Watchdog also recommends a cap on recoverable subrogated claims costs

The Competition Commission (CC) has recommended a referral fee ban for credit hire and repair, as well as a cap on the amount that can be recovered by the non-fault insurer.

The move is an effort to cut costs that the CC said are adding £200m a year to the bill faced by consumers.

The CC said that the separation of cost control and liability, whereby the at-fault insurer is liable for the costs of repair and hire cars but does not manage the process, was largely to blame for these inefficiencies and has put forward a number of possible remedies.

Referral fee ban and cap on recoverable costs

Chief among these is a ban on the referral fees paid to insurers and brokers by claims management companies (CMCs), credit hire organisations (CHOs) and credit repair firms, similar to the ban in place for personal injury referral fees.

The commission has also recommended that standardised rates are used for subrogated claims by using existing repair pricing systems to estimate costs. This would act as a cap on what could be recovered from the at-fault insurer and ensure that repair bills are not being inflated by the non-fault insurer.

The CC said: “The aim of this remedy would be to prevent subrogated claims for repair costs being marked up. This remedy would also aim to reduce the frictional costs associated with repair claims as lower claims should result in fewer disputed claims.

“The repair costs recoverable through subrogated claims would be limited to standardised costs. If the actual repair cost were higher than the standardised cost, then the non-fault insurer would not be able to recover that cost and would incur the costs. Conversely, if the actual repair cost were lower than the standardised cost, the benefit could be retained by the non-fault insurer.”

Replacing the GTA

For the additional costs associated with credit hire, the CC has recommended that the ABI’s voluntary Guaranteed Terms of Agreement (GTA) be replaced with a mandatory enforcement order setting out guidance on vehicle hire prices and durations.

The new agreement would set a cap on the daily amount that could be charged for a particular hire vehicle, as well as provide guidance as to how long a hire car would be needed for.

The CC said that the rates would be set periodically by an independent body so that competition was not affected through insurers and CHOs setting prices.

It was also keen to build on work done by the GTA Technical Committee in relation to a portal for managing credit hire claims.

The commission said: “To allow effective exchange of information between insurers, CMCs and other parties, and to reduce the frictional costs arising from the administration of claims, this remedy could also require use of an online portal for the exchange of documentation.

“In our provisional findings we noted that the GTA Technical Committee is evaluating the technical feasibility of a credit hire portal. This aspect of the remedy could build on that work.”

The commission has also recommended that the costs of credit hire could be kept down by the provision of a replacement vehicle for non-fault claimants being assessed on the need for a vehicle instead of providing one as a matter of course.

The CC said: “This remedy would aim to reduce the amount of subrogated claims by ensuring that replacement cars are provided to non-fault claimants only in accordance with their needs.

“The remedy would also aim to reduce the frictional costs incurred by insurers and CMCs that arise when there is a dispute over the replacement car provided to a non-fault claimant because the at-fault insurer alleges that the replacement car exceeds the non-fault claimant’s needs.”

Insurers to handle claims for their own policies

The CC has also provided two other overarching remedies for the industry in addition to the above recommendations.

The first of these is a move away from third-party insurance for replacement vehicles so that non-fault insurers are not legally entitled to a replacement vehicle.

This would mean that policies do not include the provision of a replacement vehicle as standard, but include it as an add-on to the policy for both at-fault and non-fault claims. This would then remove the problem of at-fault insurers not managing the process for a subrogated claim, as all replacement vehicles would be handled by the policyholder’s own insurance company.

The alternative put forward by the CC is for at-fault insurers to be given the option to handle the repair process, therefore giving them control over the type of vehicle provided and the duration of the hire.

The CC said: “The aim of this remedy would be to make it easier for at-fault insurers to capture non-fault claims, thus removing the separation of cost liability and cost control of the non-fault claim.

“By introducing competition from at-fault insurers at the first notification of loss, a greater constraint would be placed on the behaviour of non-fault insurers and other parties (such as CMCs).”

Aviva UK and Ireland General Insurance chief executive Maurice Tulloch said: “We are delighted that Aviva’s proposal for letting the at-fault insurer take greater control of the claim is being considered: we have campaigned on this point for many years. We are also happy to see that the Competition Commission wants to ensure any remedies result in a level playing field for all parties involved in a motor claim.

“We will respond in detail to the provisional remedies.”

Interested parties now have until 17 January to respond to the suggested remedies.