Understanding low claims rebate in fleet insurance

In the world of fleet insurance, businesses often seek ways to manage costs while ensuring comprehensive coverage for their vehicles. One effective strategy that has gained traction is the low claims rebate. This article aims to explain what a low claims rebate is, how it works, and the benefits it offers to fleet operators.

What is a low claims rebate?

A low claims rebate is a financial incentive offered by insurance providers to fleet operators who maintain a low frequency of claims over a specified period. Essentially, if a business has a good claims history—meaning they have not made many claims — they may be eligible for a rebate on their insurance premiums. This rebate can significantly reduce the overall cost of insurance, making it an attractive option for businesses managing a fleet of vehicles.

How does it work?

The mechanics of a low claims rebate can vary by insurer, but the general process typically involves the following steps:

1. Claims assessment period: insurers will define a specific period (often one year) during which they will assess the number of claims made by the fleet.
2. Claims threshold: if the claims value falls below a predetermined threshold, the fleet operator qualifies for the rebate.
3. Rebate calculation: the rebate amount is usually calculated as a percentage of the total premium paid.
4. Rebate issuance: at the end of the assessment period, the insurer will usually hold the rebate for a period to ensure that the claims experience doesn’t significantly deteriorate after the assessment period closes, the rebate can then either be applied to the current premium or refunded directly to the business.

Benefits of low claims rebate

1. Cost savings: the most immediate benefit of a low claims rebate is the potential for significant savings on insurance premiums. It can be used as additional capital to support other business needs or form a bonus pool for drivers should their actions help the fleet to be safer.
2. Encouragement of safe driving practices: knowing that a low claims history can lead to financial rewards encourages fleet operators and drivers to adopt safer driving practices, ultimately reducing the risk of accidents.
3. Improved risk management: buying into risk management strategies, such as driver training programs and vehicle maintenance, to minimise the likelihood of claims could be more evident.
4. Enhanced relationships with insurers: a good claims history can foster a positive relationship with insurance providers, potentially leading to better coverage options and terms in the future.

Example

The below example is based on an insurer giving a 10% rebate against a commitment of a loss ratio being under 40% and a reporting lag of under 3 days:

Insurance premium: £313,000

Claims ratio: 27%

Reporting lag: 2 days

Rebate available: £31,300

Some insurers (including some on the Marsh panel) will apply a final qualification around Telematic connectivity – therefore it is important to ensure that your fleet remains connected to qualify for any rebate available.

In summary, a low claims rebate is a valuable feature of fleet insurance that rewards businesses for maintaining a low claims ratio. By understanding how it works and the benefits it offers, fleet operators can make informed decisions that not only enhance their bottom line but also promote safer driving practices within their organisation. As the insurance landscape continues to evolve, leveraging incentives like the low claims rebate can be a smart strategy for managing fleet insurance costs effectively.

Speak to your Marsh adviser about your low claims rebate or give us a call to find out more.