The standard auto insurance policy does not always fit the needs of commercial auto insurance clientele. For example, in a standard automobile policy, there is a weight restriction for the vehicle. Exceeding that standard weight restriction is excluded in the standard auto policy. For example, the Owner’s Automobile Policy has a weight restriction of 4500 kilograms. Many commercial and fleet vehicles exceed the personal lines weight restriction; therefore require a custom insurance solution.
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Commercial auto insurance, also called fleet insurance, is usually combined with a Commercial General Liability Policy and other floaters or riders of insurance to accommodate a business risk. Commercial auto insurance is usually purchased by anyone that uses a vehicle not in connection for personal use. Policyholders are business owners, the government (the government mainly self-insures but still requires to purchase a liability policy), huge corporations, Churches, not for profit organizations and many more entities, where the use and operation of a vehicle go beyond the scope of personal use.
Commercial auto insurance policies can vary in complexity based on the nature of the risk. The risk can range from small scheduled polices, where only one or two vehicles need to be insured, or huge fleet policies such as long haul trucking insurance.
Commercial auto insurance also spans many industries and sectors of life. It’s reasonable to think that almost everyone that runs a business or uses a vehicle outside of personal usage requires auto insurance.
Commercial Car Insurance Rating
Commercial auto insurance is rated differently than personal lines car insurance. The diversity of commercial vehicle operations is vast, and the nuances and specialties of individual businesses make rating commercial auto sometimes difficult and tedious. Rating commercial auto is not so much a “cookie-cutter” process compared to personal automobile insurance.
Underwriting Commercial Automobile Insurance
Underwriting commercial auto is a bit different than personal car insurance. As mentioned previously, the complexities and diversity of risk associated with commercial auto forces insurance companies to look at risks with more willingness to accommodate and to find creative solutions to accept and keep clientele. Insurance companies still have strict underwriting rules, even with commercial auto, but sometimes there is a gray area where concessions are made to the mutual benefit of both insured and the insurance company.
What is the difference between commercial and personal car insurance?
The difference between commercial and personal auto insurance can be summarized as follows:
Rating for commercial vehicles – commercial vehicle factor more than the driver and vehicle but also the type of commercial or business use ascribed to it.
Rate Class – the rate class of commercial vehicles is different compared to personal vehicles. Rate class refers to how the vehicle is used. Commercial vehicles broaden the scope of risk exposure a vehicle might present to an insurance company based on the nature of the commercial business. Commercial vehicles are rated in accordance to how businesses use them.
Special considerations – a commercial vehicle or fleet is an extension of a business operation. The nature and nuances of a business would require more investigation and risk assessment from an insurance company Underwriting department to qualify a risk.
Moreover, commercial vehicles usually have more than just stereo and/or GPS equipment attached to the vehicle. Some commercial vehicles have very specialized and expensive equipment such as toolboxes, hoists, radio communications equipment and other special tools and attachments
Weight restriction – a common exclusion in the Ontario Automobile Policy OAP 1, is that a vehicle cannot be more than 4,500kg gross weight. Many commercial vehicles such as Buses, Transport Trucks, and dump trucks weigh substantially more than 4,500 kg; therefore insurance companies amend the OAP1/SEF1 so that insurance coverage would extend to vehicles over the standard weight limitation.
Although the OAP1, Ontario automobile policy is still the same auto policy used for both personal and commercial lines car insurance, insurance companies will override the typical 4,500kg gross weight exclusion with an extension of coverage through an endorsement or insurance floater.
Different types of policies – the standard Owner’s policy is the main staple policy used in both personal and commercial lines vehicle insurance. A commercial auto policy is often tailored to meet the needs of commercial and businesses, with insurance floaters and manuscript endorsements. However, the customization of a standard Owner’s policy, to fit the insurance requirements of some commercial operations, may require branching off from the Owner’s policy completely.
The following are some examples of commercial insurance policies that are separate from the Owner’s auto policy:
- Non-owned Auto Policy
- Garage Auto Policy
- Excess Automobile Policy
- Lessors Contingent Auto Liability Policy
Geographical location – where most personal auto insurance policies use your home address or the address where the vehicle is garaged, commercial vehicles normally use their business address for geographical rating purposes.
Commercial auto insurance involves more underwriting customization and consideration by an insurer compared to a personal auto policy.
Scheduled policy vs a fleet policy in Commercial Auto Insurance
A commercial fleet auto policy provides blanket coverage to many vehicles, without specifically describing the insured vehicle on the insurance declaration. Although every vehicle on a fleet policy requires disclosure and vehicle information for the entire fleet of vehicles, this is done on a less frequent basis due to the tediousness and time-consuming effort required. A scheduled policy normally insures fewer vehicles which are specifically described on the declaration of insurance. Essentially, fleet commercial auto policies are designed for a large number of vehicles, whereas a scheduled policy is better suited for a business with fewer vehicles.
Types of Commercial Auto Insurance policies and Coverages
There are exposures unique to Commercial automobile insurance. Although insurance Underwriters can amend the Owner’s Policy to accommodate unique commercial auto risks, some commercial auto risks require a completely different policy form. The following are examples of other forms of commercial auto insurance coverage:
Garage Automobile Policy
Garage automobile insurance coverage is meant to provide coverage to specified garage personnel for liability they may incur. The Garage auto policy insures non-owned and customers’ automobiles while in the care, custody, and control of garage personnel.
Garage automobile insurance is essentially designed for any business that sells, repairs, maintain, stores, service or park vehicles.
A garage policy covers what is excluded in the standard Owner’s policy.
Non-Owned Automobile Policy
A non-owned auto policy offers legal liability coverage to a commercial or business entity for vehicles not owned but occasionally used for business purposes. Non-owned vehicle coverage is usually combined with a Commercial General Liability (CGL) policy as a bundled, business insurance package.
Excess Automobile Policy
Excess automobile insurance covers your legal liability should the liability limits of your primary policies become exhausted. To put it simply, excess automobile insurance coverage provides additional limits of liability when your primary liability policies are not enough or have been used up.
Excess automobile coverage is usually found bundled with a commercial general liability policy.
Lessor’s Contingent Liability
Lessor’s Contingent Liability provides coverage for the lessor of the vehicle. Since the Lessor is technically the owner of the vehicle, liability exposure is still present when their vehicles are leased out.
Lessor’s Contingent Liability protects the Lessor should the primary liability coverage of the lessee runs out or fail to respond. Like Excess automobile coverage and non-owned coverage, Lessor’s contingent liability insurance is often bundled with a Commercial General Liability Policy.
Commercial Auto Insurance FAQs
The cost of commercial vehicle insurance depends on several factors, which makes it difficult to calculate the average price. The price of commercial auto insurance is affected by the value of the vehicle or fleet, driver experience and history, nature of the business, operating radius, special equipment and the use of the vehicles, just to name a few. The price range of commercial auto insurance can range for as little as $1000 to a staggering $5,000,000 per year!
Commercial auto insurance isn’t necessarily cheaper than personal auto insurance but usually tends to be. Commercial auto insurance can range from very expensive to cheaper than a personal lines auto policy. The quantity of vehicles, the number of drivers, the cost of the vehicles and equipment, and the liability that the vehicle or fleet assumes from commercial or business operations, is usually what makes commercial insurance most expensive than personal lines auto insurance.
The scope of car insurance coverage for a commercial vehicle can be as simple as delivering pizza, or as complicated as insuring a fleet of long haul transport trucks.
Commercial automobile risks are diverse in scope, address greater risk and usually demand higher insurance limits to accommodate business operations. The cost of commercial auto insurance reflects not only the vehicle but the liability that stems from your business, attached to the use and operation of that vehicle. In personal auto, the risks are usually limited to the liability of the driver and vehicle.
Commercial automobile insurance coverage is vehicle insurance that is tailored for business or commercial use. A personal car insurance policy normally does not cover the business risk, however, some personal auto policies will allow for partial business use.
Shopping for commercial auto insurance is almost identical to shopping for personal auto insurance. Commercial auto insurance requires a bit more discernment from the business owner.
Commercial auto insurance can be expensive because:
the liability that stems from a commercial or business is carried over to the use and operation of the vehicle
the cost of some commercial vehicles and their equipment can be very costly to repair or replace
Delivering pizzas is considered making commercial deliveries and is NOT covered under an Owner’s Policy. A commercial auto policy is required for pizza delivery or any other delivery service.
It might be tempting to deliver pizzas without proper insurance but could get you into trouble should you have a claim. Your claim would most likely be denied and your insurance company may drop you!
The definition of a commercial vehicle is:
-A vehicle with a truck or delivery body style
-A vehicle that has been altered for the transportation of goods or other commercial uses
-A motor vehicle used to transport passengers
-A vehicle used in the business of carrying students, school children or teachers, to and from school activities
-A motor vehicle of a bus type
-A motor vehicle of a van used to transport passengers confined to a wheelchair
-A motor vehicle weighing over 4500 kilograms
Lowering the cost of commercial auto insurance is very similar to reducing the price of personal auto insurance.
– Increase your deductible – increasing your insurance deductible will allow you to assume more responsibility for the first portion of a covered loss. Essentially, you are telling the insurance company that you are willing to share more financial responsibility by increasing your deductible. This will lower your commercial auto insurance premium, but will also place more onus on the policyholder to share in covered losses.
– Select better drivers – a driver’s record and experience affect commercial insurance premiums just as much as personal auto insurance. It’s important to hire drivers who have good driving records, habits and behaviors.
– Shop around – commercial auto insurance companies are continuously changing prices to be more competitive in the marketplace. Taking advantage of the ebb and flow of commercial auto insurance prices can be rewarded with a reduction of the premium cost. Although shopping for more affordable commercial auto insurance can be a tedious and frustrating exercise, it will never cost you anything to get a commercial auto insurance quote!
– Reduce Insurance Coverage – reducing insurance coverage is another way to reduce the cost of commercial auto insurance premiums. Although reducing the coverage is the least recommended way to reduce premiums it might make sense for some policyholders. An example could be removing collision coverage to an older fleet, or simply to reduce insurance limits. Speak to your insurance broker to know how a reduction in insurance would affect you.
Choosing the best commercial auto insurance is a subjective exercise. The word “best” signifies different things to different people. Some might consider more affordable or cheaper commercial auto insurance as better, while others value things such as customer service or the administration of commercial auto claims. Choosing an insurance brokerage that specializes in commercial vehicle insurance would be the best choice as they would have more experience in the commercial auto insurance niche.