As everyone reading this will be aware, this quarter has been dominated by the conclusion of the CMA investigation into private motor insurance (PMI) and varying revelations as to the sustainability of the Quindell business model.
This edition of Credit Hire AWARE focusses, in the main, on what happened in the CMA, but for the purposes of this review I want to look at some of the potential implications of the investigation.
One outcome I would be surprised to see is CMA II and so it was with a mixture of surprise and confusion that I listened to MP Heather Wheeler tell the ABI Motor Conference that she wouldn’t rule it out. Up to this point in her presentation, as a senior Conservative party politician, she had shown herself to be, in large parts, in touch with the issues, and she was certainly enthusiastic about remedying many of the ills in the market, particularly those relating to fraud.
Later on in the day, Professor Alistair Smith, Chair of the Inquiry into PMI, certainly did not appear to agree with this view.
Professor Smith also informed the gathered professionals from the defendant insurance sector that he accepted the issues, perceptions, and frustrations that many felt. Indeed, he was candid in his views that the CMA was set up to deal with matters of competition and not what were, and for that matter still are, fundamentally legal issues. In that respect, he certainly supported one of the CMA’s central arguments against radical reform, that the legal foundations on which credit hire has thrived were complex. Helpfully, however, he was prepared to agree that the benchmark for damages (i.e. daily rates) had been set too high. He accepted that one of the proposed fixes, preferred by many, to change the burden of service to the first party insurer was a radical change, but as Professor Smith explained it was discounted because the CMA were of the opinion such radical change held an inherent risk that the impact on premium could be an increase.
There remains a sense of frustration that although the CMA had struggled from day one with the concept of credit hire and its intricacies, those advocates of a price cap could offer little by way of an alternative once it became clear the legal ramifications represented a significant hurdle to any progress. Whether there is any sympathy for the CMA on this matter or not, as our client alerts on the subject have maintained, the outcome puts the onus on compensators to change their individual approach to such claims in future.
The failure by the CMA to support any significant solution has been compounded by the fact that the investigation has prevented insurers and credit hirers alike from investigating any meaningful solutions whilst the CMA investigation was underway.
Now that the CMA have reported, notwithstanding that this has resulted in very little meaningful change, maintaining the status quo is no longer an acceptable solution.
The market has been littered for the last few months with varying articles in the insurance/credit hire press covering;
It is hard not to think that we have heard all of this before; whether it be when AXA withdrew from the GTA, Bee and Jenson, Copley v Lawn or the first edition of Bent.
To expect the judiciary to materially change the benchmark for what is a recoverable daily rate of credit hire is to ignore history and to expect that to happen in the short term is at best optimistic and at worst fanciful. Most insurers I have spoken to throughout this period are instead looking to grasp the nettle and improve processes, third party assistance, to educate policyholders and to manage the claim spend in this area.
I have long been an advocate of the final two points with education on the back of an offer of assistance a powerful method of improving indemnity spend. This is the principal reason Keoghs have ourselves moved into partnership with another service provider.
I learned earlier this week from one survey that UK policyholders switch insurers each year more than any other country in Europe; c. 80% look to change in comparison to 30% in mainland Europe. 50% of those who switch say they would prefer to remain brand loyal and actually buy other insurance products from one insurer, however customer satisfaction is a key reason why they do not.
Surely being more proactive and assisting a non-fault party, rather than threatening them with their duty to mitigate, are key marketing and business development tools that all insurers would prefer to utilise?
Additionally, the hive of activity following the CMA report brought further focus on credit repair, along with the practices of some CHOs in relation to recovery and storage. Our market data confirms that the average credit repair is rising and is not far from reaching £1,800. Only a few months ago at one of our forums I ventured the suggestion that it was difficult to see how the figure (then at an average of £1,650) could realistically go any higher. Indeed, it is likely that, once the more severe winter weather impacts, we will reach, and then go beyond, this figure.
As we say in our ‘all about the statistics article’, one major contributor to the volume of credit repairs currently averages over £1,900 and they deal with mainly standard vehicles. This is a regressive step for motorists and hard to justify, particularly as we haven’t seen a significant increase in labour rate to drive this inflation and there is no evidence that they are receiving a better quality of service. It is also worrying to see one CHO charging up to £110 per repair for delivery and collection of repaired vehicles within the repair fee charged under their protocol agreement.
I do not propose to put into print my own personal opinions about Quindell’s plight. Discussing the issue with one of my peers at another legal provider, we found that we had both been in similar situations in the preceding week - on the phone to clients until 10pm most evenings whilst the saga unfolded.
The problems are obvious, and now manifest; although there has been recent improvement, the share price has fallen significantly, and there have, of course been very significant changes at Board level.
Whatever your views, the rumour mill regarding the future of the organisation has been at the level of activity only matched by the number of Regulatory News Service announcements Quindell have put out over the last 12 months. The situation is fluid but it is hard not to ignore the link between Quindell’s future and the number of credit hire claims (or for that matter personal injury motor and deafness claims) in the market.
In conclusion, one thing is certain; never in all my time in this sector of the market has credit hire had such a high profile. Lord Chancellor and Secretary of State for Justice, Chris Grayling remains vocal on the issue, and it is clear from its continued efforts in the whiplash arena that the Government has high expectations of the insurance industry in respect of reducing premiums and the thorny issues around credit hire will have to be tackled successfully if those expectations stand any chance of being delivered.
John Gibson
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