Review of the Quarter: Credit Hire AWARE 8

The pace of change in the credit hire market continues unabated.

One of the most significant issues remains the GTA rate review. As time has progressed through the review, and as Tim Wallis delivered his views on where we go next, the probable outcome seemed to be moving closer and closer to a reduction in rates (excluding bikes and taxis) effective in the next few months. Whether that reduction is sufficient, against the backdrop of Stevens et al, and what impact that will have on the strategies of both insurers and credit hire companies alike, remains to be seen, but the subsequent stalling in negotiations has brought these issues to the fore. It is evident there are some on both sides who are actively reviewing their GTA status, and without resolution of the rate review this instability in the market will continue.

The principal reason for this is that Stevens v Equity has transformed the credit hire landscape with the respective sides of the market split on its significance. In the last few months we have seen the case of Stevens followed in two Keoghs cases of Valli v Ussen, McBride v UKI, together with the case of Clayton v EUI. In all three cases leave to appeal to the Court of Appeal was refused, although there will be an oral hearing in one of the cases to be heard in January ‘16.

The court seemed to be influenced by the skeleton arguments in these cases which all asserted that the opportunity to overturn Stevens was lost when the claimant failed to seek leave to appeal to the Supreme Court. Seeking to overturn Stevens with cases based on similar facts seems to us to be effectively an attempt to appeal the decision in Stevens by the back door.

Further judgments have continued to confirm Stevens in respect of rate, such as the appeal case of Lawson v Mullen in the North East recently. Mark Sanderson from our complex team has provided a helpful summary of the current state of play in case law later in this edition.

Those that keep a keen eye on some of the more prominent internet forums which CHOs visit, would perhaps be forgiven for mis-understanding the current position, but it may be the case that they do not always have the full picture with a lack of critical mass in litigation.

The focus from CHOs now seems not to be whether Stevens is ‘correct’, but to investigate how rates surveyors produce their evidence. In this respect things are changing, with CHOs in many instances now preferring to focus on challenging the surveyor instructed by the defendant, rather than obtaining their own evidence. This issue is likely to run and run and I certainly don’t expect to see it settle down any time soon.

Notwithstanding the current discussions in respect of the GTA, given the greater uncertainty outside the GTA it came as a major shock to many when Helphire announced plans to withdraw from the protocol on the 15th August. In their communications Helphire suggested they were influenced by the fact that 70% of insurers subscribed to their protocol arrangement. However, in our view, there are certainly considerable issues associated with this approach, whether that be insurers wanting to re-negotiate those protocols to reflect the new reality (post Stevens) in respect of recoverable rate, or the inevitable change to the customer journey given the increased likelihood of customers being negatively impacted by the likely increase in third party intervention attempts and increased litigation.

The full impact remains to be seen but clearly a good deal of thought would have gone into the decision to withdraw, and a good deal of discussion presumably took place with those insurers with whom they had arrangements.

Certainly their financial results continue to show the turnaround that the Redde Group has undergone in recent years.

So the question we have been asked the most over the last few weeks is, “who, if anyone, is next”?

My view is that in respect of most of the other CHOs, and I am talking of the four/five big players in the main, it would be a mistake to withdraw from the GTA at this stage (despite the fact Keoghs and other defendant firms would benefit from the friction!).

The GTA provides a framework for CHOs that, in the main, works. Despite its faults the GTA provides a framework for negotiation, reduces frictional cost and there is little doubt that it has significant cash flow benefits for CHOs. Life outside the GTA is becoming less and less favourable for CHOs, and with so many current unknowns, coming out of the protection of the agreement presents many risks. Certainly, protocols may improve cash generation quickly on a percentage of claims, but as we have seen with the Helphire scenario insurers may want a different rate in those agreements to reflect Stevens and likely revision of rate in the GTA.

Some may wait to see whether the decision works for Helphire, but then again, in truth, most if not all would struggle to replicate Helphire’s protocol model because they simply don’t have the critical mass or the existing relationships in place.

Whether there are insurers out there looking to grasp the nettle and withdraw themselves remains to be seen. We know that some insurers are reviewing their position and keeping a very close eye on developments, but for most the loss of new notifications from CHOs that the GTA provides represents a significant step. There are insurers out there, particularly personal lines insurers, who may see some competitive advantage here; but seizing that advantage in terms of cost and overall resource could present challenges.

The frictional cost of credit hire is not insignificant and has created casualties in the past. It’s unfortunate to see the human cost of that with Bikers Legal Defence entering administration at the start of September. An announcement was made on the company’s website advising that Danny Dartnaill and Simon Girling of BDO LLP had been appointed as joint administrators on the 9th September.

It is perhaps a timely reminder for both sides of the industry that there are people behind all companies; they go in to do the best for their employer, and just earn a living. I’ve known Mike and some of his team a long time, and I hope all those affected will have some positive news coming soon.

Recently Slater and Gordon announced via the Australian stock exchange the termination of their deal with Swinton to provide hire and repair services. Swinton is one of the most significant non-fault contracts in the market for hire providers and its loss, effective from 31st October, will mean a significant reduction in the Quindell credit hire volumes.

Whilst the market will not see any reduction in overall volumes as a consequence, it will certainly be interesting to see where that volume lands and whether the rumours are correct. It will also be interesting to monitor what, if any, impact this has on Quindell’s Collaboration Protocol.

The success of the protocol has been based on QBPS’ ability to work with insurers to collectively reduce periods, particularly credit repair managed claims, and therefore presented cost to the subscribing insurer. Clearly, if the mix of claim type has significantly shifted to insurer based work (and controlled repairs), will this restrict Quindell’s ability to influence cost? Time will tell.

Turning to credit repair, the noise around this head of claim continues to increase in volume. The market discussion about Helphire’s GTA withdrawal stoked the fires of their individual average credit repair cost as much as the impact on rates. The experience on our claims and our data to the end of July this year, shows Helphire to be one of the most expensive CHOs for credit repair in the industry, and surprisingly, more than most of the prestige providers.

To the majority of the insurers I speak to, considering their vehicle mix, this is incomprehensible.

I have produced an update based on our data across the market on spend and inflation over the last 18 months later in this publication.

Interest in this area has been heightened by the widely reported news of the Carlyle Group’s interest in the acquisition of the Innovation Group (IG) for what is believed to be at c. 40p per share. On a global scale, IG are already one of, if not the, largest repairer networks in mainland Europe to the insurance industry. If the Carlyle Group is successful in the acquisition of IG, then, together with their previous purchase of Nationwide, they would likely be the largest repair network in the UK by some way.

IG already manage some of the lowest cost repair claims in the market, and it is to be hoped that this will continue were the acquisition to be successful.

And finally, I hope you will forgive us for a little self-publicity! At Keoghs we were recently incredibly proud to announce the team in credit hire had now grown to over 100, with current vacancies set to take us to over 130. It’s a great testament to the work all the people at Keoghs do to deliver great services to our clients and I am both proud and excited to be part of it. I’d like to thank all our clients for supporting us and working with us over the last few years!