Managing Your Risk
Adding a new auto? Be quick to report changes

By Michael Kelly
Property and Casualty Program Specialist

The insurance for county-owned automobiles can be a substantial part of your property and casualty annual premium costs. Depending on your county's size, automobile insurance will account for between 21 percent and 36 percent of a county's overall property and casualty insurance program costs, with 29 percent running as an average.

In addition, no other coverage category will likely generate more policy endorsement changes – and thus an increased room for human error – than automobile coverage. It is this abundance of policy change endorsements that can be a problem, depending on how your coverage is set up.

Traditional "for-profit" commercial automobile insurance policies designed to cover a large number of auto units utilize what is known as "fleet automatic" coverage. Simply stated, this policy language design allows for the automatic addition of liability and physical damage (collision and comprehensive) coverage for new automobiles without the necessity of a formal notice to the insurance carrier. Having the coverage be added on an automatic basis relieves the immediate urgency to notify your agent, and by extension, the insurance carrier.

The key word here is "immediate." Most carriers require a notice within 30 days for a new vehicle to be added to the policy. This places a sizeable burden on your risk manager and department heads to make sure any new vehicles are added to your policy schedule within 30 days of acquisition. In addition, such changes should be requested in writing, otherwise the burden of proof will fall on you to show such a request was made if a loss occurs and the unit is not found on your policy's auto schedule.

The circumstances for the acquisition can also matter. Is the new vehicle a replacement for another automobile that is to be deleted at the same time, or is it a new auto?

The chance of failing to notify the policy carrier becomes more likely if there is no financing needed to purchase any new units. Financial institutions are diligent in requiring proof of physical damage coverage before issuing credit. Banks are often the first to discover a situation in which a unit has been purchased but no formal notice has been sent to the insurance carrier requesting its addition to the auto policy schedule.

If your county is insured through the NCACC Liability & Property Pool, this problem and necessity of reporting is a non-issue, as our policy form has no limiting time-frame notification requirement during the policy term. Further, our intent is to base our annual contribution charge on the number of units that a county owns as of the first day coverage begins (normally July 1 of each year). The standard-type autos added during the course of the year are automatically covered for both liability and physical damage through the end of that policy year.

Newly acquired, high-value units (typically ambulances with stated values) are also covered on an automatic basis, but we do make a charge for them if added during the policy term. Although failure to notify us does not negate coverage for these units, after a loss we will go back, add the unit to the auto schedule and then charge the appropriate additional contribution.

Although we recommend notifying your underwriter to request the endorsement to add any new auto units as they are acquired to your policy, the NCACC Risk Management Pools do not penalize members in the event notice is overlooked. The main reason for requesting policy changes as they occur during the year is that it makes reviewing the automobile schedule list easier at renewal time.

These are the types of minute details that can cause serious problems for risk managers, because they are often unknown until a loss occurs and it is discovered that the vehicle is not insured.

NCACC Property and Casualty Program Specialist Michael Kelly writes a regular column on risk management for CountyLines. Archived versions of the column can be found online at www.ncacc.org/managingyourrisk.html.