Insurance costs can be one of the main reasons holding you back as a fleet manager in any decisions to grow or expand your fleet. There is a way around high insurance premiums, however, and it’s all to do with mileage.
Since you know that you have the following criteria: an experienced set of “safe-driving” fleet drivers, a fleet management solution which gives you incredibly useful data, and an efficient fleet of vehicles, you have the perfect platform.
But what is the workaround for lowering your insurance costs? Why it’s non other than Usage-based insurance (UBI), or mile-based insurance, or pay as you drive (PAYD) / pay how you drive (PHYD), whatever you want to call it.
In a nutshell, it’s a type of vehicle insurance where the price and/or cost depends on the following: the type of vehicle used, measured against time, distance, behavior and place. But summed up, the key part is running less mileage.
A question of mileage: how insurance rates prevent your fleet from growing
In today’s tough economic climate, the transport industry is as hard as any. And the question many haulage and fleet operators ask themselves is where they can be more efficient and make cost-savings. Insurance is definitely one of them. While most companies go for a typical insurance policy which covers all eventualities, there are many more options which businesses that run a fleet of vehicles can take advantage of.
PAYD insurance differs from traditional insurance, which actually tries to differentiate and reward “safe” drivers; giving them lower premiums and/or a no-claims bonus. However, there are some drawbacks. Conventional differentiation is a reflection of history, rather than present patterns of behavior. This means that it may take a while time-wise before safer (or more reckless) patterns of driving and changes in lifestyle feed through into your insurance premiums. But, you have to start somewhere.
Pay as you drive (PAYD), and how to use it
So, how does PAYD work? Basically it is the simplest form of usage-based insurance. It bases the insurance costs simply on distance driven. PAYD means that your insurance premium is calculated dynamically, typically according to the amount (of kilometers / miles) driven. Essentially, there are three types of usage-based insurance, as pointed out by Wikipedia.
Coverage is based on:
- the odometer reading of the vehicle.
- mileage aggregated from GPS data, or the number of minutes the vehicle is being used; as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.
- other data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road, driving actions. That’s in addition to distance or time traveled.
In terms of the formula used to calculate, it can be a simple function of the number of miles driven. Or it can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details; such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed. As you can understand, here is where the incentive lies for fleet managers and drivers to steer clear from unsafe driving practices; as well as lower the mileage.
What can you do to make the most of this kind of insurance?
Easy, try these for size:
- Reduce your mileage with specific zones of operation. Or make sure you double-check all routes and always apply the shortest route for all journeys
- Group your fleet vehicles per area (and lease where needed) to reduce mileage
- Hire personnel from different areas (weekly recalls should be enough if you manage with Veturilo)
Pay how you drive (PHYD), and how to use it
How does PHYD work? It’s much like PAYD, with the difference here that you can use added Telematic data, as well, as additional sensors; like accelerometer monitoring which measures driver behavior, such as our very own Veturilo fleet management solution.
In PHYD insurance solutions, vehicle information is automatically transmitted to the system, providing much more immediate feedback to the driver; and adjusting the cost of insurance dynamically with a change of risk. This means that drivers have an even stronger incentive to adopt safer driving behaviors and practices.
What can you do to make the most of PHYD insurance?
Optimize driving behavior by evaluating and utilizing the behavioral data from Veturilo. Easy, try these for size:
- Aim to reduce instances and events such as hard braking, sharp turns and overly fast accelerations; as well as unnecessary idling time, driving off route, etc
- Optimize fuel consumption
- Offer and execute training for drivers for different terrains
- Create a points system to reward the best “safe” and “economical” drivers, for both motivation and for cost-savings. You can also use this to evaluate and appraise your fleet drivers
See your insurance rates drop to minimum
Whatever option you choose to follow in terms of PAYD or PHYD, you will definitely see a drop in your insurance premiums versus traditional insurance policies. But that’s not where the benefits end. As well as the potential cost-savings for those more “responsible” customers – i.e. experienced fleet teams, there’s also the social benefits from accessibility to affordable insurance – versus paying for irresponsible peers, with PAYD or PHYD insurance, drivers pay for how they drive.
Then, finally, there’s the social value at large. Higher-risk drivers pay most per use, thus have highest incentive to change driving patterns or get off the roads, leaving roads more safe, while the continuous tracking of vehicle location enhances both personal security and vehicle security. And, as we’ve stressed in the past, the “gamification” of the fleet vehicle tracking data encourages good driver behavior in terms of rewarding those who drive more safely. In a nutshell, the social and environmental benefits from more responsible and less unnecessary unsafe driving.