When your business relies on transporting people, supplies, or products from one place to another, your business should be prepared for vehicular accidents. This includes accidents caused by mistakes, bad weather, animals crossing the road, careless drivers, and many other unpredictable situations. While there is no way to guarantee that every trip will be incident-free, having the appropriate business auto insurance will certainly provide a safety net.
To protect against these unknowns, commercial auto insurance is essential. But have you ever thought about how your insurance rates are determined? While driving involves many uncertainties, you might be surprised to learn that you can influence some of the aspects that insurers consider when calculating your premiums.
Average Cost of Commercial Auto Insurance
The average cost of commercial auto insurance varies greatly from one business to another. This is because different businesses have unique needs and risks when it comes to their business operations. Finding the right insurance plan means considering your company’s specific requirements and risks.
When obtaining commercial auto insurance, it's important to assess what level of coverage is needed to protect your business effectively. The cost will depend on many factors but the coverage type and limits, you get to choose. It's crucial to maintain your budget while still getting the necessary coverage to ensure your vehicles and operations are well-protected.
Factors Influencing Commercial Auto Insurance Costs
Over the past ten years, auto insurance rates have gone up considerably, increasing more quickly than inflation. What is causing this increase? Let's look at the main factors that have significantly affected the cost of commercial auto insurance.
1. Statutory Auto Coverage
Each state has its own laws requiring the types and minimum limits of insurance required to use vehicles on public roads. Whether your business can get by with the minimum statutorily required limit or it needs to increase the auto combined single limit for property damage and bodily injury liability to $1,000,000 per accident, this is where you can start. Know what your state requires.
2. Insurers’ Claim Handling Costs
Accidents are unavoidable in transportation, and they significantly affect commercial auto insurance rates. Insurance companies calculate rates using many types of actuarial data. Two factors go into the rate promulgation: one is how often accidents occur (frequency) and how serious accidents are (severity). Businesses with frequent and/or severe accidents, especially those with large claim payouts, will have higher insurance premiums. The key is to reduce the risk of accidents by using available technologies, employee training, and rewarding drivers with good driving records. Create a company culture of safe driving practices, do not allow cell phone usage while driving, and enforce it with automatic termination of those drivers involved in an accident because of cell phone usage. These safety and preventative measures can go a long way toward controlling business auto premium increases.
3. Location
Like many operating costs, commercial auto insurance prices vary depending on where your business is located. What factors are considered in rates that involve your location? The population density, local crime rates, awarded court settlements, and aggregate value of insurers’ paid claims within a specific region affect their assessment. The higher values that these variables carry, the more risk commercial carriers are taking, which increase rates and premiums. Consequently, your business will pay more for auto insurance if your business is in a litigious, overcrowded community or has a history of auto claims.
4. Drivers
When deciding who will drive your company's vehicles, it's important to consider their driving history. Employees' past accidents and tickets affect your business’s auto insurance premium. Your business should request all applicants for employment in a driving role to obtain and bring their motor vehicle report to the job interview. That way, you’ll save the company’s expense on bad hires that can’t drive because it sends your auto insurance premium through the roof. Insurance carriers will also review your employees’ driving records and accident history to evaluate the likeliness of future accidents. Hiring lower-risk drivers can lead to significant savings on your premium. On the other hand, hiring high-risk drivers will increase your premium, so choose your drivers carefully.
5. Vehicle Type and Use
Do you use one car to get around town and do freelance work, or do you have a large fleet of vehicles for your business? Commercial auto premiums can differ greatly, depending on the number and type of vehicles you have. Insurers consider the type and use of vehicles when setting rates. For example, heavier trucks and trailers are more likely to cause severe injury or property damage in accidents and might find maneuvering city streets more difficult. Insurance rates also depend on whether the vehicles are used for service, residential deliveries, or other commercial purposes.
Working with a trusted insurance agency like InsuranceAdvisor.com can help business owners manage the complexities of commercial auto insurance. For assistance, call a licensed commercial insurance agent at 855-600-2384.
Frequently Asked Questions (FAQ) about 4 Factors that Affect Cost of Commercial Auto Insurance
1. What types of vehicles affect the cost of commercial auto insurance?
The auto insurance cost is influenced by the number and type of vehicles you have. Larger vehicles like trucks and trailers typically cost more to insure than smaller cars due to their higher risk of causing severe injury and damage in accidents.
2. How does the use of the vehicle impact insurance rates?
Insurance rates vary based on how the vehicles are used. Vehicles used for transporting materials and equipment to worksites (service use), making deliveries to homes (retail use), or other business purposes (commercial use) and transporting people for money (livery use) all have different rates.
3.Why do heavier vehicles cost more to insure?
Heavier vehicles, such as semi-trucks and trailers, when in an accident are likely to cause more physical property damage and bodily injury, due to their size and weight. Also, these trucks are on the road all the time, maybe not 24/7 but more hours on the road than a service rated pick-up truck going to one or two job sites a day. This higher amount of use and risk of severe damage and injury leads to higher insurance costs.
4.Does having a fleet of vehicles affect insurance costs?
Yes, having a fleet of vehicles can affect your insurance costs. Each vehicle is rated separately, so more vehicles mean higher auto premiums.
5. What are some ways to lower commercial auto insurance costs?
Businesses can lower costs by making sure their drivers maintain a good driving record, provide mandatory safe driving education, prohibit use of electronics while driving, have a safe driving program, and consider installation of driver monitoring equipment. There are new insurance companies providing commercial auto insurance along with the installation of driver monitoring technology.