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Insight: are your grey fleet drivers really insured?

Your grey fleet drivers have signed a statement declaring their vehicle is insured for business use.

You assume they have the appropriate cover.But without checking their insurance certificates, can you really be sure?

Of the 6,000-7,000 grey fleet insurance certificates checked by Alphabet every year, about 20% do not have the appropriate cover.

“Drivers don’t understand what they need and it doesn’t cover them properly,” says Diarmuid Fahy, manager fleet risk services at Alphabet.

There are generally five types of cover:

•Social, domestic and pleasure, excluding commuting

•Social domestic and pleasure, including commuting

•Class one business use

•Class two business use

•Class three business use

The first two types do not cover business use but employees do not always realise.

“A common mistake is to think that ‘commuting’ is sufficient,” says Fahy.

“A lot of people assume that going to another office is commuting but it’s not the employee’s usual, permanent place of work. People don’t know what they are insuring themselves for and go for the lowest cost.”

Some grey fleet drivers are guilty of not checking the insurance certificate. “Some certificates are very clear,” says Fahy. “Some state that it does not include business use.”

However, not all insurance certificates are black and white and can cause confusion for the fleet manager checking them as well as the drivers.

A random sample of insurance certificates which Fleet News checked all contained slightly different wording.

Gareth Roberts, fleet manager at Natural Resources Wales, says: “Some certificates are quite woolly. If I don’t see business use on there I challenge the employee to get confirmation from their insurer.”

Some insurers include ‘business use’ as standard while others won’t cover it at all.

Understanding the anomalies can be a nightmare if you have a significant number of grey fleet drivers and have only just taken on grey fleet responsibility, as one fleet manager found out (see case study at the end of this article).

Steve Stock, senior motor underwriter at Zurich Global Corporate, says: “There are hundreds of definitions because of all of the dot.coms.

"Each one will have a different take on business insurance. It’s a licence to price policies differently in the personal lines arena.”

Mark Sherman, manager commercial motor at Allianz, agrees that it’s a “recognised issue”, but says that the insurer should give a definition at the start of the document.

“There are different definitions depending on the use of the vehicle,” he says. “The employee needs to fully declare the nature of their business.”

But even the nature of the business isn’t always clear-cut.

Len Benson, chairman of ACFO’s London West region and associate director at commercial insurance broker Peter Lole & Co, says: “What constitutes commercial travelling is open to debate but my opinion is that if your business appointments are pre-arranged then that is class one or two.

"If you visit clients on your rounds to see if they need any more product etc. then it’s class three.”

Wiltshire Council, which has about 4,000 grey fleet drivers (including volunteers), debated whether its car parking attendants (some of whom are grey fleet drivers) needed class one or class three business use insurance.

As they have equipment in their vehicles the council thought class three might be needed, but it decided class one was acceptable as the drivers are not selling goods.

The council’s former salary sacrifice scheme also required clarification with the salary sacrifice provider.

Benson advises that class one is the use required if you are the managing director travelling to meetings all over the country or if you are the office junior who drives to the bank once a week.

Any employee on a PCP or using their own car for business will need either class one or three depending on their job. Not many people who use their own car for work allow their colleagues to drive as well, so class two would be unusual.

Benson also warns those checking insurance documents to be careful about just looking at the insurance certificate as it only gives “very basic information”.

“The policy schedule in conjunction with the policy booklet gives precise information,” he says.

“For example, if a policy is issued for any driver over 25, the certificate of insurance will just say any driver, and make no mention of the age limitation. The age limit will be endorsed on the schedule or policy booklet.

“By the same token, the ‘use’ may well say ‘personal business use by policy holder and spouse’ but the ‘exclusions’ may not say ‘excluding commercial travelling’.

This doesn’t automatically mean that the policy holder has class three use, as commercial travelling may well be excluded elsewhere.

“Certificates of insurance are more likely to say what is allowed than what isn’t.

“Also remember that some insurers will charge use loadings, or waive them, dependent on mileage.

"Someone doing 30,000 miles a year just going to and from one place of work, because they live miles away, may be charged class two or three rates even though they only need social domestic and pleasure, including commuting.”

Take care if a grey fleet driver decides to use their spouse’s vehicle for a business journey instead of their own vehicle as it might not be insured for business use.

“The employer should have a policy that the employee can only use a vehicle that they have told the employer about,” says Simon Baker, head of commercial motor at AXA.

Insurance certificate checks could be done quarterly or annually or, ideally, when the policy is up for renewal.

Source: Arval

Case study: anonymous fleet

A company which has more than 1,000 grey fleet drivers found 10% did not have the correct insurance.

The issue came to light when the business’s fleet manager took responsibility for the grey fleet. Previously, drivers simply declared on the company’s expenses system that they had insurance.

He has had to educate drivers about what is considered ‘business use’ and what is ‘commuting’ and when they need business cover.

“Drivers thought that if they weren’t claiming back the mileage they didn’t need business insurance,” he says.

He has also had to explain to drivers that although some insurers charge extra for ‘business use’, the employee receives compensation through the Approved Mileage Allowance Payments (AMAP) rate, which includes insurance costs.

The administration burden has been made worse for the fleet manager due to inconsistent wording on insurance certificates.

“Generally the wording on insurance cover notes is ambiguous,” he says.

“Some just say ‘social, domestic and business’ but does that mean business on behalf of their employer or does it mean self-employed business?

“Grey fleet is getting more prominent and there needs to be consistent wording so that the employer knows the driver has the correct insurance.

“I’ve had to hold people back from driving on business until they have confirmation from their underwriter what their definition of business use is.

“It’s particularly an issue with internet insurers.

“The industry could make it so easy by standardising certain phrases.”

The fleet manager has considered extending the company’s insurance, but with more than 1,000 grey fleet drivers it is not practical and the premium is too expensive.

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Posted on 8th April 2014 at 4:34 PM

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