Managing Fleet Risk | Financial Risk
In this second post in our series of five on managing fleet risks, we look at the specific decisions and actions that need to be taken to manage the financial aspects of fleet risk.
The series covers the fleet risk topics below and the links will become live as each one is published:
- Strategic Aspects of Risk
- Financial Risk
- Reputational Risk
- Human Resource Risk
- Legal Risk
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1. Acquisition methods and funding
As with most financial choices, there is a trade-off in fleet decision-making between the overall cost to the organisation and the degree of risk it is willing to accept. Perhaps the most notable, from a fleet perspective, is the decision to buy or lease fleet vehicles.
Buy or lease
While outright purchase of cars and vans might, in some circumstances, deliver lower costs, the organisation takes all of the risk associated with the vehicle’s lifetime expenses plus its eventual disposal and residual value. Leasing, in the form of contract hire or contract purchase, can provide cost certainty for many aspects of the vehicle’s in-life costs and remove the risk associated with its disposal value, making short and long-term budgeting simpler.
Getting the best deal
Regardless of the type of vehicle funding chosen, there is also an underlying risk that the organisation might not be getting the best deal possible for new vehicle acquisitions. The trade-off here is usually one of the convenience of using a single supplier for all vehicles, and the lower prices that might be achieved by shopping around. One way of balancing this trade-off is to use a single fleet management partner that will undertake vehicle-by-vehicle tendering on behalf of the organisation. Read about CLM’s Smartpanel for more details.
The same can be true for the many ancillary services required when running a fleet, such as maintenance, vehicle hire, accident management and insurance. While shopping around can certainly result in lower costs in each of these areas, from an insurance perspective, it could also be worth considering ‘self-insuring’ against those risks where this is permissible. This is a highly specialised area and expert advice should be sought, but considerable savings can be made, including a reduction in Insurance Premium Tax (IPT) expenditure.
2. Commercial application
Reducing employee travel
Eliminating unnecessary car journeys through the use of telecoms solutions, and the selection of the best possible mode of transport for those still required, will play a significant part in reducing the risk of non-essential travel expenditure. Organisations are increasingly looking to Mobility as a Service (MaaS) solutions to assist with this. Click here to read more about CLM’s MaaS solution.
Right vehicle for the job
Selecting vehicles, and in particular LCVs, which are appropriate for the job they are expected to undertake is extremely important in reducing the risk of unforeseen expenses. Selecting a vehicle with too small a payload may limit its lifespan if business needs change and will put extra strain on the vehicle making mechanical failure more likely, while selecting too large a vehicle will cost more in both acquisition and running costs.
For cars, it’s worth considering how many passengers they are likely to be required to carry for company journeys; if it’s regularly more than two people it’s probably worth restricting the choice of small vehicles to prevent hire vehicle expense.
Best fuel option
Selection of the most appropriate fuel type is also key to reducing the risk of excessive running costs. Consideration needs to be given to journey profiles, load (for LCVs) and destinations. While petrol and diesel-powered vehicles continue to form the bulk of fleet sales, interest in Alternative Fuel Vehicles (AFVs) is growing rapidly as their running costs can be far lower. Mandating the choice of vehicles with lower fuel consumption (and therefore emissions) will also help to prevent excessive fuel claims.
For vehicles regularly entering Clean Air Zones, such as London’s Ultra Low Emission Zone, it is important that they meet the right Euro standard, or be fully electric, to avoid daily charges.
Organisations can also encourage fuel efficient driving behaviours through their reimbursement policy. Drivers are more likely to consider their driving style if a fixed rate per mile is offered rather than settlement for the cost of all fuel used.
3. Productivity and minimising off road time
While vehicle selection plays a big part in reducing financial risk, there are other measures that can be taken to improve productivity, minimise downtime and cut costs. A key consideration is vehicle lifecycles; keeping vehicles for an extended period of time may appear to be an obvious choice in reducing fleet expense, but reduced acquisition or rental costs can be outweighed by the additional maintenance required and, in particular, by the vehicle-off-road costs for both scheduled and corrective repairs.
One of the greatest financial risks faced by fleets is having vehicles standing redundant. By ensuring that any new, or newly eligible, employee is provided with an unallocated vehicle rather than acquiring a new one this can be reduced. Alternatively, unallocated vehicles can be disposed of either through sale, if owned, or through an early termination agreement with the funder if leased.
Pool Car Management
Systems are now available to manage pool cars to maximise their utilisation and ensure that the most appropriate vehicles are being allocated for each journey. Additional functionality can even highlight opportunities for car sharing to reduce overall travel costs.
Expert vehicle maintenance management can pay great dividends in terms of reducing financial risk. The obvious point here is to ensure that vehicles are serviced in line with manufacturer recommendations; this will help to ensure reliability, reduce vehicle downtime and improve the residual value.
Agreed service levels with carefully vetted maintenance providers are also a must in effectively reducing vehicle-off-road time and costs. These agreements should include defined costs for routine servicing, guaranteed turnaround times and the requirement for work authorisation before it is carried out.
These measures will help protect the organisation from unexpected costs and the risk of overcharging by unscrupulous providers. Add to this out-of-hours and mobile servicing and vehicle downtime risk can be reduced still further.
Accidents do happen and these can mean extended periods of time with a vehicle off the road, as well as the expense of repairs. The ultimate risk reduction service for these situations is accident management. These services usually provide a single point of contact following an accident, to initiate recovery, repair, insurance claims and any proceedings to recover uninsured losses.
Claims handlers also work to reduce downtime and minimise the cost of repairing the vehicle. Where a vehicle is going to be off-road for an extended period the service also includes the provision of suitable replacement vehicles to prevent lost business capacity. Click here to read more about accident management.
4. Preventing theft and damage
Vehicle theft claims are at their highest level since 2012 according to the Association of British Insurers (ABI)1. While vehicles and their contents might be insured, businesses still face the financial risk of any policy excess, plus the cost of downtime while vehicles and equipment are repaired or replaced.
Basic rules for preventing vehicle theft
- Always lock the vehicle when it’s unattended – obvious but not always done, particularly for frequently stopping vehicles. A final check that the locks have actually engaged is always worthwhile as jammers can be used to prevent remote radio waves. Failure to lock may invalidate the insurance policy.
- Carefully consider where you park – a locked garage is the most secure, but driveways tend to be more secure than on-road and more remote spots are riskier. The current trend for catalytic converter theft means that drivers should also consider parking in a way that makes access to the underside of their car more difficult.
- Do not advertise the contents of the vehicle – particularly relevant to LCVs, if your signage describes your business type it can attract thieves looking for valuable equipment. Also consider adding stickers that state that no valuables are left in the vehicle when unattended and that anti-theft or tracking devices are installed.
- Remove or hide valuables and all signs of them – by far the best advice is to remove everything valuable whenever you leave the vehicle but there are times when this isn’t practical, so make sure they’re hidden and in the most secure part of the vehicle. Even leaving cables and holders visible can hint at the fact that there might be electronics inside so make sure these are hidden too.
- Keep keys secure – these days this doesn’t mean just storing keys so they’re not easily visible through a home or office window, it also means keeping them out of range of key cloning devices and ‘relay theft’ equipment.
- Consider additional security equipment – this could be the fitting of high security, shielded locks and immobilisers which prevent the vehicle being hot-wired. There are also a wide range of tracking devices and telematic services that will alert owners that their vehicle is being tampered with and if it has been moved. These systems can also collect video or photographic evidence from inside the vehicle. Simpler measures include the tinting or reinforcing of windows to hide the vehicle’s interior and deter breakage.
- Check periodically for manufacturer recalls and software updates – if there has been a security related recall or software upgrade it’s important that these are installed to minimise the risk of theft.
Next in the series – Reputational Risk
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To read more about CLM’s approach to fleet risk management and to contact us for a no-obligation discussion click here.
1 ABI’s quarterly motor insurance claims report, May 2019