One of the strong messages coming through from the past two years' debate and legal arguments about motor insurance and credit hire is that there is a growing need for all policyholders to be treated equally.
Richard Allen, assistant manager, motor claims, at the Association of British Insurers (ABI), believes there should be a level playing field “and insurers should not try to secure a competitive advantage by the way things are done.” He says that motor insurers should not try to steal a march on their competitors by giving their own policyholders favourable treatment at the expense of others.
I agree, as there is an over-riding necessity for equity of treatment in the handling of claims between insurers. There are a number of so-called Memoranda of Understanding (MoUs) formulated by the ABI's motor conference and its Motor and Liability Claims Panel, covering such areas as the use of accident management companies and the provision of courtesy cars.
Support for the MoUs is generally good, with the vast majority of motor insurers signing up to the individual agreements. But while I am supportive of the intent and the approach of the MoUs, there should be a firmer interpretation of the guidances given in certain areas. For instance, provision of a replacement vehicle should be treated as part of the damages recoverable in a claim and there should be parity of approach.
Many insurance companies send their non-fault insureds to credit hirers and bodyshops will refer claimants to a credit hire company, largely because that approach obviates the provision of a courtesy car and also earns the repairer an attractive incentive by way of commission.
Not all it seems
Last year, the ABI introduced an agreement on third-party car hire, between subscribing insurers and hire car companies. This means they are able to provide replacement vehicles to the innocent victims of non-fault accidents and offer a nationwide service.
The new arrangements cover those situations where insurers' existing replacement car schemes cannot deal with a claim or when an insurer cannot be identified. The essence of the ABI and Lloyd's third-party car hire agreement is that any vehicle hired under these schemes will be completely free of charge to a third party when liability is confirmed by the at-fault driver's insurer.
There is a sting in the tail of the agreement. If a third-party claimant fails to make use of the subscribing company's helpline scheme, then the negligent motorist's insurer may decline to pay any hire charges at all.
A supporting letter from the ABI says: “The claim will be resisted. The insurer will point out [to the court] that the costs could have been substantially reduced by the making of a simple telephone call. The insurer may invite the court to dismiss or reduce the claim on the basis of a failure to mitigate loss.”
The number of subscribing insurers is increasing and there are around 40 to 50 applications in hand from credit hirers who want to join the scheme. However, insurer support has not been as strong as for other protocols, although the approach proposed is really only common sense and is aimed at minimising insurers' motor claims costs.
The rate charged by hire companies to insurers and their policyholders has become a crucial element in the industry's discussion of these issues, particularly following the House of Lords' decision in Dimond v Lovell, where the judges held that “extra charges” imposed by credit hire companies could not be recovered from an at-fault driver's insurer. The Law Lords spoke in terms of differences between credit hire rates and so-called spot rates, ruling that only hire charges equivalent to such spot rates could be recoverable.
Hitting the spot
Clarification of what may be charged and what can be recovered is needed. The judges' focus on spot rates codifies the practices of the credit hire companies going forward from now, although those spot rates will vary by need, time, model of car and so on. Spot rates are, in many instances, not far off the level of credit hire prices.
If the credit hire industry is to survive and prosper legitimately, then its future can only be safeguarded by the speedy introduction of protocols and agreements between the motor insurers and the credit hirers. More importantly there is a need for the insurance companies, accident management companies and other providers of services to non-fault third-parties to treat insureds equally across the board.
The ABI/Lloyd's memorandums were introduced to ensure that claims costs should be mitigated and kept as low as possible. For the most part, they are working well to achieve that objective, but there is a need for them to be strengthened and extended to include other aspects of the relationship between the motor insurer and its policyholders.
Also, there needs to be a much wider acceptance within the industry of the intent and detail of the memoranda to make them truly comprehensive and effective. Insurance companies are slowly beginning to support the fact that motor insurance policies should include uninsured loss recovery cover and incorporate replacement car provision for third parties.
Insurers would refer their non-fault claimants directly to a car rental firm and then recover the relevant cost from the at-fault driver's insurer. And there would be two substantial additional benefits from such a course of action. First, insurance companies could bring their own at-fault insureds into such an arrangement, and offer them the opportunity to upgrade (at their own expense) to a more suitable vehicle than a typical repairer's courtesy car.
Second, of course, this would allow repair shops to get on with their proper business – repairing the policyholders' cars and getting them back on the road as soon as possible – rather than having to maintain a supply of courtesy cars or act as agents for the credit hirers.