. Consider if a truck was written-off and the insurers declared its market value at 12,000 [pounds sterling], the haulier may still owe the finance house 15,000 [pounds sterling] on the truck and worse still it may only be a couple of months into the yearly insurance premium for the vehicle.

Although most fleets pay insurance monthly, the premium is due at the beginning of the year, having had two months of insurance cover, the policy was in use and the insured would not be entitled to a refund on the rest of the premium, altogether the insured might have lost around 5,000 [pounds sterling].

There are excess loss policies to cover this problem. The take-up of such excess loss policies is mainly for fleets with up to five vehicles. Like most bought-in essentials in LCV operation, the large fleet operators get a better deal on insurance than the smaller operator, a worrying trend in the industry.

Basically, some insurance companies don't want vehicle business any more. Many have lost so much on their general motor accounts that they are increasing premiums and they always increase commercial vehicle premiums first.

Commentators in the industry have advice for contract hired fleets too. Make sure that the insurance company notes and acknowledges that the vehicles are contract hired, the contract hire company's name should appear on the insurance policy and the insurance company should deal directly with the contract hire company in the event of a claim, not the operator. This process also needs to agree a value for certain vehicles -- particularly any with conversions or special bodies -- to ensure that the insurance cover meets the contract hire company's valuation of the vehicle.

It seems clear that the insurance industry is set on its market-value path and the ability to cover above this is unlikely. However by using a separate policy, operators can at least cover the shortfall and get back on the road in with new vehicles a little sooner.

RELATED ARTICLE: Self sufficient.

Larger fleets are beginning to move towards self-insurance as premiums rise, according to market feedback gathered by bodyshop network ABS.

Several large LCV fleets have either approached or signed up with ABS to provide repair services following premium hikes that have made self-insurance more attractive.

Alan Hodgkinson, ABS network director, says: "The motor insurance market has been hardening and, in these conditions, many large fleets look carefully at self-insurance. It makes financial sense, especially if you have suffered from a poor accident rate.

"The problem for many of them is the repair factor - they do not have access to a network of bodyshops. This is where we are in a unique position to help. A few fleets have started using ABS for this purpose while others are showing significant interest."

Hodgkinson explained that the move to self-insurance was a difficult one for most fleets because it required them to take responsibility for a range of functions in which they had no core expertise and that had previously been handled by their insurer.

He said: "These are usually matters like having a telephone helpline that will provide assistance after an accident and then place the repair within the bodyshop network. Again, this has been one of the areas where we are able to provide a service to fleets because of the newly-expanded call centre that is in place at our head office."

Hodgkinson added that fleets moving to self-insurance were also demanding high levels of management information -- a requirement being met by ABS.

He said: "We have recently invested in a new central IT system that not only allows us to manage the repair process but to compile very high quality management information for our customers that is timely, accurate and relevant.

"Software has also been developed that will be used at each of our bodyshops to notify us of each stage of the repair process including essential performance indicators such as how long the job is taking and contact with the vehicle owner. We are now able to build a picture very quickly of the service we are providing, spot any problems, and provide an easily auditable set of performance data for fleets."

The largest vehicle repair network in the UK, ABS Bodyshop Services Limited is a unique company owned by all the independent member bodyshops with which it forms partnerships across the country.

For customers such as insurers and large fleets, ABS provides repair and service on a nationwide basis plus related services from its head office in Northwich, Cheshire. Several major UK insurance companies are ABS customers.

For members, ABS not only provides a flow of high quality work but a full range of crucial bodyshop support services including consultancy, centralised purchasing and network management.

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