Most business administrators understand how a commercial auto insurer calculates the premiums it charges for auto liability and physical damage coverages, noting that there are certain variables in determining the rates charged for automobiles used for commercial business purposes. Most insurers follow the commercial business auto rating procedures established by the Insurance Services Office (ISO). The following is a summary of just what factors come into play when deciding what rates to apply.
Ratings by territory
Rating territories reflect differences in risk, which is why the rates in one territory may be higher or lower than those charged in another. Insurers, or rating agencies, will most likely divide states into subdivisions, which are called rating territories. These rating territories differ from each other based on particular characteristics. For example, one territory may be in large part rural, while another is considered metropolitan. Similarly, rates will also differ for a territory that is located near a coastline, as opposed to another territory that is located inland.
Fleet versus non-fleet rates
Under most commercial auto policies, vehicles rates are subject to either fleet or non-fleet status. In most scenarios, the fleet rates will be typically lower than non-fleet rates. A fleet normally consists of five or more “self-propelled” autos. Because a trailer is not self-propelled they are not a determining factor.
Size class another determining factor
The two basic types of vehicles used for business are private passenger cars and trucks, which includes tractors and trailers. Vehicles in the latter category are subdivided into size classes based on gross vehicle weight (GVW), which is simply the weight of the truck when loaded to its capacity with both, people and cargo.
Depending on its GVW or gross combination weight (GCW), a truck might be classed as light, medium, heavy or extra-heavy. For example, a small pick-up truck is generally classified as a light truck, while a large moving or freight truck, will be classified as an extra-heavy truck. The table below shows how the trucks weight determines its class:
|Size Class||Gross Vehicle Weight (GVW)|
|Light Truck||Up to 10,000 lbs|
|Medium Truck||10,001 to 20,000|
|Heavy Truck||20,001 to 45,000|
|Extra Heavy Truck||Over 45,000|
|Heavy Truck-Tractor||Up to 45,000 (GCW)|
|Extra Heavy Truck-Tractor||Over 45,000 (GCW)|
The uses of the vehicles, as well as the radius (miles traveled on a daily basis), are two more factors ratings agencies use for deciding what rates may apply. Business auto rating is a very complex process, but it is perhaps the best way to decide on the proper rates to charge based on vehicle class and usage.