The shadowy world of credit hire pits insurers against operators who will stop at nothing to get their fee. Lauren MacGillivray asks where next for the GTA. Illustration by Jonathan Edwards
It’s a game without rules. You crash, you dodge, you chase and sometimes you burn. In the murky world of credit hire, just about anything goes.
Until now. Insurers don’t want to play any more. Credit hire costs the industry millions of pounds a year, adds £50 to every motor policy and has been blamed by chief executives such as Andrew Torrance of Allianz for denting this year’s results. Claims directors are speaking out about sharp practice and some have even threatened to call in the lawyers.
Credit hire companies, which provide a car free of charge for the victim of an accident on the assumption that they can claim back the cost from the insurer of the at-fault party, stand accused of inflating their fees, providing cars when a claimant is too injured to drive and supplying vastly more expensive models than necessary. Some are even said to have deliberately crashed cars to drum up business.
The relationship between insurers and credit hire companies is governed by the general terms of agreement – or GTA – but this is falling apart. Insurers say some credit hire firms’ practices breach the GTA. The fight has become so bad that the ABI has said it wants to get rid of the responsibility of administrating the agreement.
Phil Rawlings, technical manager of motor claims for AXA, says: “The insuring public is often unaware that the apparent benevolent provision of a car to them is at a cost that is unreasonable and unrealistic. The credit hire operators have no real incentive to minimise the length of hire and in some cases have by act or omission taken steps to lengthen it, to the detriment of the paying insurer and the insuring public in general.”
In any business, there are bound to be bad apples. But is the bulk of the credit hire industry – which is worth about £1bn a year – legitimate?
The industry is represented by two trade bodies: the Accident Management Association (AMA), which has 31 full members and 15 associates; and the National Association of Credit Hire Operators (Nacho), which has 22 members and 14 associates. Twelve companies are members of both associations and both groups have solicitors as associate members.
Tony Baker, director-general of the AMA, claims the two bodies represent about 90% of the credit hire market. But a senior insurer disputes that figure, saying he has seen a list of more than 300 companies involved in presenting credit hire claims to insurers.
Barry Bromley, secretary of Nacho, says: “The people who operate and are not members of either association, some of their activities are disgusting and do the credit hire industry as a whole no good at all.”
The companies that are members of the two groups aren’t whiter than white either. Bromley adds: “I’m quite sure that Tony and I, on occasion, have had to have a quiet word with a company and say, ‘Look, you’re doing this and it shouldn’t be done’, such as putting in a car on a Thursday that is perfectly driveable but needs some work, knowing that the garage won’t start that until the Monday or Tuesday.”
He says this sort of practice is different from blatant fraud, however, and is not common among association members.
Credit hire operators are not regulated. But the Ministry of Justice (MoJ) does regulate claims management companies, which offer personal injury and related services, including credit hire.
Since April 2007, three claims management companies have had their authorisation cancelled and, currently, 54 claims companies are suspended. The MoJ does not have a breakdown of the figures but says it is likely that some of these companies also offered credit hire.
Kevin Rousell, head of claims management regulation at the MoJ, says: “We’re certainly aware that among claims management activities, credit hire is probably more lucrative than the personal injury claim. With that you get a referral back but, with credit hire, the rates you can charge to hire out a vehicle means that’s probably the first area you need to scrutinise more carefully.”
For insurers, one way to win the game is to provide cars more quickly than credit hire firms. But they are at a disadvantage, because the hire firms have superior connections with garages and others who can tell them about potential clients.
Credit hire operators say average hire claims for basic vehicles are about £1,400. AXA’s Rawlings isn’t convinced. “The Motor Insurance Bureau reported that a case of hire for £130,000 was recently submitted and rejected. Hire charges of £50,000 are frequent and those up to £10,000 commonplace,” he says.
According to a personal injury lawyer, credit hire companies use the fact that they provide cars on credit to justify high charges, because they run the risk of not getting paid by the insurer.
Under the rules of the GTA, insurers must pay claims to credit hire operators within 30 days. If they don’t, the penalty is an extra 7.5%, followed by the same penalty after another 30 days.
According to Baker, 38% of all claims are not paid within 90 days so some credit hirers issue court proceedings. But insurers maintain that it’s credit hire operators that are driving up penalty fees by causing delays. They accuse them of stalling, or providing slipshod paperwork that requires further investigation by the insurer.
Baker says outstanding debt represents more than 50% of turnover for each operator and, in a credit crunch, this threatens companies’ survival.
“It makes it more difficult if insurers hold on to the money that’s rightfully the credit hirer’s, because they have to fund more and more debt. That’s why credit hirers are increasingly issuing against insurance companies,” he says.
Insurers would dispute that they owe this money in the first place. And most claims directors are losing patience. With the recession ramping up the pressure to drive down costs, this is one game that’s about to get dir