Product overview: Commercial motor

The commercial motor insurance market has come a long way since 1901, when the first cars were insured at Lloyd’s under marine insurance documents. But while vehicles are no longer described as ‘ships navigating on dry land’, the market is still finding itself having to adapt as new challenges emerge. 

Even in the last 18 months, much has changed on the UK’s roads. Ian McCarron, director at McCarron Coates, explains: “People are adopting different methods of mobility, with more people cycling or walking and even using e-scooters under the government’s trial. These trends will all have implications for the commercial motor sector.” 

The sector itself has also seen change over the pandemic. With lockdowns fuelling online shopping, the courier and light goods vehicle sections of the market have grown significantly. Conversely, the shift to home, and now hybrid, working has meant a drop in mileage for fleet as the need to travel reduces.

Market dynamics
It’s a buyer’s market in many commercial motor sectors according to Dave Rich, head of motor fleet at Markerstudy. “Rates are under pressure as most insurers have had good results following the dearth of traffic during lockdowns. Some risks do struggle to find competitive cover but this tends to be where risk performance has been extremely poor. Competition is intense.”

Dave Bowcock, managing director of Principal Insurance, agrees. The areas of the market his firm specialises in – courier and light goods vehicle insurance – are well catered for in general terms. “Insurer composites are embracing a broad range of profiles and capacity isn’t an issue,” he explains. “Rates are stable and competitive and schemes have proved a real benefit to us, giving us access to more sophisticated pricing.”

Although it’s a competitive market, there are signs of insurer caution. McCarron says that insurers are keener to impose terms in some cases but also to introduce incentives. “Incentives can be used to encourage better driving behaviours or to encourage faster reporting of claims,” he adds. “This has become particularly relevant with whiplash claims, as insurers only have 30 days to submit all driver evidence to defend a claim.”

Claims trends
Although motor insurers are benefiting from fewer accidents during the pandemic, loss ratios are an issue and Bowcock says the insurance industry is paying close attention to how the sector performs. “The pressures on multi-drop drivers are immense and showing no signs of easing,” he says. “This may be reflected over time in increased accident claims.”

The growth of the courier sector has also attracted attention from criminals. As couriers can often carry large volumes of high-value products such as home electronics, incidents of van-jacking are increasing.

There are also concerns about claims inflation as a result of the cost of repairs increasing. Figures from the Association of British Insurers show that the number of claims in the motor insurance market fell by 19% but total pay-outs only reduced by 6% on the previous year, due to rises in average personal injury and vehicle repair cost claims.

There’s likely to be some respite on the personal injury side as a result of the whiplash reforms, which came into effect in May 2021, but pressure remains on repair costs. As well as inflation resulting from more expensive and complex vehicle technology, Bowcock says the combination of Brexit and the pandemic are causing issues. “Supply chain fragilities and labour shortage could also impact repair costs and push up premiums,” he says.

Risk management
To counter rising claims costs, risk management is an essential part of the insurance mix. “Owners and fleet managers need to be very proactive around risk management. It can literally save them going out of business,” says Rich. “If company A is paying £3,000 per vehicle and a competitor is paying twice that, it will have an impact on the bottom line.”  

A variety of risk management options are available in the commercial motor sector. As well as in-vehicle cameras and telematics, firms are also making drivers responsible for all or part of the excess and adopting stricter selection criteria when recruiting drivers. “Premises security is also important and the adoption of advanced driver assistance systems on vehicles should help to prevent or lessen the severity of accidents,” Rich adds.

Risk radar
While the commercial motor market is performing well, there are a few potential bumps in the road ahead. For starters, it’s yet to be seen how the driver shortage will affect the sector. This could lead to less experienced drivers behind the wheel, and an uptick in accidents.

The shift to electric vehicles also needs to be addressed. While businesses are being encouraged to make the switch, McCarron says that some insurers are still extremely cautious when it comes to covering electric vehicles. “They haven’t had enough time to get a feel for these risks within the fleet market,” he says. “This has resulted in larger excesses, so we may see a £1,500 excess as standard, where normally it would be £500.”

Proposed changes to the Highway Code could also create issues for the commercial motor market. These are due to come into effect in 2022 and will create a hierarchy of road users, with pedestrians and cyclists at the top and benefitting from new priorities on the roads. “This will present challenges to commercial drivers,” says McCarron. “They will continually have to cede priority to pedestrians and cycling, potentially learning new driving behaviours in order to stay complaint.” 

Future products
Insurance products are also likely to evolve to suit the needs of today’s commercial drivers. “The changing nature of the market will demand greater flexibility more akin to Uber-style cover,” says Bowcock. “Many driver owners will want to switch commercial cover off and on and benefit from pay-by-the-mile options as business use forms just a part of their overall vehicle usage.”

This type of cover is already emerging. For example, McCarron Coates’ specialist courier business O1 Insurance offers main contractors employing self-employed drivers a proposition that enables them to turn cover on and off as required.  

And, while it may be some years off, the sector must also consider the shift to autonomous vehicles. This has the potential to transform the commercial motor sector, providing the right insurance is in place.

*Correct as of November 2021*