Understanding Long Term Agreements

In the realm of fleet insurance, businesses are constantly looking for ways to optimise their coverage while managing costs effectively. One strategy that has gained popularity is the Long Term Agreement (LTA). Here we delve into what a Long Term Agreement is, how it functions, and the advantages it offers to fleet operators.

What is a Long Term Agreement?

A Long Term Agreement in fleet insurance is a contractual arrangement between an insurance provider and a fleet operator that typically spans multiple years, often ranging from two to three years. Under this agreement, the insurer commits to providing coverage at a predetermined premium rate, which can offer stability and predictability in insurance costs over the duration of the contract.

How does it work?

The mechanics of a Long Term Agreement can vary depending on the insurer, but the general process includes the following key elements:

1. Fixed premiums: the LTA usually locks in premium rates for the duration of the agreement, protecting the fleet operator from potential rate increases due to market fluctuations or changes in risk assessment
2. Coverage terms: the agreement outlines the specific coverage terms, including the types of vehicles insured, the extent of coverage, and any additional services or benefits included
3. Performance reviews: many LTAs include provisions for periodic performance reviews, allowing both parties to assess the claims history and risk profile of the fleet. This can lead to adjustments in coverage or premiums based on the fleet's performance
4. Renewal options: at the end of the agreement term, there may be options for renewal, allowing the fleet operator to continue their relationship with the insurer under similar terms or negotiate new ones.

Benefits of Long Term Agreements

1. Cost stability: one of the most significant advantages of an LTA is the stability it provides in premium costs. Fleet operators can budget more effectively, knowing their insurance expenses will not fluctuate unexpectedly
2. Enhanced risk management: with a long-term commitment, insurers may be more willing to work with fleet operators on risk management strategies, providing resources and support to help reduce claims and improve safety
3. Stronger relationships: LTAs foster a deeper relationship between the insurer and the fleet operator. This partnership can lead to better service, tailored coverage options, and a more personalised approach to risk management
4. Potential discounts: some insurers may offer discounts or incentives for entering into a Long Term Agreement, further reducing overall insurance costs
5. Simplified administration: with a long-term contract in place, fleet operators can reduce the administrative burden associated with annual renewals and negotiations, allowing them to focus on their core business operations.

Beware

Whilst LTA’s can be beneficial for the reasons stated, if entered into under the wrong circumstances or with a provider that has penal increases for bad performance – they can be very detrimental and not easy to nullify. 

It is essential that you fully consider the terms of the agreement and review thoroughly before entering any contract.

In conclusion, a Long Term Agreement in fleet insurance is a strategic option that provides businesses with cost stability, enhanced risk management, and a stronger partnership with their insurer. By locking in premium rates and fostering a collaborative relationship, fleet operators can navigate the complexities of insurance with greater confidence and efficiency.

For fleet operators considering a Long Term Agreement, it is essential to evaluate the terms carefully and consult with an insurance professional to ensure that the coverage aligns with their specific needs and risk profile. By doing so, businesses can position themselves for long-term success in managing their fleet insurance.

If you require any further information prior to the renewal process, please do not hesitate to reach out to your Marsh adviser.