Any employer with employees who drive a personal vehicle as part of their job has a vested interest in those employees' auto insurance coverage. Proof of sufficient auto insurance coverage should be a required part of any vehicle reimbursement program.
Proof of insurance requirement for reimbursement
mBurse administers FAVR auto reimbursement programs for many organizations across the U.S., and our program administration requires drivers to upload a current insurance coverage declarations page. This is to prove not only that their vehicle is covered, but also that the coverage amounts meets their employer's required minimum amount. No insurance verification, no reimbursement.
For some organizations and employees this can feel heavy handed. But tying insurance verification to reimbursement payments actually benefits both the company and the drivers. Let's explore why.
1. Proof of auto insurance coverage protects the company.
This may seem self-evident, but let's be clear on why employers need the protection that comes from verifying employee car insurance. Essentially, when someone operates a vehicle on behalf of an employer, even if it is a personal vehicle, the legal doctrine of respondeat superior makes the employer potentially liable for damages caused by the employee while working.
In the event of an accident caused by an employee, if the employee's insurance coverage is not high enough to cover the damages, then the victims will likely seek redress from the employer's insurance. This is why it is important to require employees to carry robust insurance coverage, such as a 250/500/100 policy, or at a bare minimum, a 100/300/50 policy.
Requiring each employee to upload their auto insurance declarations page every six months (i.e. every time their policy renews) will help keep all employees covered by appropriate levels of insurance and reduce the risk of employer liability.
2. Proof of auto insurance coverage protects the employee.
This may be less self-evident, but in a properly administered vehicle reimbursement plan, keeping a current proof of required insurance coverage can help insure that the employee is reimbursed for that insurance coverage. When it comes to employee-owned vehicles, it can be easy to forget that reimbursements for the use of those vehicles should include reimbursement of auto insurance premiums.
The employee is hazarding a valuable personal asset on behalf of the employer and purchasing (possibly) higher insurance coverage than they might otherwise purchase if not for company minimum requirements. It is only right for the employer to factor that insurance coverage into its reimbursement method and amount.
Plus, by purchasing a robust insurance coverage, the employee receives the assurance that they will be fully covered in the event of even a very expensive accident or a collision with an uninsured or underinsured motorist, as well as having greater protection from a lawsuit seeking damages.
How to set and maintain auto insurance verification requirements
It is important to recognize that, because auto insurance premiums are a fixed cost from month to month, mileage-based auto reimbursements are not the optimal way to ensure full reimbursement of the employee's insurance. For example, if one month an employee drives far fewer miles than usual – not unusual in 2021 due to the Covid-19 pandemic – they might not accrue enough mileage to cover their insurance on top of other vehicle costs.
This is why a FAVR reimbursement model works better, since it includes a fixed-cost payment on top of a variable mileage rate. A traditional car allowance also works as a way to cover insurance premiums, but carries with it other significant problems, particularly lots of tax waste. FAVR reimbursement payments, on the other hand, are non-taxable.
But whatever route your organization pursues to offset employee vehicle expenses, you want to have a written policy that states the minimum insurance coverage necessary, and you want to have a way for employees to upload an image of their auto insurance dec page into the expense reimbursement system. Without that up-to-date verification, they don't get reimbursed.
If you would like further information about other ways to reduce mobile employee risk, take a look at our ultimate guide below. Or if you would like help setting up an insurance verification system as part of your car reimbursement model, give mBurse a call, and we'll help you get set up.