The Difference Between Fleet and Non-Fleet Commercial Auto Policy

Aug 3, 2020 | Business Insurance

When automobiles are used for business purposes, whether it be transporting goods or people, there is no doubt that having commercial auto insurance is a must.  Aside from covering medical bills and repair costs after an accident, a commercial auto policy also has higher limits than a personal auto policy, covers different types of vehicles, and takes care of more complicated legal issues.  Moreover, employees who have a valid driver’s license can be covered under the policy as “additional insured” parties.

However, when a business relies heavily on more than just one vehicle for its operations, it is sometimes difficult to decide between a fleet and a non-fleet commercial auto policy.  Choosing between the two is not a matter of which is better, but rather, which one is most suitable and cost-effective for your business.

What is a non-fleet commercial auto policy?

As the name implies, a non-fleet commercial auto policy provides coverage for just one vehicle. If you have two vehicles and they are individually insured, then you pay for two policies, renew them according to the date you bought the policies, and follow the limits and exclusions of each individual policy.

The basic coverages you can expect from a standard business auto policy include the following:

  • Collision insurance.  This covers any “collision” incident regardless of whether you hit someone else’s vehicle or someone else hits your vehicle. Damage is also covered if your vehicle rolls over.  In these cases, it does not matter who is at fault.
  • Comprehensive insurance.  When damage to your vehicle is caused by anything other than a collision, repair costs will still be covered.  This may be damaged due to flood or other natural calamities, vandalism, theft, fire, or even damage from animals. So, if you’re driving on the freeway and your windshield suddenly shatters because a stone hits it from nowhere, your insurance company will cover the cost to replace the windshield.
  • Liability insurance.  Nobody wants to cause an accident, but if you are found to be at fault in one, liability insurance covers the medical expenses of those hurt in the accident and any lost wages.  If the other party decides to file a lawsuit against you, don’t worry, legal expenses will also be covered.

But what happens if the one at fault is the other party and they don’t have coverage?  This is where the next type of insurance enters the picture.

  • Uninsured motorist coverage.  This coverage is very important, but many don’t realize why.  About 13% of drivers in the US don’t have coverage, and although 13 may seem like a small number, 13% is actually about 30 million drivers.  So, if you are ever in an accident where someone else is at fault and they don’t have auto insurance, then you have nothing to worry about.  Your uninsured motorist coverage also covers hit-and-run incidents.
  • Underinsured motorist coverage.  In cases where the at-fault party does have insurance but the coverage isn’t enough to cover the damages and medical expenses, then this coverage protects you from unexpected bills.

A business auto policy can also be customized by adding one or more of the following coverages:

Roadside assistance.  This add-on comes to your rescue when incidents such as flat tires and dead batteries happen since these are not covered under standard business auto policies.

It would truly be unfortunate should your car break down in the middle of a highway, or if your truck’s battery dies while on the way to deliver perishable goods.  But, these things happen and as much as we want to avoid them, there are just some things that are beyond our control.  As the old saying goes, better safe than sorry, right?

Roadside assistance provides the peace of mind that you can expect help for yourself or your employees when unexpected events such as car breakdowns or flat tires happen.  You certainly do not want to be stuck in the middle of the road causing a traffic jam, and much less to be stranded at night worrying about everyone’s safety and security.

Expanded towing.  This covers what’s not covered by your standard policy.  Aside from towing, minor roadside repairs and jumpstarts are included, and these can come in handy especially when you’re always traveling long distances.

Rental reimbursement.  Not everyone is fortunate enough to be able to just go on with life as usual after an accident.  When you’re out on the road, you’re out there for a purpose and an accident impedes you from completing your task.  If the accident is bad enough that your vehicle needs to be towed and you end up needing to rent a car, this coverage pays for car rentals should the need arise after an accident–up to the policy limit.

Medical payments or personal injury protection.  This coverage will be very beneficial when your business requires transporting people.  The coverage is extended to the passengers who were in the vehicle at the time of the accident and covers their medical expenses too.

Hired and non-owned liability.  Businesses don’t always own every single vehicle being used in its operations.  In situations where you have an employee who uses his own vehicle to transport clients, for example, from the head office to manufacturing sites, or you only lease the trucks you use for deliveries,  this coverage provides protection for your business and your employee in the event an accident occurs.  Remember, personal auto insurances generally won’t cover accidents where the vehicle was being used for business purposes.

Hired auto physical damage coverage.  Subject to a chosen deductible, this coverage helps a business shoulder costs due to physical damages (comprehensive and collision damages) to rented or leased vehicles being used for business purposes.

Auto loan or lease coverage.  Sometimes, an accident results in the total loss of a vehicle.  If this happens and there is still an unpaid loan or lease amount, this coverage will help pay for the difference between the unpaid amount and the actual cash value of the vehicle.

New vehicle replacement coverage.  In the event of a total loss, your vehicle will be replaced with a new one or a vehicle with comparable value.  Gap coverage is also available for any amount owed that is more than your vehicle’s actual cash value.

What is a commercial fleet insurance policy and how does it work?

Essentially, a fleet insurance policy can cover all the vehicles owned by the company.

Also, any employee who has a valid driver’s license would generally be allowed to drive any of the insured vehicles and will be covered in the event that the employee gets in an accident or a crash.

A fleet, which is the group of automobiles owned by the business, can consist of a variety of vehicles–passenger cars, SUVs, motorhomes, vans, buses, trucks, and even trailers–and these can be covered in just one policy.

What is the minimum number of automobiles required for commercial fleet insurance?

The minimum number of automobiles required to be eligible for commercial fleet insurance varies depending on the insurance company.  For some, the minimum is five or more, but there are companies that offer fleet coverage for businesses with at least two vehicles.

What coverage can be expected of a commercial fleet insurance policy?

Fleet insurance policies provide the same coverage available for non-fleet policies.  This coverage is available for all the company’s vehicles included in a policy and its employees.

What’s important to remember is to be very clear about all the inclusions and exclusions in the basic policies so that you can add necessary “endorsements” (add-ons/additional coverage).

Who needs fleet insurance?

  1. Any business that expects a high volume of rides for its vehicles would benefit from a fleet insurance policy.
  1. Any business where there are no designated drivers and where employees are expected to borrow or switch vehicles.

Here are a few examples:

  • Door-to-door sales
  • Delivery services
  • Cleaning services
  • Hotel shuttles
  • Construction companies
  • Taxi or bus companies
  • Moving companies
  • Car rental services

What are the advantages of having fleet insurance over non-fleet insurance?

  • Convenience.  You only need one policy to cover all your vehicles.  It’s easy to add or remove vehicles from the policy at any time of the year.  This means you only have to remember one policy date and renew only once a year regardless of the number of times you purchase a vehicle to add to your fleet.
  • Discounted prices.  Insuring multiple vehicles under one policy would usually work out to be cheaper than insuring them individually.
  • Flexibility.  The vehicles don’t need to have specific drivers assigned to them.  The set up can be that anyone given permission to drive any of the vehicles can switch or borrow any of the company vehicles without any claims issues should an accident occur. 

Are underwriting variables the same for fleet and non-fleet insurance policies?

Most factors that affect the pricing of non-fleet policies also affect the pricing of fleet policies.  These would include claims history, how the vehicles are going to be used in the business, how old the vehicles are, and where it is driven and parked.  When it comes to trucks, for example, their route, the gross vehicle weight, and what they are going to be used for will matter.

However, because the terms and conditions of auto insurance may vary from policy to policy and from insurer to insurer, one of the things you’d need to clarify is whether the personal claims history of a driver auto insurance affects the premium rating–especially for non-fleet coverage.  

Impact of at-fault crashes

A very important consideration is how at-fault accidents impact drivers and their policies. When a fleet driver is found to be at-fault in a crash, the accident does not impact the driver’s personal policy or any non-fleet auto policy where they are listed as a driver.  The crash only affects fleet insurance.

An at-fault crash where the driver is using a non-fleet vehicle, however, could mean that the driver’s policy will be impacted–depending on state laws and regulations which may differ from company to company.

This matters because when crashes affect the driver’s personal insurance, then premium ratings for any future policy where they will be listed as a driver will be affected.

Coverage

When a business opts for non-fleet auto insurance, the drivers of the vehicle need to be listed in the policy whereas a fleet policy allows any employee (with a valid driver’s license, of course) to drive any of the company’s fleet vehicles.

When it comes to claims, fleet commercial auto insurance enjoys a shared single limit while non-fleet vehicles do not.  What does this mean for business owners?  If there are 10 vehicles listed under one fleet insurance and they share a limit of one million dollars, then it doesn’t matter which vehicle gets in an accident or how much the claim would be because the limit is for a million and it is shared by all ten vehicles.  However, if a business has 5 vehicles and decides to go for non-fleet insurance with a limit of $200,000 or even $300,000 each, the company becomes liable for any claim amount in excess of the individual limit.

How to Keep Fleet Insurance Costs Down

Although fleet insurance can be expensive, it would still be generally more cost-effective than getting non-fleet coverage for multiple vehicles.

The important thing is to be aware of how you can keep your fleet insurance costs down without sacrificing coverage.  Remember that insurance is about risk management.  The higher the risk, the higher the premium.  The lower the risk and the more unlikely it is that your fleet is at risk of getting into accidents or crashes, the lower the premium will be.  Having said that, here are a few reminders:

Driver Qualifications and Training.  Make sure you hire highly qualified drivers.  This is where a strict hiring policy comes into the picture.  Hiring drivers who are not only skilled to drive the type of vehicles you have, but also who you know are safe drivers, is one of the most basic ways to keep your insurance costs down.  If possible, hire drivers who have at least 3 to 5 years’ experience with no bad record for the past 3 years in their MVR.

One of the factors that affect the premium of any type of insurance is the claims history.  Having safe drivers in your team means a lower risk of your vehicles getting into crashes where your driver is at fault.  Having safe drivers from the start also makes it easier for the company to train them.

  • Review Your Claims History.  Take time to review your claims history in order to identify any possible issues that can be corrected through additional training.  Also, check for opportunities where an accident could have been prevented with technology/equipment.  At the same time, checking to see if there are any drivers who are consistently accountable for the accidents can be retrained.
  • Use or Add Technology.  Equipment such as GPS tracking and collision warning devices can help prevent accidents and will, therefore, help reduce insurance costs.  Installing cameras that might help provide evidence in the case of an accident could also help.
  • Security.  Make sure to also prioritize safety and security even when your fleet is off the road.  Install alarms and keep them parked in secure locations–i.e. neighborhoods with low crime rate, well-lit parking locations, secure fences, and the like.
  • Hiring and Training.  Keep a strict hiring policy in place and maintain a continuous training program that will help drivers improve their skills and be reminded of the importance of safe driving.  Note that many insurance companies charge higher premiums when drivers belong to younger drivers because statistics show that a bigger percentage of accidents are caused by young drivers.  In addition, statistics show that young drivers tend to 
  • Have Policies That Reinforce Safe Driving.  Having policies in place that show how important safety is would also help–i.e., routine checks before using the vehicles, random drug tests and random knowledge checks in regards to traffic rules and safe driving practices.
  • Review Policies Regularly.  Review your fleet insurance policy regularly to make sure your limits and coverages are the best suited for your needs.  It is also important to check what other companies offer for the same coverage–especially if your premium has gone up.
  • Raising Your Deductible.  As with other types of insurance, raising the deductible will mean lower premiums in exchange for a higher out-of-pocket cost for the company should there be any need for a claim.
  • Consult an Independent Broker.  Independent insurance brokers are always a big help when it comes to shopping around for insurance policies. They can help you find the policy that will best address your company’s needs, and you will have access to expert advice without any additional cost.  They will also be in a good position to tell you which company would be able to offer you the biggest discounts.  Plus, you save a lot of time and energy.

Every Fleet is Different

Each business can be very different regardless of the industry.  Aside from a car rental’s exposure is different from a bus company or a construction company, no two fleets are exactly the same.  Different states may also have varying regulations.  As such, it is always in the company’s best interest to consult a licensed auto fleet agent so that you can be provided the best options for your company. Contact us for more information!