If you don’t require your mobile employees to carry a certain level of personal car insurance, you should immediately address this problem. Failure to do so will leave the company exposed to significant risks from collisions with uninsured motorists.
Employee car insurance coverage is a large risk exposure point, especially in states that have a high number of uninsured motorists. An employee accident with an uninsured motorist could leave the company on the hook, especially if the employee was underinsured or uninsured himself. The best way to protect the company is to incorporate minimum levels of car insurance within the policy governing your company car allowance or mileage reimbursement.
Follow these four steps to create an effective employee auto insurance policy:
- Determine the company’s risk tolerance.
After choosing to address employees’ car insurance, you must determine the liability limits that best align with the company’s risk profile. How much car insurance is sufficient depends on the way your company views risk. Some companies are highly risk averse and require employees to carry million-dollar riders, while other companies don’t pay attention to employee insurance at all. It’s best to find a balance between these extreme positions.
At mBurse we base our best practice recommendations on two primary factors:
- How our clients view risk (risk tolerance)
- How much their employees travel (risk profile)
The more risk-averse the company, the higher the insurance requirement. Likewise, the more the employees travel, the higher the risk profile. Increased mileage means higher likelihood of an accident, therefore justifying a higher employee insurance coverage requirement.
- Set the minimum employee car insurance coverage.
Once you have determined your company’s level of risk tolerance and your employees’ collective risk profile, it’s time to create a policy that clearly defines required employee auto insurance coverage.
Our general rule of thumb for organizations that are not very risk averse is to increase the requirement from a state minimum level of car insurance to 100/300/50. This means that employees will be required to carry minimum liability limits of:
- $100,000/$300,000 per Bodily Injury/total Bodily Injuries
- $100,000/$300,000 per Uninsured Motorist/total Uninsured Motorists
- $50,000 of Property Damage
For organizations that are sensitive to risk or have employees traveling extensively for business, we recommend minimum insurance of:
- $250,000/$500,000 Bodily Injury
- $250,000/$500,000 Uninsured Motorist
- $100,000 Property Damage
- Enforce the minimum auto insurance policy.
Creating a policy is relatively simple. Enforcing that policy, however, requires work. Just putting the insurance minimums in writing and not enforcing the policy is like not having a policy. You must create a system by which you routinely verify that employees are maintaining the required minimum insurance coverage.
Policy enforcement will require that you designate someone in the organization to carry out the insurance verification process. It will also require a clear timeline for insurance verifications. We recommend either our better practice or our best practice:
- Better practice – Annual verification
- Best practice – Bi-annual verification
While bi-annual verification requires more time, keep in mind that most car insurance policies renew every six months. If an employee drops or reduces insurance coverage, it will likely occur around one of those renewals.
- Subsidize increased employee insurance costs.
Keep in mind that by reducing your mobile employees and company risk, you will increase costs for employees. Increasing the minimum level of insurance will mean higher premiums for your employees. It is only right to help employees meet these costs.
The costs of auto insurance premiums are based on many factors:
- Zip code
- Driving record
- Type of vehicle
- Bundling auto with life, homeowners or renter’s
If you require employees to maintain a higher level of insurance, make sure to increase their reimbursement or allowance to cover these costs. It is not only the fair thing to do, it is legally required in many employee-friendly states, especially states with expense indemnification labor codes.
You can’t manage what you can’t see
At the end of the day, the company risk profile is only as good as the policy and the policy enforcement. You know the old saying: you can’t manage what you can’t see. This is just as true for your organization. There will be additional costs in administering insurance verification and maintaining those records as well as enforcing the policy. But the costs will be worth the added protections to the company.