Driving forces

Motor fleet underwriters have plenty to worry about at the moment. Claims are up following a bad winter, while fraud is a persistent problem as crooks dream up ‘cash for crash’ scams. If that were not enough, government reforms to the road traffic accident compensation system have raised fears that insurers will find it more difficult to detect fraudulent claims. And to top it all, rates remain soft, making it tough for insurers to underwrite profitably. Beset with such problems, what do underwriters have to do to be successful in the fleet market?

Allianz’s head of commercial motor and motor trade, Roger Ball, says one of the key emerging trends in the fleet market is an increase in claims. This follows an extended period of declining claims numbers.

“We expect the trend from the past five years of reducing claims frequency to reverse this year due to the adverse weather earlier this year and uplifts in vehicle use,” he says.

Ball highlights claims fraud as a “significant issue” for fleet insurers. He cites the recent ‘cash for crash’ scam that resulted in 25 people being sentenced at Liverpool Crown Court for their involvement in defrauding Allianz through bogus claims involving employees of Virgin Media.

The fraudsters’ ringleader convinced employees at NTL, now part of Virgin Media, to pretend they had crashed their company cars into another vehicle containing several passengers. When the NTL employee accepted responsibility, the supposed victims made claims totalling thousands of pounds. Ball says insurers need to be “robust in our actions” to counter such fraud.

The problem could be exacerbated by the Ministry of Justice’s (MoJ) reforms to the compensation system for low-value road traffic accidents, says Ball.

The effect of the reforms, which came into

force in April this year, is that motor insurers now have only 15 days to accept or deny liability for road traffic accident claims of up to £10,000. The new system also introduces fixed legal costs for such claims.

“We face uncertainty regarding the financial impacts of the MoJ [reforms],” Ball says. “On the one hand, it will limit legal costs on small legitimate third-party bodily injury claims; on the other, it could encourage increased [claims] frequency – some fraudulent – and will put real pressure on claims teams to arrive at a correct decision at an early stage. This may not always be the right call.”

Shrinking fleet sizes

Other issues facing fleet insurers include a decline in the size of commercial fleets, leading to smaller pools of vehicles being used more frequently, increasing the risk of claims.

“Recession is having a negative impact on the number of ‘perks’ vehicles and is increasing vehicle use as we emerge into better conditions with fewer vehicles,” Ball says. “There are worries that risk management expenditure may be cut when savings have to be made.”

Groupama Insurances assistant technical manager Mark Underford says insurers are struggling to make profits in motor fleet.

“On rates, the fleet market remains extremely soft,” he says. “It is difficult for insurers to carry even inflationary increases on well-performing business at renewal. We have seen some providers giving quotes on new business at levels below the incurred claims cost per vehicle.”

He adds that such conditions make it difficult to retain and attract business at profitable levels.

Recent developments have prompted some insurers to leave the fleet market, while new players have thrown their hats into the ring, Underford says. “HSBC has recently pulled out and we have seen the departure of Quinn,” he says. “Meanwhile, Fortis and LV= have emerged

as players.”

Asked what an insurer needs to be successful in the fleet market, Underford replies: “Good broker relationships, and the use of risk management [techniques] to turn around poor-performing risks. Insurers also need innovative rating strategies and flexibility in developing new lines of business.”

Ron Munro, underwriting development manager at Fortis Insurance, which has entered the fleet market during the past year, says the market is “very competitive”, with many insurers trying not to lose market share.

He believes many customers are reducing the size of their fleets, a trend that can have benefits for insurers. “People are trying to contain costs – they may be driving fewer miles or not renewing their vehicles so often,” he says. “They’re thinking: ‘Could we do it by phone or call centre?’. This means there are fewer vehicles on fleet risks, so fewer premiums – and also, hopefully, fewer claims.”

Management issues

Whether customers are experiencing an increase in rates depends largely on the way they manage their fleet, says Munro.

“It depends what the customer is doing: have they cut back on their mileage? Have they undertaken risk assessment?” he says.

Successful underwriting partly depends on brokers presenting as full a picture as possible of the potential risks to insurers, Munro argues.

“In one scenario, we may, on a six- or seven-vehicle fleet, get just the address, the type of vehicle and the claims experience when we’re presented with a risk,” he says. “But on another similar-sized fleet risk, we may get all that information as well as information about what the fleet operator does to manage their risk. It’s important to a build a good relationship with brokers and clients.” IT

Top tips for success in the motor fleet market

• Insurers must push up rates to be profitable

“We have seen five years of failing to keep rates in step with claims inflation,” Allianz head of commercial motor and motor trade Roger Ball says. “To be successful, we need to see the market achieve greater uplift in price than is currently being secured.”

• Improve insureds’ risk management

Give clients a risk management induction, and give them a handbook and incident pack so they know how to obtain all the relevant information at the scene of an accident.

• Brokers should work closely with insurers to find out why certain lines perform well or poorly

Get information about why claims frequency is high – for example, are there a lot of window claims? If claims frequency is low, explore the contributory factors – is it good risk management?

Broker focus: Alan Boswell Group

Business brokered by Norwich-based Alan Boswell Group totals around £40m in gross written premium, of which motor fleet, at £4m, accounts for 10%. The group handles more than 500 fleet policies for vehicle groups ranging from five to more than 100.

“Fleet is a massive area for us,” director David Tuttle says. “It’s growing partly because premiums are going up, partly because of growing client numbers.”

Tuttle describes the market as in “a state of flux”. “While certain insurers are trying to push premiums up, others see an opportunity to make money out of fleet. So while some are increasing rates by around 10%, others are looking for a modest increase and some are renewing at the same terms.”

Tuttle believes some insurers are pushing up fleet insurance rates to offset decreasing rates in the property insurance market. “Over a period of time, property rates have been driven down and down, so there is a changing emphasis, with some insurers placing more of an onus on fleet.”

In general, the size of commercial motor fleets is decreasing as a result of the prevailing economic climate, according to Tuttle. “Some clients are cutting back on their number of vehicles. Contractors are laying people off, which means they’re reducing their vehicle fleet,” he says.

New providers have not seen fit to enter the fleet market, Tuttle says. He adds that less fleet business is being placed at Lloyd’s and more is being written by composites such as Allianz and Aviva. “It goes through cycles,” Tuttle says.”If insurers are looking for rate strength, this plays into the hands of the Lloyd’s market; otherwise you’ll see business flowing out to composites.”