Employee usage of company vehicles, while convenient and sometimes necessary, can create costly exposures if the proper policies and procedures aren’t in place.
Jonathan Theders, CPIA, president and COO of Clark Theders Insurance Agency Inc., says there are three main vehicle uses that should concern business leaders: driving personal vehicles for work-related purposes, driving company vehicles for work purposes and driving company vehicles for personal purposes.
“Typically, the focus has always been on company use of company vehicles,” Theders says. “Very little is spent on the things that fall outside that.”
Smart Business spoke with Theders about how to protect your company from the risks associated with employee driving.
What issues can arise from personal use of company vehicles?
Some businesses don’t allow people to take their vehicles home, but a lot of businesses do. Think of a contractor who has a pickup truck that’s used at job sites. It’s not necessarily convenient to always come into the office in the morning before going to the job site, so the employee takes the vehicle home.
Then, if the contractor’s friend needs help moving something and he has the pickup, he can find it hard to refuse to help. Or, he may not have an extra car, so he takes the company vehicle to the grocery store, or his spouse uses it.
There are many different factors that should concern a business because insurance and liability always follow the vehicle. So if you allow an employee to take a vehicle home and that person allows a spouse or child to use it, or he or she uses it for another purpose, that liability comes back to the owner of the vehicle the company. There is no escaping that liability on a company-owned vehicle.
How can a company protect itself from these situations?
You need to make sure the company has a driver policy. The company needs to qualify who will be allowed to drive its vehicles. While drafting the policy, the company’s decision-makers need to say, ‘If we allow personal use, it’s only going to be the employee driving for personal use.’
Some companies allow the spouse to drive for personal use. If you do that, you need to do the same due diligence on the spouse that you would do for an employee because that person is riding on your liability. So if someone has three DUIs and takes the company truck to the neighborhood pub, that liability is going to come back to the company, even though it’s an employee’s spouse, not the employee.
More times than not, companies just don’t have a policy for personal use of company vehicles. They don’t think about it because they’re more concerned about driving to and from the job. It becomes a nuisance for some people because they don’t see that as a great exposure. But when you think of the range of liability for the company, it can be quite amazing.
What should be covered in a company’s driver policy?
When you set up criteria for a vehicle operation policy, you want to make sure all your drivers are evaluated and that you discuss if the policy will affect only employees. If you’re going to allow personal use, will you allow other members of the family to drive? If you allow other members to drive, how are you going to do due diligence to make sure they are safe and tracked? Are you going to put a restriction on how far they can drive? Are you going to stick to within 50 miles of their home, or will you allow them to take it to Florida for the family vacation? I’ve seen kids take company cars on spring break, and the company ends up bearing the burden of that claim for what never should have happened.
Another risk factor that should be addressed is the use of vehicle restraints like seat belts. You also need to deal with potential driver distractions, whether that is the use of cell phones, text messaging or other drivers on the road.
All these issues can be written into policies, then communicated to your employees. Provide training to keep your drivers safe while they are operating motor vehicles under the scope of their employment.
Your employees have to realize the risks to which the company opens itself by allowing these things to happen. Maybe the executives are comfortable with that, maybe they’re not. Maybe your insurance company is comfortable with it, maybe it’s not.
The involved parties need to have these discussions ahead of time rather than get into a situation and wish they had addressed it (proactive versus reactive).
How can your company’s driver policy affect the amount you spend on insurance?
These decisions certainly have an effect on exposures and rates from an insurance company especially if you have incidents.
When you are working with underwriters who are pricing the risk, you need to realize that they only know what they have been told. You can draw a better picture for them if you can say, ‘This is the policy we have in place. We don’t allow personal use of the company vehicles.’
Whenever you draw a clearer picture, it makes them feel more comfortable, which gives them a reason to lower rates.
Jonathan Theders, CPIA, is president and COO of Clark Theders Insurance Agency Inc. Reach him at (513) 779-2800 or email@example.com.