United Kingdom

Managing the impact of rising fuel prices

Rising fuel costs are affecting many public sector organisations, putting additional pressure on already stretched budgets. Peter Grocock, public sector practice leader, South West, Wales & Central at Aon, explores some of the implications and the options available to mitigate this rising cost.

March 2022 will go down in the history books as one of the worst months ever for the UK’s fuel pumps. With petrol and diesel increasing by 11p and 22p a litre respectively, it was the biggest monthly price increase since the RAC started monitoring this data in 2000.

Driven by the rising cost of wholesale fuel, and exacerbated by the Russian invasion of Ukraine, the price hike has hit everyone from private motorists to industry hard. Fuel is one of the highest operating costs for many organisations and managing fluctuations in market prices is an operational imperative. For example, the cost of fuel might represent up to 25% of a shipping company or logistics firm’s operating costs.

Whether cutting back on car journeys or passing the additional cost of fuel onto customers, anyone reliant on petrol or diesel has had to take mitigating action.

Public sector squeeze

Public sector organisations are feeling the squeeze too, with the rising cost of fuel often having more than financial implications. As an example, local authorities may find themselves having to pay significantly more for school transport, or face having thousands of pupils unable to access free transport.

There are further ramifications of higher fuel costs. Many public sector organisations are already investing in electric vehicles to beat the government’s 2030 ban on the sale of new petrol and diesel vehicles and to achieve net zero by 2050.This trend will accelerate as fuel costs rise.

Managing the risk

There are also general risk management implications which arise, such as the recent spike in fuel thefts. The highest profile case may be the theft of £250,000 of fuel from Devonport dockyard in Plymouth but smaller vehicles have also been targeted, including two NHS patient transport vehicles which were parked outside a hospital in Blandford Forum, Dorset.

Managing this risk is essential. Parking vehicles in secure locations where possible, ideally locked in a car park or depot with security lighting, will help to deter the thieves.

Insuring the risk

Rising fuel prices have also increased demand for financial solutions that can provide greater stability and budget certainty.

At Aon we have developed fuel price insurance that provides protection against potential increases in fuel prices. Rather than being exposed to the vagaries of the commodities markets and the effect of unpredictable global events such as the war in Ukraine, our fuel price insurance product enables organisations to manage their fuel cost exposure. In exchange for a known, fixed cost premium, organisations can avoid significant spikes in market price.

Fuel cost certainty

The policy covers the difference between a pre-agreed price point and any higher monthly price that comes into force. Cover is triggered if the price of fuel exceeds a pre-agreed price and claims payments are made monthly. The length of the policy can also be tailored to the organisation’s own requirements.

The product is backed by AA rated insurers and policies issued by Fuel Insurance PCC Limited, a protected cell company registered in Guernsey and managed by Aon Captive Insurance Managers.

The cost of fuel may drop back as pressures and demand reduce but, by managing the increased cost through risk mitigation, insurance and a switch to greener vehicles, organisations can have greater control when fuel costs rise.

More information

To find out more about any of the issues raised in this article, or to obtain further information about Aon’s fuel price insurance, contact Peter Grocock at [email protected].