Michael Symons, chief executive of Helphire,argues that that the ABI's proposed “approved credit hirer” scheme will cause more problems than it resolves
There has been a lot of publicity surrounding the ABI's proposed “Approved Credit Hirer” scheme. But I would like to point out some of its shortcomings.
What does the scheme doNULL
The scheme provides a framework of terms and conditions incorporating service standards, approved tariffs and the obligations of both insurers and credit hirers to enable participating credit hirers to be effectively “approved”.
It is just a starting point. It would be up to individual insurers to buy into the scheme. Once they do, it provides a degree of control over those credit hirers that are signed up to it.
In a nutshell, the approved credit hirer can charge an agreed rate for agreed periods of time for providing replacement vehicles on credit hire. Once an insurer admits liability on a claim, the tariff is discounted by 20% from that time on the basis that payment is guaranteed within 28 days – in theory.
Will insurers use itNULL
Insurers have nothing to lose from signing up to the scheme as it means that participating credit hirers will be controlled. The ABI, however, has categorically denied that insurers will feed business through to these approved credit hirers. This would seem to make sense as the credit hire market is currently only partially penetrated and to feed business into it would open the market up, educate the public to their rights, and inflate insurers' costs.
The rationale behind the scheme is not immediately clear. Despite the ABI's protestations to the contrary, the supporting documentation issued for the scheme indicates that where credit hirers which have already taken on cases do not meet the scheme's requirements (for example they may charge an open market rental rate), there may be an attempt to oust the hirer and replace them with an “approved” credit hirer. Such “incursions” (as they are known) have been used as a past tactic by insurers without great success.
The real agenda
The real agenda would appear to be the persuasion into the credit hire market, through the implied or expressed promise of volume business, of two well-known daily rental companies whose lower tariffs can be used as comparables with established credit hire companies to argue that existing rates are too high. This stands little chance of success because:-
1. The two proposed participants would just be providing two tariffs to compare with the multitude of hire tariffs already in existence.
2. These tariffs are not “open market” tariffs and, therefore, not relevant for comparison purposes.
3. At least one of the participants identified appears to be buying market share, which is yet another argument that the tariff that this company is using is not an open market one.
4. There are other legal reasons, detailed below, which are relevant and serve to defeat the ABI's agenda.
This scheme has, clearly, not been well thought through and the following areas of concern have been identified:-
1. The rates proposed by the ABI are, clearly, not commercially viable if participating companies are expected to find their business in the market place (as the ABI has stated on several occasions to be the case). Unfortunately, the participating companies have little or no experience of credit hire and will not appreciate that at this time the level of costs which will be incurred in providing the service.
2. The scheme lacks clear thought in its detailed workings. For example, participating credit hire companies are supposedly guaranteed payment within 28 days of liability being admitted. However, there is no contractual right to this under the scheme. Once liability has been admitted, other common areas of dispute will arise, such as the need for a vehicle and the length of hire. Participating credit hirers have no way of enforcing payment within the specified timeframes, which appears to be the main attraction of the scheme.
Similarly, supporting documentation to be used to support the “failure to mitigate” argument refers to insurers providing “free alternative vehicles”. Clearly, this is not the case.
3. Conflict of interest. This has to be a major area of concern. For an individual to put himself in the hands of the tortfeasor (the negligent party or his insurers) is a potentially dangerous situation. If the scheme is to work, participating credit hirers will be careful not to alienate insurers as they may well be the hands that are feeding them. The scheme documentation, for example, requires the hire company to provide the customer with a “class A or B vehicle unless the customer can justify the need of a higher class of vehicle. Justification solely on the grounds of like for like replacement is not acceptable”. The emphasis is incorrect. The assumption should be that the customer is entitled to a like for like replacement unless there are good reasons to the contrary. It is the customers who will lose out as the insurers, through controlled credit hirers, seek to limit their legal rights.
Similarly, one might also wonder whether all those participating credit hire customers will be properly advised as to whether or not they can bring personal injury or loss of injury claims which would serve to put up insurers' costs. There is a serious danger that the rights of customers will be glossed over so as not to antagonise the insurer “paymasters”. If they do make a claim, the insurers are less likely to admit liability as readily as they indicate that they will and it is this very admission of liability that triggers the guaranteed payment.
There is no obligation on participating credit hirers to ensure that any irrecoverable credit hire is underwritten. Helphire ensures that its clients are fully protected in this way and this is perceived as another major shortcoming of the scheme as customers may well find that these “approved” credit hirers go back to them for irrecoverable charges.