In recent years, many companies have adopted a hired and non-owned approach to managing their fleets, aiming to reduce costs. Rising commercial auto rates, as well as repair, maintenance and new vehicle costs, have led these companies to consider offering employee allowances as a cost-effective method for managing drivers. However, this approach poses immense risks for companies that do not have sufficient hired and non-owned auto coverage in place. 

When it comes to these cost-saving strategies, companies cannot avoid liability through reliance on employees’ personal insurance or the fact that these individuals are not driving company-owned vehicles. Let’s delve into the details further. 

Explore our free checklist, “11 Critical Steps to Protect Your Company Against Hired and Non-Owned Auto Risk.” 

3 Risks Companies without Hired and Non-Owned Auto Coverage Face 

1. Lack of Insurance Coverage 

Many companies mistakenly believe that an employee’s personal auto insurance will provide adequate coverage in the event of an incident. They assume that any costs incurred will be covered by the employee’s insurance plan. This approach seems ideal at first glance, as it would shield the company from liability and cost less than insuring the driver through the company’s commercial auto policy.  

However, a significant portion of the population only meets the minimum compulsory liability limits required by their state in order to save money. These limits typically range from $40,000 to $60,000. If an employee causes a serious crash while driving on behalf of the company, and the damages exceed their coverage limit, there is a high chance that the company will be held responsible for the liability that exceeds the employee’s coverage. 

Companies also face increasing risks from nuclear verdicts, which are extreme jury awards exceeding $10 million. According to the Travelers Institute, the average verdict in the National Law Journal’s Top 100 Verdicts more than tripled from $64 million to $214 million between 2015 and 2019. This upward trend in nuclear verdicts poses a significant risk for companies that rely on hired and non-owned drivers.  

Moreover, the Insurance Journal reports that approximately one in eight U.S. motorists drive uninsured. In five states, over 20% of drivers lack insurance coverage. With high rates of uninsured and underinsured motorists, companies face substantial risks when relying on their employees to have the appropriate coverage. Additionally, policies can expire, leaving a lapse in coverage. It is important to consider these factors, as an employee being involved in a crash during company time without coverage could have severe consequences. 

2. Limited Visibility into Driver Risk 

When companies hire fleet drivers, they typically follow specific protocols to ensure their qualifications. These protocols often include background checks and pre-hire Motor Vehicle Record (MVR) checks to analyze past driving behavior and validate a valid driver’s license. After hiring, these drivers are usually required to acknowledge the company’s driver safety policy and may be enrolled in ongoing monitoring programs to track their driving behavior. 

However, when it comes to hired and non-owned drivers, these best practices often fall by the wayside. Since many of these drivers do not drive as part of their regular job responsibilities, they may not receive the driver safety policy or have their MVR checked by the company. This is particularly true in cases where an employee is asked to run a quick errand for work.  

Negligent entrustment of automobiles can become a concern here. According to CNA, employers have a responsibility to ensure that an employee is competent and experienced enough to drive a vehicle safely. Employers can be held liable if they knew or could have easily discovered the employee’s history of reckless or dangerous conduct. This applies to employees driving company-owned vehicles, personal vehicles or any other vehicles for company business. Therefore, it is crucial to ensure that employees meet the company’s safety standards before driving on behalf of the company. 

3. Limited Control over Vehicle Safety 

While the majority of crashes result from dangerous driving behavior, vehicle malfunctions can also cause crashes. Ongoing maintenance is essential for driver safety, particularly for vehicles that accumulate mileage during work-related trips. When companies own fleet vehicles, they have greater control over ensuring that these vehicles meet certain safety standards. They can monitor and enforce important maintenance tasks such as checking tire pressure, conducting routine maintenance and addressing safety recalls promptly. 

However, companies cannot assume that employees will uphold the same safety standards for their personal vehicles. A study of 2,000 American car owners found that 25% of drivers felt they were taking a risk each time they hit the road due to their vehicle needing repairs or not running well. Additionally, 68% of the vehicles in the study had at least one current issue. Moreover, companies have limited control over ensuring that employees’ personal vehicles have key safety features and lack risky elements, as they do when purchasing fleet vehicles. 

Steps to Protect Your Company Against Hired and Non-Owned Auto Risk 

If your business decides to opt for a hired and non-owned approach, it’s crucial to implement strategies and proper hired and non-owned auto coverage that mitigate these risks effectively. 

Download our free checklist, “11 Critical Steps to Protect Your Company Against Hired and Non-Owned Auto Risk,” to help safeguard your company from these hidden risks.  

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