Stay in the driving seat in no-fault cases

YOUR VIEW of the role played by credit hire companies in the motor insurance market will be heavily influenced by where you sit.

If you’re a broker, you may see these firms, which serve no-fault victims of accidents, as a useful source of revenue (via referral fees) and/or a way to give clients better service than they might get from third-party insurers.

If you’re an insurer managing credit hire, you’ll be aware that your claims costs are much higher than they should be because you, like all other insurers, are probably paying for bigger and better cars than those you would have supplied had you been contacted in the first place.

Credit hire companies are also punctilious in their pursuit of uninsured losses, which can again inflate total claims costs. Likewise, if they refer personal injury cases to their preferred solicitors, the costs might be higher than if the insurers’ own legal experts had been retained. And because credit hire providers have little interest in reducing costs – they simply present the bill to the at-fault insurer – the validity of many of their charges is often disputed, sometimes in court. This generates a whole new source of expense.

Any insurer would also be irked by the fact that, with a credit hire firm involved, control of the case is lost. Credit hire firms can be in on the action before the insurer has even been notified. Can that be right? The insurer would say no. But insurers might also have to concede that they are at least partly to blame for the way the credit hire industry has achieved such traction.

First, there is the Byzantine complexity of many policies when it comes to eligibility for a replacement vehicle. No surprise, then, that so many policyholders go down the credit hire route.

Second, insurers are reaping the harvest of having ceded first notification to their business partners – because they are now one step removed from the action, and paying the price. How ironic that it was the desire to save money that led them to move away from insisting on immediate notification.

Credit hire companies add significantly to the total cost burden of the motor insurance sector and that means higher premiums. One market estimate is that 5% of the cost of a motor premium is accounted for by the costs generated by credit hire: referral commissions, over-the-top repair rates, expensive legal representation, profit margins and so on. It must be right that we look for ways to ease the burden.

So what is to be done? The most obvious course of action is for insurers to improve their service. They should seek to become the first point of contact in the aftermath of a claim, scrutinise systems to identify no-fault claimants and give themselves the chance of reducing the incidence of credit hire. But that, of course, means delivering a full vehicle replacement solution.

Then there is the case for “sleeping with the enemy” – forging links with credit hire companies to secure preferential rates in return for speedy settlement. Again, not without its difficulties, but maybe worth exploring.

Perhaps there’s the legal route. Insurers are taking a keen interest in a case before the Court of Appeal. In simple terms, an insurer is arguing that an insurance policy should only ever indemnify a loss, not leave the policyholder in an improved circumstance. In other words, credit hire firms should not attract business by offering accident victims better vehicles than they really need. If the insurers win, the effects on the credit hire market could be significant. Watch this space.