As of 1 June rates will be £36.50 per day for new hires

The Association of British Insurers (ABI) has increased credit hire rates by 3.5%, breaking a stalemate that dragged on for 10 months.

Insurers and representatives of the credit hire industry had been unable to reach an agreement when the rates, set by the ABI as a guideline as part of its general terms of agreement, were first due to be updated in July. As a result, the maximum rate of £35 per day which, insurers say, equates to at least a third more than comparable supply chain agencies, remained.

The new rates of £36.50 per day will take effect for all new hires as of 1 June.

Helphire, the UK's largest provider of credit hire services to non-fault accident victims, welcomed the news in its interim management statement. It added that motor insurers are also responding to the increase in credit hire services by looking to capture and refer cases in order to generate income.

The statement said: “All leading motor underwriters are now utilising or investigating the possibility of utilising replacement vehicle services. The entry of major insurers into the market as introducers of business, in addition to their role as underwriters, has led to a rapid expansion in the volume of cases handled by credit hire organisations.”

But credit hire companies, which insurers use to provide replacement cars for their policyholders at an annual cost of over £1bn, are also a growing cost for the insurance industry.

Allianz, for example, blamed the credit hire industry for inflating its retail business combined ratio to 105.7% in the first quarter of 2008.

In November, the ABI set up a working party that aimed to deliver savings through improved efficiency and closer collaboration between the two sides.