Innovative insurance solutions help reduce costs for transport operators

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Moving the industry beyond the boundaries of conventional vehicle insurance and placing the emphasis on policies being written to manage the risk on behalf of transport owners is being driven by prevailing market circumstances, says Nigel Pillay, head of corporate and Business Insurance at Standard Bank Insurance brokers.

Owners opting to assume some of the risk themselves

“Besides traditional comprehensive coverage, many owners are opting to assume some of the risk themselves to reduce premiums. One of the most common of these policies is those that offer aggregate limit cover, which stipulates the most an insurance company will pay for all covered losses over a year. This enables the company concerned to cap its premiums at a set level to the benefit of the trucker who assumes a fair portion of the risk.

“The economic downturn has also had the effect of making insurance cover extremely price sensitive. As pressures to contain costs have mounted, so more customers are relying on strong relationships with their insurer or broker to keep premium and excess costs in check.

Taking control of insurance premiums to reduce costs

“As control of insurance premiums is one of the costs that can be tailored or reduced, it is usually one of the first expenses examined when operating costs have to be reduced to maintain margins. Of course, one of the dangers is that values and cover can be excessively reduced-adding substantially to costs if a major accident or disaster occurs.

“Reducing costs by accepting lower premiums with high excess payments is usually a ‘defensive’ response to rising costs by smaller operators. This strategy contains significant risks as the transport owners have to make sure that their cash flows are strong enough to carry the higher excesses that need to be paid.”
These actions, when not properly considered, contribute to one of the major problems facing road users across the country who do not realise that up to 70% of commercial vehicles on South African roads either have inadequate insurance or no insurance at all, says Pillay.

The voluntary adoption of standards such as the Road Transport Management System that commits a truck owner to the adoption of various safety and quality standards can also impact on premiums. “The present economic situation adds further complexities to an industry that faces a myriad of risks whenever a vehicle takes to the road, “says Pillay.

“The fluctuating value of the rand means that the price of imported vehicles and the parts required to repair them are constantly changing. Most of this risk is assumed by insurance companies.”

Most categories of routine insurance coverage written in South Africa usually include:

• Coverage for goods in transport
• Cross-border coverage for vehicles and load travelling through sub-Saharan Africa.
• Third-party liability
• Accident assistance that also covers the cost of wreckage removal and environmental damage caused by spilled loads that can range from oil and fuel to chemical spills.
• Sasria insurance which covers vehicles and loads for damage caused by civil unrest.

Although these categories seem to cover most eventualities, the reality is that the industry is never free of risk- even when a majority of the fleet is parked in a controlled area. Additional hazards like fire can reduce a multi-million Rand fleet housed in a secure site to ashes. Risks only increase when vehicles take to the roads and face hazards that can vary from inclement weather to crime and the fact that many drivers do have the requisite skills required to handle large rigs.

Although telematics were playing a role in reducing hazards by closely monitoring driver behaviour, abuse of vehicles and fraudulent activities, insuring South Africa’s heavy fleets - the lifeblood of the economy in the absence of a comprehensive rail network - will always remain a challenge, says Pillay. “Insurance companies and responsible truck operators are playing their part in the equation by working together to identify and implement strategies to reduce risk and, therefore, the costs of operating a fleet. The beneficiaries of these actions are not only the parties involved but South African consumers as a whole, who rely on these vehicles for many of the goods and services that are taken for granted,” says Pillay.