How much does Commercial Auto Insurance Cost, and Why?

I get it. Commercial auto rates are rising and have been for the last several years, and you’re looking for alternatives, ideas, or options.

Unfortunately, it’s impossible to ballpark or estimate premiums here because so many rating factors determine the actual costs of business auto insurance.

But, I will review all those factors to understand better how premiums are developed.

I’ll also give you some ideas for cost reductions so you’re better prepared now and in the future to get the best rates possible.

So let’s start with the factors that determine how much commercial auto insurance costs.

The basic rating factors, as you would expect, include the vehicle year, make, and model.

The cost of the vehicle new and the gross vehicle weight—if it’s a truck being rated.

The secondary rating factors include:

The vehicle usage, again, assuming this is a truck or fleet of trucks.

Are they used for deliveries, staying at a job site most of the day, long-distance travel, etc?

If these are construction vehicles, then other secondary factors include whether there are dumping operations, whether the vehicle is towing trailers and equipment, whether it is a tractor, etc.

The next level of rating factors involves more qualified underwriting factors—things like your drivers’ driving records, your company’s claim history over the past five years, the number of vehicles being insured, and then obvious things like the limits of liability coverage and deductibles on comp and collision.

Finally, there is geography—a vehicle garaged in Manhattan is going to be more expensive to insure than one garaged in the suburbs.

Commercial vs. Personal Auto Insurance. What do you really need?

I often encounter small contractors who have a pickup truck or van, which they own and register in their personal name and insure on a personal auto policy, but which they use in their business.

This is done because it’s cheaper, but many contractors don’t know that their personal auto policy excludes business use of the vehicle.

That means if you get into an accident while using the truck or van while on business, your policy will not respond.

Now, in these situations, I’ll explain this exclusion to the contractors I’ve worked with, and in most cases, they didn’t know that.

In some cases, they only considered damage to their vehicles, but they didn’t consider potential liability lawsuits, which is scary.

Imagine being in a situation like this, racking up a million dollars of defense and settlement costs, and having your insurer deny coverage.

You’re beyond being screwed.

All your assets will be liquidated to pay those costs, and any future wages or assets will be used to pay that claim out of pocket.

Ouch.

Now, on the reverse side of this equation are companies that insure private passenger cars on their business auto policies.

This can be expensive, and if you’re not using the vehicle for business purposes other than going on appointments, I recommend insuring it on a personal auto policy.

Some personal auto insurers will permit business-owned or leased vehicles to be insured personally on a personal auto policy.

Some points need to be fine-tuned, so working with a smart broker on your home and auto insurance will help here.

Having high limits of protection on your personal auto and umbrella policies is still important as is making sure you coordinate protection properly on your business auto policy with the right rating symbols and endorsements.

For your business auto policy, I recommend a minimum of $1,000,000 of liability protection plus a $1M commercial umbrella.

So, how do you get the best deal on commercial auto insurance? Here are my suggestions:

1. Work with a skilled insurance broker who represents multiple insurance companies and can shop the market for you. Going to multiple brokers for quotes is an invitation to disaster and usually never ends well. Work with a single broker you like and trust that has a broad representation of the market to do that shopping for you.
2. Before going to market, make sure you have the right risk control plans in place so that you have leverage in the negotiating process. For example, if you have a large fleet, have you installed telematics in your vehicles? Do you have a driver selection process? Do you run MVRs every year so drivers need to re-qualify annually? Do you have an accident investigation process? All of these types of controls give you an advantage over your peer group that doesn’t have risk controls in place.
3. Some insurers offer package discounts if you insure other lines of business with them, which often makes sense.
4. If you have “problem” drivers with less-than-stellar MVRs, you may need to evaluate the cost of keeping them on staff and possibly finding drivers with better records. This is difficult, especially in a challenging labor market, but the emphasis is on controlling risk. Underwriters will not offer their best pricing to accounts that have drivers with poor records. In fact, it may trigger an automatic decline.
5. Lastly, consider increasing your deductibles on the vehicles with comprehensive and collision coverage, as another idea to save on premiums. It may make sense to remove comp and collision from older vehicles. You want to find out what higher deductibles will save you.Going from a $5,000 to a $25,000 deductible may not make sense because the premium savings may be marginal so why accept all that extra risk? Here again, a skilled broker can help you with these decisions.

Here’s the bottom line on commercial auto insurance cost

Commercial auto insurance is expensive. There’s no doubt about that and frankly, I see the costs continuing to rise from various factors – record high claim levels, claims to be costly to settle, distracted driving, and the cost of replacement parts all drive rates up.

The more attention you give to controlling risk in commercial auto, the better off you’ll be in the marketplace.

I realize that if you’re a small firm with one or two trucks, having telematics and a lot of risk control processes is unrealistic, but a skilled broker can help you with some of the basics, like documenting the driver selection practice.

If you’re a larger firm with dozens of trucks on the road, you should invest in safety and risk control.

Not only to get lower rates but also to reduce the risk of costly accidents for yourself.

That is my overview of commercial auto insurance costs and facts. If you’re looking for commercial auto insurance or have a question or issue you’d like to discuss, let’s connect.

I am the skilled broker you should be working with.

We have the tools, resources, and knowledge to help you get the proper protection at the right price.

We represent the top commercial insurers and are looking for good commercial auto clients, so I hope you’ll consider contacting me.

Thanks!