The agreement between the two industries needs ‘urgent surgery’ says credit hire trade body chair

Compounding supply chain issues have significantly suppressed the availability of motor parts and vehicles – Brexit, Covid-19 and the Russia-Ukraine conflict have all been chief contributors to this, creating something of a perfect storm for those involved in the motor claims sector.

Repair times are increasing, the cost of labour and parts is up and the availability of new leased vehicles is at an all time low, summed up James Gatti, commercial director at technology platform Innovation Group, who spoke at a Managing General Agents’ Association webinar back in March 2022.

Credit hire companies (CHCs) are a significant part of the motor claims arena – they provide a leased vehicle to motorists who suffer non-fault accidents, allowing for those customers to remain mobile while their vehicle is being repaired or until a new one can be sourced.

Once the lease period is finished, CHCs recover the cost of providing the vehicle from the at-fault party’s insurer.

Insurers feed the credit hire industry with around 80% of its customer base, according to CHC trade body The Credit Hire Organisation (CHO). In return, CHCs provide a service to insurers’ customers by keeping them mobile following road traffic accidents.

Clearly, there is a degree of symbiosis between these two parts of the motor claims sector. This is further cemented by a long-standing, voluntary agreement between the two industries, which sets the standards for CHCs on topics such as pricing and the time taken to assess a vehicle, called the General Terms of Agreement (GTA).

The GTA was established in 1999.

However – amid the aforementioned supply chain issues and market disruption – chair of the CHO, Lucy Woods, said the GTA needed “urgent surgery” to ensure that it reflected current operating challenges.

She told Insurance Times: “Members [of the CHO that] have worked in the sector for decades are telling me they’ve never seen anything like the current crop of challenges.

“We thought we were beginning to see the light at the end of the tunnel after the microchip shortage and then the Ukraine war started – a lot of the wiring looms that are used in manufacturing new cars are made in Ukrainian factories and they’re not being made anymore.”

Woods added that the manufacturers that had provided vehicles for credit hire fleets in the past had begun prioritising their larger rental contracts and withdrawing trade discounts, dramatically raising fleet maintenance costs for CHCs practically overnight.

“There’s a shortage of new cars and in any market where there’s a shortage, the price goes up” she said. “CHCs costs are going up, discounts are being removed and they are finding themselves under a huge amount of financial pressure.

“Because the GTA restrains our revenue to an agreed upon price, we can’t put our prices up – so we are suffering quite badly.”

If a solution to this situation is not found, then some CHCs could “go out of business”, added Woods.

Seamless process

The danger around CHCs buckling under financial burdens is that this could diminish the service that these firms provide to those that have been involved in motor accidents.

Woods explained that this is why it was “essential that CHCs and insurers get round the table and agree to reform the GTA, working together to mitigate the challenges we are facing, keep customers mobile and remove the worrying growth in friction in the claims process that will only increase costs”.

Due to cost inflation caused by squeezed supply chains, the basic hire rates for vehicles have shot past the GTA rates that insurers previously agreed to pay per vehicle and do not account for any additional costs that are being suffered by CHCs, Woods noted.

She continued: “We need to restore equilibrium to the GTA or risk mobility providers leaving the GTA and customers being left high and dry without mobility when they most need our help.”

Rates are an important aspect of the GTA – every vehicle is placed into a group with an associated rate that removes the need for haggling over costs every time a CHC makes a claim to an insurer. However, rates are not the only aspect of the GTA relationship that CHCs and insurers need to discuss, said Woods.

The previously agreed rates formalised in the GTA are currently under review, with results expected soon.

“I would like [insurers’] help in creating a refreshed framework that’s ready for the next decade in terms of achieving clarity, flexibility and agreed work in practice, so that we can continue to offer this service to the public,” Woods explained.

“We want to take care of the consumer and we want it to be frictionless, seamless and easy.”

Woods added that the next 10 years would see significant changes to the motor and mobility sectors.

“We’ll be looking at different models of car ownership, different technologies and electric vehicles. We are proposing to insurers that we make our agreement and framework ready for the next decade, to facilitate a straightforward and frictionless process.”

Natural tension

CHCs are not alone in suffering supply chain disruption and associated claims inflation.

Nick Kelsall, head of motor claims at Allianz Commercial, told Insurance Times: “We are all experiencing challenging times around the motor supply chain, which is why some customers look for solutions via their own insurers in the first instance.

“We are seeing repair times increase as labour and parts become harder to source – this has the impact of driving up prices through normal supply and demand economics. Longer repair times also mean longer replacement mobility requirements and additional spend in this area.”

Allianz is a signatory to the GTA. Kelsall added: “At Allianz, we are always open to collaboration with all parts of the claims supply ecosystem to maximise service for genuine impacted claimants.”

Woods admitted that there was a “natural tension” between insurers and CHCs, where both sectors wanted rates agreed in the GTA to favour their own part of the market. This is not a barrier to collaboration though.

She explained: “In a way, we’re all part of the same industry – we all share the same customer and we all want the best for the customer. It’s as simple as that really.”