RSA UK chief executive Adrian Brown explains what his firm’s High Court victory could mean for repair costs in future subrogation cases
RSA’s subrogation repair charge model was vindicated this week when a High Court judge ruled that the company had acted legally when adding on costs to repair bills.
RSA’s opponents in the case, Allianz and Provident, have reacted angrily to the ruling and vowed to appeal, arguing that the judgment will inflate repair costs and possibly premiums.
But RSA UK chief executive Adrian Brown contends the victory is important for the whole industry, as itr creates a legal framework for discussions about bringing down costs associated with repairs in subrogation cases. Here, he explains his views on the case, and why regulators have to be wary of unintended consequences when trying to stamp out certain practices in the motor insurance industry.
Q: What is the significance of the judgment?
A: My desire is that this draws a line in the sand about what the legal position is, and now we can get insurers talking – grown-up to grown-up – about how we deal with this issue in a way that enables us to move this forward.
If I stop doing this, but claims management companies are making 15% on every repair, that money leaks out of the industry’
I’m pretty sure that over the next few weeks we will announce a couple of deals that we have reached with other insurers. Some of our competitors are having quite enlightened conversations with us, which I think will really help the industry. There are some, unfortunately, that aren’t talking to us, but that is their prerogative.
We have won a court case, which is no surprise. We have said all along that we are not the only people following these sorts of models but we believe our model is more transparent. What I really want to focus on is talking to people about how we move this whole piece forward.
Q: Does your desire to move forward suggest there is something wrong with the current system?
A: Not at all. What I’ve said all along is that other companies do this as well. There comes a point in time when you have to sit down together and say: is there a more effective way to work together which won’t impact your customers or mine?
We are discussing that right now with some companies to see if there is a more effective way that all of our customers can gain from efficiencies in the way we work together. There is an awful lot of frictional cost involved in me challenging X company’s invoices and them challenging mine. We are looking to see if there is a different way to work.
Q: In the case, it was pointed out that some believe your additional repair charges are higher than those of other insurers. What is your response to this?
A: There will be a second stage of the hearing dealing with quantum [of charges] – is what we are charging reasonable. In coming up with what we charged, we have looked at retail rates out there, and have used guidance from people like Auto Bodyshop Professionals Club [a repair industry trade body]. We have used industry data to get a view of what ‘reasonable’ is.
In the same way that I was confident that we would be found to be legally correct in what we were doing, I am also confident that it will be seen that the costs that we are charging are reasonable as defined by what the judges said would be reasonable.
There have always been disputes between insurers about quantum, whether on credit hire days, repair costs or whatever. I’m sure there may be cases out there where somebody may have a legitimate challenge to us on quantum in the same way as we challenge other people. However, within the judgment that was given down I remain confident that what RSA has charged will be deemed to be reasonable.
Q: What bearing does the repair costs issue have on the OFT inquiry into motor insurance?
A: We have disclosed to the OFT what we do. The OFT inquiry, if nothing else, has shown that this is an incredibly complex area with some complex legal arguments being played out. There is no quick-win, easy decision to be taken, and you have to be very careful about unintended consequences.
If I stop doing this, but claims management companies are making 15% on every repair they get hold of, that money leaks out of the industry. Unless you strangle that bit as well, one unintended consequence would be that customers’ premiums go up. Regulating in this space is a complex issue and all this really does is play into the overall complexity of what needs to be resolved.
Q: Will the High Court ruling mean more bilateral agreements?
A: It certainly will with us. However, in having lots and lots of bilateral agreements, you have got to be careful that it doesn’t become an administrative burden. We are looking to work with like-minded companies that we think we can sit down and work with in a very open, honest and transparent way.
Q: Is there a role for a body such as the ABI to play a role?
A: I don’t think so. I think this is about insurer to insurer.