At the end of 2017, employment is up and gas prices are down. Those trends have put more drivers on the road, but more drivers also means more accidents. And with a rise in accidents comes a rise in auto insurance claims.
But 2017 also brought an even costlier trend: extreme weather. With record-setting hurricanes and flooding in the South and record-setting hailstorms in the Rockies, 2017 brought hundreds of billions of dollars in damage to personal property.
As insurance companies seek to recover the cost of increased claims, you can bet they will look at increasing car insurance rates in 2018. These increases could profoundly impact your company’s risk profile if employees reduce their insurance coverage to save money. What will you do to stay proactive?
Here’s one step you can take:
Prepare for 2018 insurance rate increases by adjusting your car allowance.
In an effort to protect your business and employees you need to ask two questions:
- When was the last time we evaluated and adjusted our car allowance policy or amount?
- How can we adjust our car allowance policy for 2018 so it fully reimburses for the insurance increases of 2018?
Making adjustments to your car allowance policy is necessary every year. There are labor codes in some states that require that you protect employees’ income from the various costs of operating a personal vehicle for work. If insurance rates increase in 2018, but your car allowance amount does not, you risk violating state labor codes.
But there’s another risk you need to think about: negligent entrustment. Your employees may try to save money by decreasing their insurance coverage. If an employee with insufficient coverage causes an accident while on the job, your company could be held liable. With a modest increase in your car allowance, you could greatly reduce the risk of this outcome.
How to adjust your car allowance effectively
While addressing fluctuating gas prices can be as simple as providing a fuel card, adjusting for insurance costs raises a complex set of questions. How much do you increase the allowance amounts? What do you base the increase on? Do all employees get the same increase? What do you do when insurance prices drop?
First off, a proper solution must take into consideration geographic location because car insurance rates are determined by zip code. In other words, some employees may need larger increases than others.
The idea of varying car allowance amounts may seem radical, but it actually makes a lot of sense. Insurance rates aren’t the only expense that varies or fluctuates. Gas prices vary by location, as do maintenance costs and property taxes. Some employees face longer drives and/or more traffic than others. Adjusting your car allowance to address insurance increases can be a good first step in the direction of proactively introducing other variations in car allowances to address the variations in employee expenses.
A customized approach to your car allowance will raise the level of fairness to all employees and protect your company from labor code violations and other risks that come with insufficient reimbursement. You just need to remember to develop and communicate your plan for readjusting the amounts when insurance costs start to level off or drop.
An additional way to reduce risk: a minimum employee insurance policy
Taking steps to ensure employees maintain an adequate amount of insurance is important, but establishing a minimum policy is even more important. If you don’t have a motor vehicle insurance minimum, your company is exposed. Remember: if an employee with insufficient insurance is involved in a minor traffic accident during work hours, your company will also be involved. With more people on the road and more claims, that’s not a risk you can afford.
We have developed a helpful guide to instituting a robust minimum insurance policy and verifying that employees are in compliance. Taking the time to protect your company from liability for employee behavior will be well worth it.
Going beyond auto insurance reimbursement
If you would like to take a proactive approach to ensuring your car allowance or reimbursement policy is based on accurate data and adjusts not only to car insurance, but also to gas prices and other varying cost components, contact us today for a free benchmarking analysis.