When you use vehicles in your business, your commercial auto insurance protects the business from unforeseen financial losses resulting from accidents or other covered events. The goal for most businesses is to keep policy premiums as low as possible without sacrificing coverage. But, what goes into determining commercial auto insurance cost?
While you might think your rates would be lowest if your drivers all have clean driving records, accident and loss history is just one factor. Others include the following:
1. Type, Size and Number of Vehicles Covered
First, the amount you’ll need to pay to insure heavy trucks, tractors and trailers will differ from insurance costs for passenger cars and trucks.
Because large vehicles are, by their nature, heavier than smaller vehicles, they can cause more significant damage when accidents occur. In fact, large truck accidents resulted in the deaths of 3,986 people in the U.S. in 2016 (the most recent year for which statistics are available.) Insurers charge higher premiums to address the greater risk that they’ll have to pay out after an accident.
If you are insuring multiple vehicles (generally five or more), your business may qualify for “fleet” rates, which are generally lower than non-fleet rates.
2. How Vehicles Are Used and Stored
The use class, or the way your vehicle is used, also impacts rates. Insurance cost for vehicles used in a retail business making deliveries to customers all day will be different than for service vehicles used to transport tools or equipment. Vehicles can also be classified in a commercial use class, which would include businesses making deliveries to other businesses.
Your rates may also be lower if your commercial vehicles are parked in a garage overnight or when not in use, rather than being in an open parking lot.
3. Drivers’ Experience Levels
Just as individual auto insurance rates can go up when a teen driver is added to the policy, commercial auto rates can be higher when drivers lack commercial driving experience.
4. Number of Miles Driven
The risk of an accident is higher for vehicles that are driven more. So, business autos that are used to drive more than 200 miles each day will cost more to insure than those driven up to 50 miles, or between 51-200 miles/daily.
5. Rating Territory
The geography where your vehicles are stored also impacts commercial auto insurance costs. Generally speaking, a business in a bustling metropolitan area will pay more for their coverage than a business in a small, rural setting. That’s because risk of an accident is higher when more people and vehicles are present because of traffic and congestion, as is the risk of theft or vandalism.
6. Deductibles and Limits
Adjusting policy deductibles and coverage limits can help lower insurance premium expenses. The higher the deductible, the more risk the business assumes – and the lower the premium needed to keep the policy in force.
However, it’s important to understand that auto insurance policy deductibles are per-incident charges, not an annual amount. Before choosing a high-deductible option, it’s also important to evaluate your appetite for risk and ability to potentially pay the deductible multiple times.
Similarly, the amount of coverage you choose (policy limits) will also impact commercial auto insurance cost. The higher the limits and the more features you add, the higher your premiums will be.
Commercial auto insurance costs have also risen in recent years as accidents related to distracted driving have increased. According to the CDC, using cell phones, texting, eating while driving and using GPS navigation tools are responsible for more than 3,000 deaths in the U.S. every year.
This has resulted in greater losses for insurers, who have had to adjust pricing for auto insurance policies.
Typical Coverage Options for Commercial Auto Policies
Policy options and coverages vary from insurer to insurer, but in general terms, most package commercial auto policies include the following:
- Liability Protection. In the event a covered commercial vehicle is responsible for an accident, your liability protection will cover the costs of repairing or replacing the other vehicle(s) or property damaged. Liability coverage also includes bodily injury protection so that if one of your drivers injures someone else while using a company vehicle for business purposes, your company won’t need to pay the injured party’s medical expenses out-of-pocket.
- Medical Payments. If your driver and/or their passengers are injured as the result of an accident, medical payments coverage pays their medical expenses – regardless of who was at fault in the accident.
- Collision and Comprehensive Coverage. Collision coverage will help you recoup the costs of repairing or replacing your vehicle that was damaged in an accident. Comprehensive coverage will pay for damage that’s not the result of an accident (e.g. a hail storm or vandalism.)
- Uninsured/Underinsured Motorist. This type of protection can protect your business financially if one of your drivers is in an accident with driver who doesn’t have enough (or any) auto insurance.
- Roadside Assistance. If your commercial auto policy includes roadside assistance, you’ll have insurance to pay for lockouts, towing charges and other events.
- Other Optional Coverages. You may want to also include coverage for rental vehicles used for the business, and for employees using personal vehicles for business (hired and non-owned coverages.)
Be Sure Your Business has the Commercial Auto Protection It Needs
While it is important to be aware of the amount your business pays for its commercial auto insurance, resist the urge to lower or cancel coverages just to lower your premium expense. Remember that your auto coverage will protect you financially in the event of a covered loss, helping you keep your business financially strong.