The Briefing – UK Claims Reforms: Will credit hire cause claims inflation post-reform?

The Civil Liability Act 2018 will undoubtedly alter the landscape for personal injury and motor insurance claims, as it introduces a raft of changes that the Ministry of Justice (MoJ) and the Motor Insurers’ Bureau (MIB) hope will benefit consumers by ultimately reducing premiums in the long-term.

Part one of these reforms is set to be implemented in August after the MoJ pushed back the original April deadline.

This will include the launch of a new Litigation in Person (LiP) portal, allowing claimants to process their own personal injury claims online, up to a revised £5,000 limit, without the aid of a solicitor. This is an increase on the previous £1,000 small claims limit.

The act also allows a new tariff table, listing set damages for whiplash injuries that affect claimants for between three months and two years and striving to clarify compensation levels.

But as the personal injury (PI) claims process is revamped beyond recognition, what will this mean for the credit hire sector, which has always been an active cog in the PI machinery of law firms, claims management companies (CMCs) and insurers?

Income and inflation

The main concern for credit hire firms lies in a potential loss of income. Currently, these organisations get a referral fee for PI-related business that they pass on to law firms. This will change when the LiP portal is fully active, especially as the MIB has stated that credit hire will not be included within the portal’s functionality.

Kirsty McKno, chair of trade body the Credit Hire Organisation (CHO), confirmed this: “Undoubtedly, for those credit hire companies that don’t have links with law firms or work within an alternative business structure (ABS), there is going to be a concern that there will be some form of income loss.”

To mitigate this possible dip in earnings, some industry voices predict an inflation in credit hire claims to recoup missed monies.

Craig Dickson, DAC Beachcroft claims solutions group chief executive, said: “The niggling concern is the opportunity-seeking that might lead to squeezing the balloon.

“There will almost certainly be entities that look for opportunities to push the boundaries of what can be achieved and maximise what they see as a commodity with fat to be taken.

“Whenever there’s a change in any system or protocol, there’s always the risk that people will look for ways to abuse this.”

Altus consultant Patrick Hayward, also sees this as a potential problem.

“The Civil Liability Act may well reduce the costs of whiplash injuries to insurers, but there is a need for close monitoring and potentially intervention to prevent these costs from simply shifting to other types of personal injuries or other elements of the motor claim,” he added.

This could include, for example, costs moving towards psychological injuries resulting from road traffic accidents, or repair and credit hire costs.

Hayward continued: “If a whiplash injury is not worth a great deal because the value of the whiplash injuries have gone down, then the inclusion of a bigger credit hire or repair cost means that the overall costs they can charge to their customer, the claims at the end of it, can be higher.

“There is the possibility of pushing a claim overall to above £5,000 and therefore taking it out of the small claims track – there is an appetite from some claimant representatives to do so.”

With potential pressure on the amounts CMCs and credit hire firms can earn, Hayward estimates an increase in the number of claims. “You’re going to see a real push towards including credit hire in every single potential case,” he added.

A changing role

For Dickson, part one of the act will also affect the duties that credit hire firms take on within the claims process – and some may even venture into acting more like a CMC.

He said: “It will change the complexion of some of the work they do. We will see a broader range of things they will be involved in. The representative element will become more frequent.”

Despite this view, Dickson does not think that consolidation is on the cards within the credit hire market.

“Representation and proportion of representation will be the key to seeing whether it changes claims values on the credit hire side, but I certainly don’t see [a] radical overhaul of business models based on part one,” he added.

Unintended consequences

For McKno, excluding credit hire from the LiP portal is a dangerous move, as it could mean claimants won’t be able to recover credit hire costs from the at-fault party, leaving them potentially out of pocket.

“The concern for us is more about ensuring that litigants in person are properly advised. Because if they put a claim through the portal and accept it in full and final settlement, then unless the rules are drafted correctly, the credit hire charges, and indeed anything else that doesn’t go through there, so for example rehabilitation charges, suddenly won’t be recoverable from an at-fault party,” she said.

“If those rules aren’t drafted correctly, credit hire companie and rehab companies will not have any other recourse than to ask the customer to repay the charges.

“It doesn’t really assist from an access to justice perspective.”

Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, agreed: “You don’t want the situation where everyone signs everything off, but the credit hire element hasn’t been resolved and potentially, a consumer who is not familiar with the workings of the GTA and all the rest of it is left on the hook for credit hire costs, which should always be covered by the at-fault driver’s insurer.”

Furthermore, McKno added that demonstrations of the LiP portal that she has seen questions the litigant whether they need a replacement vehicle – without credit hire included in the online process. This, she says, this could leave claimants open to other offers, which may not necessarily offer a like-for-like vehicle.

“We would just like to make sure there’s appropriate rule drafting in place that makes sure those litigants in person aren’t placed into a position of inequality,” she said.

 

 

Source: Whiplash reform: Looking beyond the costs, published by Altus, February 2019