AXA’s opt-out from the framework for the settlement of credit hire claims in favour of its own agreements with third parties may prompt other key players to follow. What does this mean for the future of the strife-torn sector?

AXA may not have intended to trigger a chain reaction when it announced its withdrawal from the general terms of agreement (GTA) for credit hire. But a revolution could be coming.

A new twist in the long-running credit hire saga came on 1 September when AXA threw down the gauntlet, announcing it would be pulling out of the GTA – the framework for the settlement of credit hire claims, which is administered by the ABI and covers 90% of the industry – within the week.

Fed up with the spiralling cost of credit hire – where a credit hire operator (CHO) provides a car free of charge for a motor accident victim and claims back the cost from the insurer of the at-fault motorist – AXA said it had developed a new operating model. Hires already in place would continue under the existing agreement, but the insurer would look at all new hires individually, working with a select group of CHOs.

“I’m very keen not to put any particular blame on either side,” AXA’s managing director, personal lines intermediary, Mike Keating, says. “We just felt [the GTA] was becoming unwieldy and the ability to come to decisions that will benefit all stakeholders in a quick and timely fashion was not on the horizon. Therefore by withdrawing from the GTA, we’re seizing our own destiny.”

Keating insists AXA is not out to cause a “domino effect” among insurers, although he believes others may well follow AXA’s lead. “The fact that someone of AXA’s size, brand and reputation has withdrawn may provoke other insurers to do some serious thinking.”

Keating declines to say which CHOs AXA is working with. But the fact that some CHOs are willing to enter such a specialty arrangement could also be considered a blow to the GTA.

Will others follow?

Tony Baker, director-general of the Accident Management Association (AMA), which represents 34 firms covering 70% of the credit hire sector, shrugs off the suggestion of a mass exodus.

“I would be surprised if any other leading insurer decides to leave the GTA in the foreseeable future. I do not think [AXA’s] withdrawal is material for CHOs or other subscribers.”

Groupama tells Insurance Times it is weighing its options, however. Director of claims Phil Bird says: “Like many other insurers, we are continually reviewing our position. We are interested in AXA’s decision to withdraw and whether this is the beginning of the end of the GTA.

“In many respects, Groupama supports AXA's decision for choosing to be masters of their own destiny in relation to their credit hire claims and it is something we are always open to exploring ourselves.”

Bird doesn't believe AXA’s move will singularly deliver the fatal blow to the GTA. But he says if other insurers withdraw, then this would put pressure on certain CHOs and also promote more bilateral agreements. This would bring about a system very different from the “one-cost-fits-all” approach of the GTA.

Meanwhile, Zurich has also entered the debate surrounding AXA’s decision. “One major insurer leaving will make no difference, but the application of the GTA has to become more appropriate to prevent more insurers leaving,” Zurich motor claims director Tony Emms says.

Emms declined to say whether Zurich itself is considering pulling out. “Zurich believes that it is necessary to have an agreement in place to drive the right behaviours. We would like to see the GTA updated to reflect current market conditions and much improved compliance within the intention of the agreement.”

The soaring cost of claims remains the biggest concern for insurers when it comes to credit hire. As previously reported by Insurance Times (9 July 2009, page 20), a study by Deloitte found that insurers paid around £490m to credit hire firms

for supplying replacement vehicles to non-fault parties in motor claims in 2008. Deloitte also found that of the 3.1 million motor claims, about 990,000 had some form of third-party involvement. The average credit hire payment per case was £1,200.

AXA says that credit hire costs account for up to 10% of premiums, and says this percentage is growing as CHOs increase market penetration.

In a statement released in September, AXA’s managing director, claims, David Williams, said: “We have been looking at a number of options for dealing with the growing number and cost of credit hire claims. Our new operating model means that an opportunity arises for us to work more closely with a number of credit hire operators who share our desire to take the frictional costs out of managing what should be straightforward claims.”

But AMA’s Baker calls AXA’s 10% figure a “considerable exaggeration”. “The figure is closer to 5% and that is if no account is taken of providing a service to claimants as an alternative to credit hire; for example, provision of a suitable replacement vehicle while their vehicle is out of commission,” he says.

Meanwhile, Zurich says that the number of split liability cases being taken on by CHOs has risen dramatically, and that the GTA is not well suited for handling such cases.

Emms says: “The biggest problems arise from the inappropriate application of the GTA by some credit hire companies, and their failure to submit payment packs that accurately represent the correct amount to be paid on the particular case.

“CHOs complain about alleged debt and that insurers are understaffed and do not pay their invoices quickly enough. However, when payment packs are regularly overstated by 20% or more, negotiations are needed on a case-by-case basis, which causes delays and adds frictional cost.”

Polarised positions

Debate about credit hire has always tended to become stuck in a pattern of “he said, she said”. CHOs are accused of providing cars that are more flash than necessary. They have even been accused of providing cars when a claimant is too injured to drive, as well as deliberately crashing cars to create business.

Meanwhile, credit hire firms say that while there are a few bad apples, their industry as a whole is legitimate. They argue that in providing like-for-like vehicles, which accident victims are entitled to, they are merely filling a gap left by insurers.

In its 10-year history, the GTA has faced countless problems. But the current situation is especially precarious considering AXA’s withdrawal.

AMA’s Baker admits that AXA is a big player to lose: “This is a big market with different drivers for behaviour, but nevertheless the AXA decision is disappointing and certainly a little longer notice would have been appreciated by the credit hire industry. Generally they have been one of the better performing insurers under the GTA.”

He adds, however: “It is a pity, as I believe their main reservations about the GTA have been covered in the recent governance changes and new GTA wording. Do remember, also, that it was only in the past couple of years that Aviva joined the GTA.”

One hope for the GTA is the planned appointment of the agreement's first chairman by the GTA technical committee, which includes representatives of insurers and CHOs. Baker says the position will be advertised, and there might be an interim appointment in the meantime.

Insurers are not yet convinced, though. Zurich’s Emms says: “It is a positive step but it remains to be seen how effective this is in practice. Only a true desire by all to fix the system will make it happen. We support a meaningful dialogue by all parties to take matters forward.

Groupama’s Bird adds: “The role of the chairman of the GTA may help fix some minor or short-term problems, but Groupama does not see this as a panacea.” IT