Commercial Auto Insurance: Unraveling The Rating Process

Commercial auto insurance is a type of insurance policy that covers vehicles used for business purposes. The cost of commercial auto insurance is determined by a variety of factors, including the type of vehicle, the number of vehicles, how often and how far they are driven, and the driving records of the drivers. The cost of commercial auto insurance can vary significantly, with small businesses paying an average of $147 per month or $1,762 annually. It is important for businesses to have commercial auto insurance to protect themselves from financial losses due to accidents, liability claims, or vehicle damage.

Driving records of all drivers

When it comes to commercial auto insurance, the driving records of all drivers are pivotal in determining the premiums paid and the coverage received. Commercial auto insurance companies will request and review driving records as part of their underwriting process. This allows them to gauge the risk level of insuring an individual or business and set appropriate premium rates.

Insurance companies obtain Motor Vehicle Reports (MVRs) directly from the Department of Motor Vehicles (DMV) or relevant authorities. These reports provide a detailed account of an individual's driving history, including traffic violations, accidents, and license status. When assessing risk, insurers will look at the types and frequency of violations, the number and severity of accidents, the number of years an individual has been driving and the types of vehicles they have operated, any history of license suspensions or revocations, the number of miles driven annually for commercial purposes, and the type and size of commercial vehicles operated.

A history of accidents, traffic violations, or DUIs can raise premiums due to the higher risk. For example, one accident can increase auto insurance rates by an average of $80 per month, while one speeding ticket can raise rates by $45 per month. Driving records with several violations may result in much higher premiums or even prevent a business from getting the insurance it needs.

Insurers typically review an individual's driving history from the past three to five years, though this can vary depending on state laws. Serious violations or accidents within this period are likely to have a more substantial impact on premiums than older incidents.

Value of the vehicle

The value of the vehicle plays a significant role in determining the cost of commercial auto insurance. The higher the value of the vehicle, the higher the premium. This is because the insurance company will have to pay out more in the event of a total loss or expensive repairs.

When determining the value of a vehicle, insurance companies may consider the vehicle's market value, or the price that a buyer would pay for it. This value is influenced by the vehicle's condition, mileage, and any special equipment or upgrades. For example, a food truck with valuable equipment will likely have a higher premium than a standard truck.

Additionally, vehicles with more features tend to have higher premiums. For instance, a truck with a rebuilt engine or major component rebuilds will likely be more expensive to insure than a basic model.

It is important for business owners to assess the insurance costs for a particular vehicle before purchasing it, as this can significantly impact their annual insurance costs. Choosing vehicles with lower premium rates can help keep insurance costs down.

Furthermore, bundling multiple commercial vehicles under one insurance company can often lead to discounts and lower overall premiums. This is because insurance companies offer incentives for insuring a larger fleet, recognizing that the number of vehicles has a bigger impact on premiums than the specific industry.

Policy structure

Commercial auto insurance policies provide specific protection for vehicles used in commercial or business settings. Commercial auto insurance is a policy of physical damage and liability coverages for amounts, situations, and usage not covered by a personal auto insurance policy.

There are three basic parts of every commercial auto insurance policy:

Physical Damage Insurance

Physical damage insurance includes collision and comprehensive coverage. Collision coverage pays for damage to the policyholder's car resulting from a collision with another car, object or as a result of flipping over. Comprehensive insurance pays for damage to the policyholder's vehicle from causes other than an accident, including theft, flood, vandalism, earthquakes, fire or damage from a bird or animal.

Liability Insurance

Liability insurance includes bodily injury, property damage, uninsured motorist and underinsured motorist coverage. Bodily injury liability coverage pays for bodily injury or death resulting from an accident for which the policyholder is at fault. Property damage liability coverage provides protection if the policyholder's vehicle accidentally damages another person's property. Medical payments, no-fault or personal injury coverage usually pays for the medical expenses of the driver and passengers in the policyholder's vehicle incurred as a result of a covered accident regardless of fault. Uninsured motorist coverage pays for the policyholder's injuries and, in some circumstances, certain property damage caused by an uninsured or a hit-and-run driver. Underinsured motorist coverage protects the policyholder if the at-fault driver doesn’t carry enough liability insurance to cover their bills.

Other Coverage

Other coverage includes medical payments, towing and labour, rental reimbursement and auto loan or lease gap coverage. Medical payments or personal injury protection coverage pays for medical expenses if the policyholder's health care insurance does not cover the costs. Towing and labour coverage provides towing coverage beyond what’s covered by the standard business auto policy. Rental reimbursement pays for a rental car up to the limits of the policy so the policyholder has transportation after an accident. Auto loan or lease coverage covers the difference between the unpaid amount on the loan or lease and the actual cash value of the vehicle if it is a total loss after an accident.

Driving location and distance

The physical locations you drive also impact insurance rates, as some cities and states have higher rates than others. For example, insurance rates tend to be higher in areas with higher populations, as this means a higher chance of car accidents. Additionally, harsh weather conditions such as heavy rain, hail, or snow can lead to a higher likelihood of accidents, which can increase insurance premiums.

The location where you park your car is also important, especially when it comes to calculating the risk of vehicle theft or vandalism. If you live in an area with a high rate of car theft, you will likely pay more for insurance than someone in a safer neighborhood.

Business type

The type of business you run will determine how a Commercial General Liability (CGL) policy is classified. Generally speaking, a specific code or codes are assigned based on exposures that are common to your type of business operation. The way a business risk is classified is the first step in determining the premium and an important part of the rating formula.

The Insurance Services Office (ISO) has several classifications for vehicle use that affect premium calculations. These include:

• Service Use: Transporting people and materials to worksites
• Retail Use: Making deliveries to residences
• Commercial Use: A catch-all for other uses besides service and retail

The number and type of vehicles covered by a commercial auto insurance policy will also vary depending on the business. Carriers use the classification and function of commercial vehicles to help assess risk and premiums. For example, trucks, tractors, and trailers that weigh more have more potential to cause serious damage in an accident and may have a harder time navigating city streets. As such, rates will be higher for these vehicles.

The industry you're in is one of the major influences on the final premium you receive. For instance, contractors and landscapers carry heavy equipment and may pay higher rates than those who mainly use cars for food delivery.

Businesses that frequently use their vehicles are considered a higher risk to insure than many personal passenger automobiles. Insurers typically charge higher premiums to make sure coverage remains dependable.

Frequently asked questions