Insurer hails clarification of law in paving way to reaching bilaterals across industry

RSA aims to thrash out bilateral agreements with other insurers over motor repair charges in the next few weeks, following its High Court victory.

Last week the court overturned an earlier judgment that said the insurer had fabricated add-on costs when it repaired the vehicles of
at-fault drivers.

Allianz and Provident have vowed to appeal against the verdict.

Despite this fractious background, RSA UK and western Europe chief executive Adrian Brown says the judgment will pave the way for bilaterals, deals in which insurers come to a pre-arranged agreement on charges for repair costs.

“Sometimes you have to clarify the law in order to be able to sit down with people and go forward,” Brown said. “That enables you to have a much more grown-up conversation with people.”

Brown has the backing of industry bigwigs, such as Sabre chief executive Keith Morris, who called for an industry-wide agreement.

He said: “We should retain subrogation, but there needs to be a new memorandum of understanding between insurers and possibly an intra-insurer general terms of agreement with realistic hire and durations built in.”

But Allianz head of technical claims Martin Saunders said: “If this decision stands we can expect the rest of the market to feel forced to move in the same direction as RSA, which we estimate will add up to approximately 25% onto motor insurance repair bills and will ultimately impact significantly on premiums.”

RSA’s Brown countered that while the increase may be 25% in some cases, the average percentage increase related to additional repair costs was in the mid-teens.

If this decision stands … it will add up to approximately 25% onto motor insurance repair bills”

Martin Saunders, Allianz

The row originally stemmed from a Romford County Court judgment last September. It found that RSA, through its in-house body shop called RSA Accident Repairs Ltd, had inflated repair costs for damage caused by an at-fault driver insured by Equity Red Star.

Allianz and Provident then challenged RSA in the Commercial Court for inflating motor repair costs.

But, in an unexpected turn of events, the judge, Justice Cooke, sided with RSA, deeming its subrogation model legal. Cooke J found that the reasonable cost of repairing a damaged car is “not necessarily the repair cost actually incurred” and that the cost of repair should be determined by what a consumer, rather than an insurer, would be charged on the open market.

Despite the alleged inflation of repair charges, RSA can still get a better deal than the man on the street because it negotiates competitive arrangements with suppliers, such as paint suppliers.

There are two legal proceedings ahead. First, the impending Allianz and Provident appeal.

Secondly, there will be a further hearing on the same case, probably in four to six weeks, which should define what is a reasonable cost.

The legal case against RSA was headed by DAC Beachcroft head of strategic litigation Andrew Parker.

Speaking about the judgment, Parker said: “In the context of the OFT investigation, it doesn’t paint the industry in a particularly good light, whether it’s legitimate or not.”

He added that the judgment might not help similar subrogation disputes in the future, as courts can still decide to focus on the original body shop bill when deciding what is a fair repair charge, cutting out any inflation by insurers.

Talking points …

● Will all motor insurers be forced to inflate repair costs if an appeal fails?
● What will the impact be on consumers if this practice on repairs continues? Will it end up hiking premiums, or will the cost be kept within
the industry?
● The judgment barely mentions the OFT investigation into motor insurance. If the OFT refers its findings to the Competition Commission, will the commission try to stamp out the practice?
● Insurance companies could decide to draw up bilateral agreements to stop repair costs being hiked across the board, but how would this work if some insurers don’t increase repair costs?