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AdvisorSmith - Expert Commentary: Commercial Auto Insurance
David Russell
Co-Director, Center for Risk Management and Insurance
California State University, Northridge
Q. What can businesses do to lower their commercial auto insurance premiums?
David: Shopping around is tip number one. Usually, your agent or broker would shop for you, but be aware that prices vary dramatically, particularly for higher loss or higher risk accounts. A business with a history of claims may find it more difficult to secure coverage at a favorable premium.
Tip number two is to have a risk management program and to screen your drivers. You should have a safety program that trains your drivers and attempts to mitigate risk and losses through monitoring things like GPS location. You should also be screening your drivers and checking their loss history. Programs like these can get you better rates with your insurance company.
Keep in mind that new businesses or businesses with losses may have a real challenge in getting commercial auto. Some of these businesses may face an automatic declination from the standard insurance market. Those businesses will generally have to go to the excess and surplus lines market, and those insurers will charge significantly more.
Q. How should businesses think about balancing risk and affordability when it comes to commercial auto insurance?
David: Just like balancing a budget, it’s a challenge. You may have certain levers that you can pull in terms of deductibles or coverage limits, while still maintaining something that actually protects your business.
There is a risk appetite choice that business owners have to make. You want to save some money, but how much? How much risk are you willing to accept for that savings?
Business owners can also choose a cheaper vehicle to insure. Or they can also choose not to insure the vehicle for collision, since liability coverage is what’s required, but that may depend on lender requirements if you are leasing or have a loan on the vehicle.
Q. How should business owners think about insuring a vehicle for business versus personal use, especially for sole proprietors?
David: So, for example, I have a consulting business on the side. I don’t use my car for it, but if I did, I’m supposed to advise my insurance company that my primary use of the vehicle is for business. Insurers will usually ask if your use of the vehicle is for pleasure or for business. If I were largely using the vehicle to drive to customers, I would need to advise my insurance company that my primary use was business.