And the ABI says the Competition Commission remedy around daily hire rates needs to be carefully implemented

The ABI has admitted that its General Terms of Agreement (GTA), which governs recommended prices for credit hire, has not been entirely successful.

In its response to the Competition Commission (CC) probe into the private motor insurance market, the ABI said the voluntary nature of the GTA has undermined its effectiveness.

The ABI wrote: “Although the GTA has been helpful in limiting costs, it has not proved to be fully effective. The voluntary nature of the agreement means that GTA rates are set at a level that is artificially high as the closer the GTA rates get to direct hire rates, the more likely credit hire organisations (CHOs) are to withdraw from the agreement.”

The CC has proposed a replacement for the GTA where recommendations for hire periods and caps on daily hire rates are set by an independent body.

The replacement would be mandatory for all stakeholders in the provision of replacement vehicles.

However, the ABI has said in its response to the proposed remedies that the introduction of guideline hire periods and rates could not work on its own, and that the other remedies around subrogation of costs would also need to be implemented for it to be effective.

“[If these guideline rates] were to be the main remedy introduced, the ABI would view this as a missed opportunity by the CC to positively reform how temporary replacement vehicle claims are handled with a consequent missed opportunity to improve outcomes for customers,” it wrote.

The association has also questioned how much these guideline rates would cut costs in practice.

The ABI wrote: “This solution would only serve to reduce daily credit hire rates, and it is uncertain how close these rates would be to the direct hire rates that insurers would achieve under either Remedy 1A (first party insurance for replacement cars) or 1B (at-fault insurers to be given the option to handle non-fault claims). It is also unclear how practical or enforceable guidance on duration periods would be.”

The ABI has also said that the remedy, if it is introduced, “must extend beyond the private motor insurance industry to include commercial motor insurers”.