HSBC Vehicle Finance recently unveiled the worrying statistic that nearly half of the UK's companies are failing to undertake basic procedural checks to ensure employees are properly insured to drive on business. Not only is this a potentially costly oversight but, in a worst case scenario, could open businesses up to corporate manslaughter charges if an employee is involved in a fatal accident in a private car while on business.

There's nothing like shock tactics to get people's attention, but the banking giant has highlighted an increasingly complex area that is crying out for fleet managers' careful attention--insurance.

The growth in 'cash for car' schemes is one trend that has certainly complicated this issue. According to the Business Car Expectations 2003 survey, the number of UK companies offering cash as an alternative to a company car has increased from 1% in 2000 to a mighty 20% this year.

Yet awareness of the insurance obligations clearly hasn't risen at the same rate.

Tim Holmes, head of HSBC Vehicle Finance, says: "The financial aspect of providing cash for a company car is relatively simple; the associated duties of care are far more complex."

On the surface a 'cash for car' scheme is a cheaper option for companies, which might offer 5k to an employee to make their vehicle purchase, and feel they can also absolve themselves of related responsibilities such as maintenance--and insurance. Wrong.

Mark Keavney, product manager for motor fleet at Norwich Union, is quick to highlight the dangers: "The company still has a duty of care for the vehicle whether it provided it or not. By moving from a company car scheme to a 'cash for car' scheme, the employer loses control over making sure the vehicle is fit for purpose, is serviced regularly and is insured correctly."

For example, sales people are often given Ford Mondeos because they are safe and reliable, but once an employee has a choice they might buy an older, less suitable vehicle. "When a company makes a decision to move to a cash alternative it is sensible to seek professional advice," says Keavney.

One organisation that is well placed to ensure companies aren't compromised by hidden dangers is Fleet Alliance, a consortium of fleet specialists. Julie Quinn, one of the group's specialist advisers, says:"Lots of companies aren't aware. They can't give employees an allowance and then simply walk away."

Axa's commercial motor manager, Simon Baker, agrees: "There is a real risk that employees will plump for the cheapest insurance quotation and not even be covered for business purposes. Companies need to, understand how employees use their cars."

One common gripe is the absence of a standard definition for 'business use' cover.

"There are a variety of definitions and it all comes down to the individual insurer and the situation," says Derek Fawell, policy adviser at the ABI. "Companies need to check their certificate of cover--one major problem is that companies don't read their policies. People shouldn't be in doubt."

One of the initiatives Quinn endorses is an 'authority to order' form that each employee must sign to confirm their responsibilities in terms of having a valid driving licence and insurance. Quinn says that this will ensure employees "understand their side of the deal".

Making employees take responsibility is also key to another growing trend impacting on fleet insurance--risk management. Premiums have risen significantly over recent years, due in part to the September 11th terrorist attacks, but also to dramatic reductions on many insurer's investment incomes as a result of a plunging stock market. Risk management is an increasingly popular antidote.

"The insurance market got its fingers burnt after 9/11 and they now want people to manage risk," explains Jeremy Hay, a director at risk management specialist Risk Answers. Hay believes that a change is taking place as insurance companies wake up to the value of risk assessment, citing insurance firm AIG as a trendsetter. "AIG offers a free professional risk assessment of each fleet that it insures. They want to better identify the risk they are insuring, and they also want the client to take on the management of the risk. That's a huge change of mindset."

Recently, Risk Answers worked with a company that had a fleet of 1300 drivers.

"We looked at the audits and found that 119 of the cars were having four or more accidents," says Hay. Those drivers responsible were passed over to Risk Answers' sister company, DriveTech--a driver training Specialist--which used risk analysis and "common sense" to come up with an individual solution for each driver. "They have already gone from four to two accidents in year one--they're laughing," continues Hay. "On average we've saved 30% costs for each company we've worked with this year."

Keavney is in agreement: "Probably the largest contributing factor that dictates premiums is claims experience. Our experience shows that where a company has embraced risk management, such as enforcing regular servicing and driver training, those fleets have fewer accidents and, over time, pay lower premiums."

But Hay still believes companies have a lot of work to do: "There's lots of waffle. People need to look at the facts--saving lives, saving costs, avoiding corporate manslaughter and good PR. Risk management is a no-brainer."

And isn't it refreshing to have at least one no-brainer with all the mental gymnastics required for companies to get to grips with the complexities of fleet insurance? The recent introduction of the Fourth EU Motor Insurance Directive--designed to improve the ease with which cross-border claims in Europe can be handled--is a classic example of a potential administrative nightmare. Requiring every fleet vehicle (even those on hire for more than two weeks) to be registered on the Motor Insurance Database (MID) so that claims can be processed faster, the Directive charges fines of up to 5k [pounds sterling] for non-compliance. Sounds simple, but it wouldn't be much fun if it was that easy would it?

Penny Coombs, business project manager at The Motor Insurers Information Centre (MIIC), which holds the database, says that "a significant number of policyholders have failed to register their vehicles", conceding that it might be because people are confused about how they should be supplying the data.

Leasing company Interleasing, for example, has launched a clever piece of software that automatically registers its clients' fleet vehicles on the MID, and updates them on an ongoing basis. For upwards of 250 [pounds sterling] per year, it removes the administrative burden for companies and overcomes problems caused by fleets made up of leased, bought and rented vehicles.

"It's a very simple concept that offers a low-cost, high-value solution to companies," says Andrew Dawson, marketing programme manager. "It is also an auditable process whereby we supply a monthly certificate of compliance and a report."

Alternatively you can look to your insurer--or can you?

Zurich, for example, has a database that forwards policyholders' information directly to the MID on a daily basis to ensure its customers are meeting the legal requirements. While a "significant proportion" of its customers have submitted information to Zurich, Ron Munro, the company's motor manager of corporate and government underwriting, says it is actively contacting other policyholders who have yet to let them have the information.

Axa has taken a similar stance, linking its database to MID so that smaller fleet details can be automatically updated as long as customers inform Axa. However, according to Baker, it is not practical to offer this facility to larger fleets: "Instead we give customers codes to access the MID directly. We can also access the information if necessary but there is no point introducing another interface with one database telling another database."

Norwich Union has a similar view, leaving the responsibility firmly at the feet of the policyholder. "Policyholders have all the details and they can do it more quickly," says Keavney. "It would only lengthen the chain if they had to advise us and we had to advise the MID. We also didn't want to upset the brokers who effectively own customer relationships."

Coombs advises people to talk to their insurer as their first point of call. But you need to do it quickly. The MIIC has not issued any fines to date but is currently in discussions with the Department of Transport and the police about how to "start initiating prosecutions". While you would have hoped they might have worked all that out before launching the Directive, you can rest assured that this argument will not stand up in a court of law.

So get registering--that really is a no-brainer.

COPYRIGHT 2003 DMG World Media Ltd.
COPYRIGHT 2003 Gale Group