Your employees’ car insurance can cost the whole company if the coverage is too low. All it takes is a single car accident. You can protect your organization by following these guidelines for employees' auto insurance.  

An employer's guide to employees' personal car insurance

Any time an employee gets behind the wheel as part of the job, auto insurance becomes the boss’s business. The risks of an accident have implications beyond the employee's own personal coverage.

In the case of a company car, the employer sets the auto insurance policy. But when it comes to personal vehicles driven for business, a lot of companies don’t think about their employees’ car insurance. However, these employees are exposing the company to the same risks as employees using company cars.

This is why employers should calculate and mandate the minimum sufficient car insurance for their drivers. We'll explain how to do it below.

The danger of ignoring employees’ car insurance

According to OSHA, motor vehicle accidents cause 39% of occupational fatalities, with over 2,000 employees killed this way in an average year. Some employees constantly face risk as they drive from client to client or site. But even employees that work out of an office face risk. A commute home directly from an appointment and a commute from home to an appointment both count as part of the workday.

In 2019, motor vehicle accidents cost employers a total of $72.2 billion in the U.S. alone. As an employer, you are responsible for protecting your employees and your company. If an employee causes an accident during the workday, and the employee’s auto insurance cannot cover the costs of injuries and property damage, the employer can be held liable for the difference.

Vicarious liability for an employee car accident

When an employer is held liable for an employee accident, it is called vicarious liability. Often the cause is an underinsured driver. Here's how it works.

Every insurance policy consists of a set of limits to how much the insurance company will pay out in the event of an accident. A 25/75/25 policy would cover the driver up to $25,000 per injured person, $75,000 in total injuries, and $25,000 in property damage. If an employee with 25/75/25 policy limits causes a total cost of $100,000 in injuries and $50,000 in property damage, then the company could be on the hook for $50,000.

How to guard against underinsured employees

First, understand why employees elect to procure insufficient insurance. It all comes down to cost control and risk aversion. Most states set very low minimum required insurance coverage. And many individuals buy lower limits because they want to save money and are not worried about the risk. 

A lot of people could fit that description. And they may be working for you right now. In 2024, American drivers have experienced a 26% increase of auto insurance premiums compared to 2023.

The solution?

1. Set minimum required car insurance for all employees who operate vehicles as part of the workday.

Generally, companies should not let their employees on the road without carrying a minimum coverage of 100/300/50. The best practice, however, would be a 250/500/100 policy.

Wait...can an employer really require employees to carry higher insurance coverage on a personal vehicle?

Yes, an employer can require employees to carry a specific amount of auto insurance coverage on their personal vehicle. The key is that the employer pays for the upgrade by incorporating the higher insurance premium into the employee car allowance or vehicle reimbursement. That's only fair, right? This is especially key with insurance rates rising in 2024.

2. Verify employees’ auto insurance coverage every six months.

A minimum auto insurance requirement means nothing if the employee doesn’t adhere to it, or, worse, lets insurance coverage lapse. Most policies renew every six months, so that's when you want to check up on their coverage.

But isn't it micromanaging to require proof of an employee's auto insurance?

The fact is, if employees are driving personal vehicles as part of their job, they have implicitly agreed to allow the company some oversight of that personal vehicle. It's too big of a risk for the company not to require proof of an employee's car insurance coverage. Plus, as we'll see below, this also protects the employee. (Here's how to obtain an employee's insurance declarations page.)

Just remember to be fair with the car allowance or reimbursement. Make sure to boost it when you set or raise the minimum insurance requirement. And communicate the increased car allowance or reimbursement to employees to show fairness and good will.

Protect your business and your employees with a car insurance policy

If your employees do not have adequate coverage in the event of a work-related auto accident, you could be responsible for the claim. Not only does this expose your company’s bottom line – it also exposes your company’s reputation. More than that, it creates a serious conflict between the employee and the employer. This messy situation should be avoided at all costs.

By requiring employees to maintain sufficient auto insurance and verifying their compliance, you protect both the company and your employees.

Contact us for more information on how to mitigate your company’s exposure and monitor employee insurance policies efficiently and cost-effectively.