ABI blog: CMA investigation – the future face of credit hire

After an Office of Fair Trading (OFT) inquiry and then a two year investigation, the Competition and Markets Authority (CMA) published their much anticipated final report of their investigation into the private motor insurance market in September. The CMA had looked at a number of issues during their investigation including Most Favoured Nation (MFN) clauses; add-ons and the issue of the quality of repair. However, it was their work on the market for temporary replacement vehicles, or more precisely credit hire, where the industry’s main focus was.

It is little surprise then that, despite some sensible remedies in relation to MFN clauses and add-ons, the market saw the CMA’s decision to duck the difficult questions in relation to credit hire as a big missed opportunity. What makes the CMA’s failure to effectively tackle the cost of credit hire so disappointing for hard pressed motorists is that they promised so much at the beginning of their investigation. They initially consulted on a range of remedies earlier this year including a First Party model, the ability for the at-fault insurer to be given the first opportunity to deal with a claim, and a new GTA type model. The CMA then narrowed these down to focus on a GTA approach with a dual cap rate that would have seen credit hire rates dramatically reduce for early admissions of liability.

Ultimately, however the CMA failed to deliver the much needed cost control to the credit hire market. They concluded that none of their proposed remedies would be “both effective and proportionate in addressing the adverse effect on competition (AEC) arising from the separation of cost liability and control, and the various practices and conduct of the parties managing non-fault claims”. Many in the industry will be disappointed that they decided against going the down the legislative route to address the problem.

With no action coming from the CMA, the question is now what next for credit hire and what does the future look like for the market for temporary replacement vehicles? With the CMA identifying improvements to the GTA and a credit hire Portal as the main ways to tackle the issue of credit hire, the industry’s focus is now on the GTA. Will credit hire operators (CHOs) look to leave the GTA to achieve better rates? Do insurers still see value in the agreement? Will a Portal help to address the AEC that the CMA identified? Professor Alasdair Smith, Deputy Chair, Competition and Markets Authority and Tim Wallis, Chair of the GTA, will be joining the breakout session on replacement vehicle provision at the ABI motor conference on 2 December to explore these questions further and to examine how we can achieve a market that works effectively for consumers.