The credit hire industry is putting on a brave face over the House of Lords' decision in Dimond v Lovell. The judgment is a decisive victory for insurers who stand to gain a windfall of up to £250m from unenforcable credit hire agreements, said Paul Asplin managing director of DAS, which is not involved in credit hire and is therefore unaffected by the judgment.

He said: "Insurers have waged war on the credit hire industry and are winning the battle on higher rates."

Asplin said the credit hire industry faces losses on two fronts; namely liability for up to £200m of outstanding claims and a further £50m for credit repair charges that are now likely to be unrecoverable.

And he warns the war is far from over: "Insurers are ready to test other aspects of the credit hire industry," he said.

He expects those credit hire firms that do survive the Dimond v Lovell onslaught, in that they made provision for potential losses, to suffer lower business volumes.

Asplin said: "The judgment is likely to make credit hire less appealing to the consumer since he may have to meet its costs if they become irrecoverable from the insurer."

The law lords' judgment also effectively caps what credit hire firms can charge to the spot market rate for daily car hire, making their credit-based service appear more expensive than ordinary car hire.

The only crumb of comfort left for credit hirers was their lordships' decision to uphold the Court of Appeal's ruling that credit hire agreements could in certain circumstances be exempted from the Consumer Credit Act.

Cases frozen
Jon Ralph, a leading member of the British Association for Accident Car Hire, which represents 90% of the credit hire industry, agrees that insurers will receive up to £200m as thousands of credit hire agreements become unenforcable in the courts.

More than 50,000 such cases have been frozen by the court system while lawyers waited for Dimond v Lovell to be settled.

He feels strongly that policyholders should lobby for a reduction in their premiums or otherwise see the unpaid claims money disappear straight into insurers' bottom lines.

Ralph, who is also managing director of accident management provider 3 Arrows, said the ruling will have a devastating effect on smaller credit hire operators.

"Their margins will be squeezed and their share prices will drop as investors lose confidence in the market. But life will go on and I am committed to championing the cause of non-fault accident victims."

He is concerned that future costs of claims handling will be met by the consumer instead of insurers.

Consumers, he explained, will still be entitled to receive credit hire, but it will be up to them to ask for it since insurers will have no obligation to arrange a replacement vehicle unless specifically requested by the insured. Ralph argues that leaving this decision in the hands of insurers ignores their inherent interest, which is to keep claims levels down.

"Following this ruling, claimants involved in a non-fault accident will have to compromise over what they will receive from third party insurers. This means that people not aware of their basic legal entitlements will get only the basic of repairs."

He predicts this tightening of claims handling costs will harm vulnerable members of society such as the disabled and unemployed who suffer most from vehicle loss following an accident.

"They face having to negotiate with insurers for a replacement vehicle. There will be no longer be the voluntary offer of a car from insurers and no claims are likely to be allowed for any diminution in the value of the claimant's vehicle."

He added: "The House of Lords' ruling threatens to compromise an individual's right to pursue their claim with a third party assistance professional."

Instead, the onus will now rest with the claimant to request a replacement vehicle and if one is offered, it need only be on a like-for-like basis.

Ralph stressed BAFACH members will continue to offer a like-for-like vehicle replacement service, independent claims handling advice and damage assessment services.

Peter Holding, legal director of Helphire, agrees with Ralph's analysis that some credit hire companies will now be saddled with unenforcable debts because of the law lords' judgment.

He believes this situation will hasten consolidation in the credit hire industry with larger players increasing their market share.

Despite this, he remains bullish about the market's future. He said many credit hire firms' agreements, including Helphire's, are exempt from the Consumer Credit Act and, therefore, the House of Lords' ruling in Dimond v Lovell. Helphire attended the Dimond v Lovell hearing, as owner of 1st Automotive, the party that provided credit hire to Mrs Dimond.

Holding said: "Our position is secure as 1st Automotive's debt is ring-fenced and is not the liability of Helphire."

He added: "We will continue to provide credit hire with other services such as legal expenses insurance."

Replacement issue
A spokesman for CIS, Mr Lovell's insurer in Dimond v Lovell, said the case would bring clarity to the thorny issue of replacement car hire for non-fault accident victims.

"Credit hire costs have been spiralling upwards and were becoming unreasonable, given the normal rate of replacement car hire. Although credit hire firm have attempted to justify these costs on the basis that their services were a form of credit."

He rebutted suggestions that insurers have been shirking their responsibilities to aid insured parties in providing replacement vehicle hire.

"CIS goes out on a limb to ensure the minimum discomfort to accident victims. But we do not believe the service offered by credit hire firms was superior to what claimants can obtain from us."

The spokesmen believed the long-term effect of Dimond v Lovell would be to allow the ABI's scheme for alternative replacement vehicle hire to flourish. The scheme, set up last September, gives accident victims straightforward access to a panel of car hire firms, paid for by third party insurers. But he agreed it was now up to insurers to ensure the ABI scheme was actively promoted as a realistic alternative to credit hire.