Credit hire operators stepped in to fulfil the needs of frustrated policyholders. Now, with spiralling costs and court disputes abounding, will insurers be forced to address that need themselves? We report on the contentious world of credit hire

England international footballer Darren Bent, hitherto famous for missing a chance in front of goal that his then manager Harry Redknapp declared his wife could have scored, looks set to earn fresh notoriety on the playing fields of insurance litigation.

In case you missed it, Bent is one of a number of insurance policyholders who has unwittingly found himself caught up in the perennial brouhaha that rages between insurance companies and credit hire operators (CHOs).

Bent was involved in a traffic accident last year in which his Mercedes CLS Coupe was damaged by an Allianz policyholder. Bent was referred to credit hire firm Accident Exchange and ended up with a replacement car – an Aston Martin DB9 no less – for more than three months. Allianz was not pleased and is challenging both the need and period of hire, as well as the rate claimed.

The case is due to be heard at the Court of Appeal in March and is further complicated by the fact that Accident Exchange has identified the case as one of thousands at the centre of its wider dispute with industry valuer Autofocus.

The Bent case highlights the ‘Itchy & Stratchy’ type relationship that exists between insurers and CHOs. One insurer says: “The Bent case sums up the problem. You could have built a new car in three months, never mind have one repaired. Someone is paying for this at the end of the day, and ultimately it’s ordinary customers through higher premiums.”

How did we get here?

Insurers have a tendency to forget that credit hire came into being because it offered a better deal for frustrated policyholders, who, through no fault of their own, were usually left high and dry by insurers if they were unlucky enough to be involved in an accident. It’s not that long ago when, if you needed to hire a replacement car and recover the cost from a negligent driver's insurer, you had to pay for it up front, obtain a receipt and wait months to get your money back.

But insurers insist the credit hire system has spiralled out of control. Insurers complain they are being taken for a ride by CHOs who fail to provide enough information on claims and fail to properly monitor cases. Meanwhile, CHOs complain about insurers failing to pay them on time.

The ten-year-old general terms agreement (GTA) – the voluntary protocol that governs the terms, conditions and rates that apply between insurers and CHOs – was revamped last year in a bid to quell continuing criticism from insurers.

The GTA introduced new governance arrangements that created the roles of an independent chairman and an independent secretary, who are charged with overseeing a new binding dispute resolution process to deal more efficiently with complaints. In the event that the GTA technical committee, which will adjudicate disputes, cannot reach agreement on a complaint, the independent chairman has the final say. But the changes were too little, too late for insurer AXA, which withdrew from the GTA last September.

Nearly five months on, AXA is unrepentant about its decision, and speculation continues that other insurers could follow suit.

“We wanted to seize control of our own destiny, and that meant managing and mitigating the increasing indemnity spend in private motor insurance caused by the intervention of credit hire organisations,” AXA’s managing director of personal lines intermediary, Mike Keating, says. “This wasn’t a knee-jerk reaction. The GTA wasn’t moving quickly enough. We have no regrets.”

Basically, insurers operating outside the GTA have two options, both of which are likely to result in increased costs, at least in the short term. First, an insurer can attempt to get to customers faster by intervening – effectively freezing the CHO out – and providing their own vehicles. The second option is to make bilateral deals with selected CHOs and agree lower costs.

AXA’s post-GTA model involves both options and, while Keating will not discuss the financial arrangements of the group’s bilateral agreements with CHOs, he insists AXA has saved money since exiting the GTA.

“Clearly, coming out of the GTA there was a need to increase our resource to contest and look at some contentious cases coming from credit hire firms. But through our direct relationship with credit hire operators outside the GTA, we’ve got commercial terms that are attractive to all parties. We are benefiting more from being outside GTA than when we were in it,” he says.

AXA is also keen on intervention through first notification, whereby the insurer is notified of an incident where one of its policyholders is at fault, and will contact the innocent party as soon as possible and effectively take control of the situation and, of course, the costs.

In a bid to improve AXA’s intervention capability, Keating says that brokers who “do not actively use” CHOs will be offered a differential motor rate by AXA. “Insurers can track at individual broker level how aggressive intermediaries are in terms of credit hire farming,” Keating explains. “If I’m dealing with a broker who doesn’t do any credit hire or farming of business, and I’m effectively managing my indemnity costs, then why wouldn’t I give that broker some differentiation and benefit for doing that?”

Keating’s insistence that AXA is better off outside the GTA is unlikely to go unnoticed by other insurers, and a number of CHOs say insurers are becoming more efficient at interventions. But if, as Keating insists, AXA is successfully reducing costs and still providing a good service to the innocent victims of traffic accidents, where does all this leave the much criticised GTA?

Should you stay or should you go?

The GTA’s recently appointed independent chairman – barrister and writer Tim Kevan – declined to be interviewed when approached by Insurance Times. But the GTA’s independent secretary Tony Baker, who is also the director-general of the Accident Management Association, as well as director of Legal Expenses Insurance Group, insists that the GTA still offers the best way forward for insurers and CHOs.

“It’s not to say everything in the garden is rosy,” Baker says. “CHOs grumble that they are not getting paid quickly enough, and that insurers aren’t sufficiently resourced, or don’t train their staff sufficiently well, to enable payments to be made on time. And there is some truth in both aspects.

“For insurers, there are still complaints that some credit hire companies do not give complete information when submitting a payment pack, and there are grumbles in terms of the length of the hire, but that’s ever been thus. An insurer’s job is to keep claims to a minimum, so they want hires to be as short as possible and only to take place if it’s absolutely needed by the client.”

But if AXA is reducing costs more efficiently outside the GTA, isn’t there a fear that other insurers will seek to do the same thing and abandon the GTA as a bad lot? “Not necessarily,” an ABI spokesman says. “The agreement came into place because there was a demand for it. Of course companies will look at what competitors do, but because one company chooses a certain course of action, it doesn’t mean others will follow suit.”

“There is no indication of that happening,” Baker adds. “There are distinct benefits for insurers to being in the GTA. Credit hire operators that wish to deal with an insurer outside the GTA can take legal action if they haven’t been paid within 30 days, whereas the GTA specifies that can’t happen for 90 days.”

In addition, CHOs are not bound by GTA rates if they deal with an insurer outside the agreement, and there is also no requirement for them to carry out the stringent monitoring requirements stipulated in the GTA. But not everyone agrees that the benefits of the GTA are clear cut.

“I would be surprised if other insurers weren’t considering their options and at some point perhaps decide to leave the GTA,” Keating says. “Over the last five to six months, there has been an increase among brokers wanting to talk to AXA, and no doubt other insurers, about looking at different claims models and first notification of loss models. So all credit to the brokers; even they see the current system is not sustainable.”

The National Association of Credit Hire Operators’ vice-chairman, and managing director of Vision Vehicle Solutions, Tony Copeland concedes that other insurers will be considering their positions following AXA’s move, but adds that the grass may not be much greener outside the GTA.

“I don’t see as many credit hire operators looking to jump into an agreement with AXA as it was perhaps hoping,” he says. “They’re not the only one doing this, and essentially what companies outside the GTA want is to enter into an agreement in which they will pay the credit hire operator very quickly in return for a discount off the GTA rate, usually around 10%. So credit hire firms have to ask themselves: ‘How important is it to get paid quicker, knowing we’re effectively giving away 10% off the bottom line?’.”

Commenting on intervention strategies that insurers could employ to weaken the grip of CHOs, Copeland is equally candid: “You could take the view that it would be far better for insurance companies not to have to deal with credit hire companies and go direct to innocent parties and solve their problems. But don’t forget one of the biggest feeders of credit hire is insurers. They have commercial agreements with credit hire companies and earn a reasonable amount of money out of that.”

Baker adds that he believes there is still scope to remove some of the costs that exist between insurers and CHOs. “Insurers in the past haven’t been very well set up for new technology. Some of them have only recently been able to accept email payment packs, for example. Until recently, very few insurers were able to settle a range of individual claims electronically. The more that can be encouraged, the more you can take costs out of the relationship between the two industries.”

Not surprisingly, Keating begs to differ: “I would never rule out that they [credit hire operators] have a role, but only if insurers can’t ensure that the claims experience they give customers is something they can provide without the need for credit hire companies.”

Do it yourself

But are insurers capable of doing that? Lest we forget, the growth of CHOs in recent years is down to the fact that insurers refused to accommodate the needs of customers when it came to the provision of courtesy cars. Can insurers step up to the plate?

“We’re striving to do that,” Keating insists. “At the end of the day, what insurers want is to have arrangements where they can provide a courtesy car for a customer and get the customer’s vehicle back on the road. By doing that, insurers can be sure they’re controlling the costs properly. The problem with the intervention of credit hire operators is that insurers aren’t allowed to deliver their full claims service.”

It remains to be seen whether AXA’s go-it-alone policy will reap enough benefits for others to follow suit. But the reality appears to be that, with or without the GTA, disputes between insurers and credit hire operators are unlikely to fade away entirely. Currently, there are still enough insurers committed to the GTA to ensure it continues. But the acid test will be how the new GTA procedures deal with the kind of disputes, like the Bent case, that are currently ending up in the courts and enriching the litigators. IT