Q: The automobile liability insurance premium for my rental cars is costly. It is our location’s biggest expense after my employee costs. Some of my associates in other states pay much less per car, per month than I do. What can I do to minimize this expense?
— Richard Eramian - CLS Auto Rental, Richmond, Va.
A: It is true, automobile insurance premiums for rental cars can be expensive. There are many reasons that different rental car companies pay higher or lower “per car, per month” (pcpm) rates than others.
One reason is that premiums can vary widely by state jurisdiction. For example, if your operation is in Michigan, your fleet liability coverage is primary for the renter, with financial responsibility limits of $20,000/$40,000 and no-fault medical is required for passengers. You may pay significantly more than in, say, California, where the rental car company is only obligated to give the renter (on a secondary basis) state financial responsibility limits of $15,000/$30,000 and no medical coverage.
It isn’t likely that you can pick up and move across the country to a state with a more favorable legal climate. Let’s focus on some things that you can control that may help to minimize losses and your ultimate premium costs.
Tighten up your counter procedures and stick to them.
Whatever your qualifications are — if the potential customer cannot meet your criteria, then do NOT let this person rent your car. Having a credit card or insurance on a personal vehicle are signals that the individual is demonstrating responsibility. This means that the person will drive safer and take better care of your car.
Marginal renters create claims. It is better to have a car sitting on the lot than compromise your standards and have a loss that will cost you time, money and headaches.
Avoid fraudulent or escalating claim costs.
When your car comes back damaged or your renter reports an accident, take the time at that moment to document. Preserve a record of the damage to the vehicle by taking pictures. Get the facts of the incident, the names and contact information of all involved (including the passengers of your car) and secure a signed accident statement from the driver.
Too often, long after the claim is filed, third parties allege more serious damage or more injured parties. Your detailed first report of loss is your best defense.
Prevent negligent entrustment accusations by third parties.
Properly maintain and service your vehicles. It is most important to track all service records including: oil changes, fluid levels, brake changes, tire rotation/replacement and windshield repairs. Proof of a well maintained vehicle virtually eliminates allegations such as “the brakes failed.”
Verify that your renters have their own coverage. If you have counter products available, you should sell supplemental liability insurance (SLI) to your renters. If an injured claimant has a deep pocket of liability limits provided by someone else’s insurance, this renter is less likely to pursue trying to bring the rental car company into a lawsuit.
These are the most critical items within your control that lead to minimizing losses and insurer claim payouts.
Insurance companies look at your record — the frequency of losses that your location has and the severity or total amount paid as a result of claims from your location.
The less that an insurance company has to pay on your behalf, the lower your loss ratio will be. The better your loss ratio is, the better opportunity you have for a lower premium. It may not be as low as your buddy’s in another state, but at least you’ll know that you’ve taken positive steps to contain your rental fleet liability insurance costs.
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