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Commercial motor rates under pressure
5 February 2009
South-east Queensland residents ducked for cover as hail, rain and flash flooding lashed the region during November. The $300 million storm (that’s the cost to insurers) was the latest in a string of severe weather events in Australia’s recent history.

While some insurers put the estimated motor vehicle damage at only about 5% of that cost, it is nevertheless a sharp reminder of the increasing cost carried by commercial motor insurers.

A massive hailstorm that swept western Sydney last year was a prime example. Hail blasted through car windscreens and battered bodywork as motor insurance claims accounted for 63% of the 53,000 claims associated with the $370 million storm.

Floods in the Central Coast area of New SouthWales and Mackay in Queensland combined to send claim costs even higher.

National Motor Vehicle Theft Reduction Council figures show car theft declined 8% last year, but more than 59,000 cars and light commercials still went missing and almost a quarter of these vehicles were never recovered.

Claims inflation adds to the bottom line for insurers. Expensive technology that is widely available in modern vehicles is just one example.

Prior to the current financial crisis, company car drivers given the choice were swayed by prestige marques and four-wheel drives with high replacement values, exacerbating claims inflation.

Insurers in mining regions have also faced increased labour costs for repairers in recent years, given the wage growth in the boom towns of Western Australia and Queensland.

Those events have had an unavoidable effect on the bottom line, and after years of deep discounting, premium rates are showing signs of increasing in line with insurer costs.

Fortunately insurers have acted rationally. Some commercial fleet clients are now paying just 5-10% more in premiums.

That’s not bad going, especially if events of the past year have equipped you with a shiny fleet of replacement vehicles.

Premiums will depend of course on the associated risk. At the large corporate end of the market, for example, the competitive global pricing cycle may completely erode local factors.

Good quality commercial motor insurance is obviously essential to any business involved in significant on-road travel, so the right cover is essential. As your broker, we will ensure your business is placed with an insurer that understands your commercial motor operations, whether you have sedans, light commercials, heavy vehicles or a specialist transport fleet.

Expert insurers offer a range of additional services such as advice on risk management and relevant safety laws to help mitigate company risk.

So while rates may be set to turn in the short term, stiff competition and disciplined underwriting is keeping a lid on major price hikes.

We have outlined a combination of factors that explain why it’s no longer a race to the bottom among commercial motor insurance premiums.

The good news is most insurers have adhered to underwriting price discipline ensuring that any premium increases are rational, not radical. As always, we’re well placed to obtain good cover at the best possible price.
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