Managing Your Corporate Vehicle Exposure

Commercial Auto Exposure

Automobiles are one of the most significant exposures to loss a company can face. To ensure that you effectively manage your company’s vehicle liability and risk exposure you need to have an effective risk management strategy.

Without one, the consequences to your company’s bottom line can be severe. With one, you can reduce your total cost of risk and protect your finances.

This article looks at the various types of exposure your company may face, how to mitigate risk and how to implement a strong corporate vehicle policy.

Company-owned Autos

An essential part of your risk management strategy is a well-written vehicle fleet safety program. At a minimum, the program should address the following areas:

1. Policy Statement

The policy statement is a general overview of the company’s philosophy on managing its exposure to potential auto losses. It mainly focuses on the employee’s responsibilities for being a safe and responsible driver when behind the wheel of a company-owned vehicle. As part of this, you should require that every employee that drives a company car should sign a “safe driving contract.”

2. Vehicle Use

If an employee is provided a company automobile or drives only on company business, it is important to spell out when and how the vehicle can be used. Is it available exclusively for business use, or will the employee be allowed to use it personally as well? Will other people be authorized or prohibited from using the car? What about family members?

3. Eligibility and the Safe Driving Contract

Regardless of who you allow to operate a car on behalf of the company, that driver should meet certain requirements. For example is there a minimum age the driver should be and are defensive driving classes necessary? Note that this applies not only to company-owned vehicles, but also to employees who use their car on company business. If they are driving a vehicle while on the job, you are ultimately responsible for any collisions they may cause.

It’s also a good idea to regularly run Department of Motor Vehicle reports to check their driving records.

Also draw up a safe driving contract that all employees who drive as part of the job must sign. This includes spelling out what constitutes an acceptable driving record and that driving privileges will be withdrawn if an employee fails to meet your requirements.

The contract should also state that they are responsible for operating the vehicle safely and complying with all traffic laws. Require that they report all traffic violations and accidents.

In addition they should be required to maintain the vehicle according to the manufacturer’s service, maintenance and inspection schedule. Employees also have to understand the company’s expense and maintenance reporting requirements.

4. Defensive Driving

It is important to consider implementing a defensive driving training program. Regular training on the basics of safe driving has proven to substantially reduce the frequency of vehicle accidents. The type of vehicles your company uses will dictate just how detailed your defensive driving training program and employee safe driving contract should be. At a minimum, basic defensive driving guidelines should be spelled out.

5. What to Do in Case of an Accident

Steps taken immediately after an accident can have a significant impact on the ultimate resolution of any disputes. Unfortunately, many times the participants in an accident are shaken up and don’t follow basic post-accident procedures. Because of this it is important to enroll your staff in post-accident response training. In addition, every vehicle should have a claims kit in the glove box. The claims kit will provide step-by-step instructions on what to do in the event of an accident. Your company should also appoint a someone in your company as a claims officer – the first person to call in the event of an accident.

Personal Vehicles

Even if you don’t have any company vehicles, you still have exposure to loss if employees, volunteers or other people use their cars on company business. Despite the fact that “insurance follows the vehicle,” if there is an accident and the damages exceed the available insurance of the vehicle operator, the employer is next in line.

This risk can be transferred to your insurance company for a relatively modest cost (Non- Owned Auto Coverage). Note that this coverage protects the insured (employer) for its vicarious liability arising out of the use of another’s auto (usually an employee) on company business. It does not cover the vehicle operator unless the policy is specifically endorsed to do this. It also does not provide coverage for damage to the vehicle operator’s car. Vehicle owners need to rely on their own insurance for both liability and physical damage protection.

It is wise to require individuals who regularly operate their vehicles on company business to carry a certain minimum amount of liability insurance. The actual amount is up to you, but we suggest nothing less than bodily injury of $250,000 each person, $500,000 each accident and property damage of $100,000. You should also make certain they understand that you are not providing insurance for them, and again, you should regularly run a DMV report on all regular drivers to make certain they have an acceptable driving record.

Rental Cars

When you or an employee rent a vehicle on company business, you have potential liability for both third party damages as well as damage to the rental vehicle. Once again, this exposure can be transferred to your insurance company for a relatively modest cost. In general, you don’t have to purchase the liability coverage offered by the rental car company.

If you have an “Owned Auto” policy you can usually include Hired Car Physical Damage coverage which covers damage to the rented car. Despite this, it is recommend that your employee, upon renting the vehicle, purchases the loss damage waiver (LDW) offered by the rental car company.

Identifying Exposure

After implementing your risk control strategies you will be in a good position to identify your risk exposure. That in turn will help you determine how much risk you want to retain (the size of your deductible) and how much you want to transfer to the insurance company.

By understanding your risk and being able to convey to the insurance company the steps your company has taken to manage those exposures, you are in a good position to negotiate favorable insurance coverage terms and rates.