The Competition Commission

“Change does not roll in on the wheels of inevitability, but comes through continuous struggle.”

In December 2012 the Competition Commission (CC) published a statement of issues to assist those giving evidence to the investigation into the insurance market. These issues, five in total, are referred to as ‘theories of harm’. These are wide-ranging and have been the subject of multiple requests for information from the CC. From our interactions with the market, Keoghs are aware that responses to these questions are as equally broad. Whilst some insurers have submitted vast quantities of data and information, others have opted for a more succinct methodology.

What is clear is that, although those with a vested interest in the subject believe there will be change, there is no clear interpretation over what form this will, or indeed should, be. My interest is the implications on the credit hire industry and associated repair services. It seems that the CC will also focus greatly in this area.

There is common agreement from all sections of the credit hire landscape that the current state of affairs is, at best, dysfunctional. It was created through a lack of will or ability (if not both) to provide consumers with an adequate ‘like for like’ policy provision. As a consequence, an industry providing over 500,000 vehicles per year has filled the void.

In principle most do not disagree that an individual who is the victim of a non-fault accident may need, or have entitlement to, a vehicle equivalent to their own. Indeed, such an assertion is legitimised by the highest courts in the land.

As an individual who drives 2,000 miles per month, meets clients and has a family, I would wish to receive a reasonable replacement if I were to be deprived of my own vehicle. The question to all of this is how?

The point the CC is directing its primary focus toward appears to be the, “Harm arising from the separation of cost liability and cost control (moral hazard).”

From my discussions in the market, I take this to mean that there is no incentive for a claimant (and/or their representative) to keep costs to a minimum. Furthermore, that current agreements, such as the GTA, fix a price/rate, leading to a lack of competition. To put this into a wider context the CC refers to the theory of harm 2;

“Harm arising from the beneficiary of post-accident services being different from and possibly less well informed than the procurer of those services.”

For me, there is a clear issue that the consumer doesn’t have full transparency of, or appreciation that;

1) they are taking the vehicle on credit

2) they know the final cost of a claim

I have seen both sides of the discussion, and know full well there are many CHOs who go to great lengths to advise and ensure the customers know the vehicle is provided on ‘credit’.

There are also rigorously controlled telephone scripts, documentation control and audits of these processes in place. However, it would not necessarily make commercial sense to pursue hirers when they are deemed at fault or responsible for delays. Nor, dare I say it, would it be for their referral source in certain scenarios.

By the nature of the fact that we have an accident once every 5 – 10 years on average, are we actually listening when advised of any terms, or are we simply in a hurry to get back on the road? Is this compounded by the fact that my insurer or broker transfers me through to the person providing the car? Indeed, in some cases they may have already told me that they’re doing so in order to provide me with my ‘replacement’ car? In other words, do consumers think of this ‘credit hire car’ in the same way they would if they procured other goods or services on credit?

I have a credit card and I know what level I think I should go to every month. I ask myself; “Should I really put on any more this month?” I also have an overdraft, and a similar thought process follows when I reach a line I don’t want to cross. Because I hold the liability to pay it back, I know the line I shouldn’t cross and therefore control the cost. I am well informed of this and I know everything I need to know.

When defendants learn the potential costs of some hire cases, they are horrified. I am sure many insurance claims’ handlers have the same experience - and these are the claims we expect to see, not the extremes as a legal firm we all too often come across. Is it not unreasonable to assume some claimants may think the same?

With this in mind, I wonder if the individual hiring a car would spend a similar amount if they knew the accruing cost, especially if they could be asked to pay it back at a later date. Of course, hirers are told this, but do they believe it? I know some in the market think that hirers may be told, inadvertently, that in reality the claim will be written off if it isn’t recovered. The purpose of these questions is not because I believe credit hire has no place, nor is it because I think a poor service is provided; excellent customer service is indeed being provided to thousands of motorists every day. Rather it is because these are the questions the CC will be asking.

What could we find as a solution?

Those I speak to have differing views; one being, should the alleged at-fault insurer be given the opportunity to provide services? I do not know if this is a workable proposition given the demand for a vehicle is on the day of the incident on up to 50% of occasions. I do not know if we have a market that has reporting times, or liability functions to provide for an appropriate proportion of cases. Nor am I convinced a tort in law could be prescribed to a claimant in this way. But it certainly could form part of the solution.

Should there be a requirement for the insurer to provide an adequate ‘direct hire’ alternative as part of the policy to be pursued under a subrogated claim? Many policyholders could accept such a service, but in reality does the market have the stomach and ability to bear these charges for an inordinate amount of time.

Could we see a ban on referral fees like we have in personal injury? Although that cost is never recovered by the CHO; it must surely lead that the price of providing hire can be cheaper, and margin maintained, if the cost of financing referrals is removed.

The issue here is that, as with the personal injury market, there may be exclusions to the ban, and potentially there will be those wanting to work around the ban. This point would certainly push the market into consolidation. Companies with sufficient volume to drive down the unit cost would be the ones likely to offer such a reduced rate. This will further add to self-regulation of the market, and provide a greater ability of insurers to manage their relationships in this arena.

Greater transparency is a common ‘must’ from my experience. In the days of the PI referral fee, the SRA required claimant firms to advise clients that there was a referral fee, how much it was, and that, if they wished, they could use an alternative solicitor.

Could there be a move to make the claimant far more certain on the services they are provided? A scripted wording, or certainly key paragraphs, could be enforced at the outset of hire to tell the consumer they could be liable for the charges. A further requirement could be to advise the hirer of the anticipated hire cost, and remind them of current costs at certain points in duration?

On the matter of transparency, will the use of the ‘warm hand over’ be removed from insurer or broker to the CHO, or at least be placed under the same responsibilities?

The CC have a growing interest in giving consumers full visibility, reaffirmed by their confirmation on 27 June they will be investigating ‘pay-day loans’ and hidden charges. Be it lending, PPI or distance selling, there is a back drop in all financial sectors to put the consumer at the heart of understanding the agreements they are entering.

The working papers from the CC are going to be available imminently, with their findings due to be published in September. Keoghs are continuing to provide a platform for thought leadership on this subject among others. We would welcome our clients, and those potentially impacted by reform to continue to engage with us. Whatever the findings, change is coming and we would encourage all compensators to continue to think how they will react in those scenarios, be it those above or those of their own.