Half Year Review
Credit Hire Aware 13
With credit hire remaining a significant contributor to bottom line indemnity spend, Keoghs’ Credit Hire Client Support Manager, Christopher Clapp, reviews the market conditions following the conclusion of the first half 2017, ahead of a full year review in the next few weeks.
In my role I often find myself party to varying discussions (whether those be protocol, settlement review or escalation resolution) between our various insurer clients and credit hire operators alike.
There are many credit hire operators that will set their stall out during those discussions as being ‘different from the rest of the market’ - whether that be in their approach to claims handling or their interest in litigation. Many also suggest that they are working with insurers to reduce costs in the market and deliver a more efficient claims experience for all parties.
As such, over the course of this review, I am going to consider the current market position and whether this reduction in costs is reflected in our handling of now 40,000 claims per annum.
Let’s start with the headline numbers:
Credit hire claimed amounts are on the increase. This can be attributed to not only an increasing trend in hire periods but also in the average daily rate being claimed. Through 2016 Keoghs saw an average daily period presented of 18.1 days (paid 15.5) – in the first half of 2017 that rose to 20.4 (paid 16.2).
The increase is seen across almost all credit hire organisations and is seen most predominantly where those hire companies operate in the credit repair sphere.
Inflation is also being contributed to through the ongoing test to make a good / prompt decision to deal with vehicle damage when hire is ongoing. In this challenging scenario for an insurer, who is already on the back-foot due to claims not being reported quickly by the at-fault party, they often rely on allegations to make a decision.
Unfortunately, we find it commonplace where inadequate engagement with the claimant fraternity leaves our insurer client with insufficient information to make a fast decision to admit liability, or at least deal without prejudice.
It would be wrong to tar all CHOs with the same brush, as some CHOs are willing to engage with the liability decision of the claim. However, some choose to adapt their handling approach depending upon who the insurer is; for example conducting a credit repair against a direct insurer, but passing control to the insurer where the book is commercial.
Whilst a CHO can make a considerable point of the fact that they allow the insurer this ‘opportunity’, the number who will refuse access to the claimant - or hold the claimant’s vehicle to ransom in storage - as well as maintain their ‘opportunity’ in the face of a liability dispute, serves to weaken the view that they are working with insurance companies to manage hire periods and costs.
The credit hire ‘GTA vehicle mix’ is also beginning to show an upwards shift with inflation in the average daily rate becoming apparent. In 2016 the average daily rate pursued was £62.49 however this has now increased to £68.79 representing an increase of 10%.
Whilst that may appear a nominal amount, Keoghs has concluded close to ten thousand cases over the course of the first half of the year which would result in an additional £1 million added to the amount being claimed by Credit Hire Organisations.
The shift in GTA groups has seen a reduction of 6% in the number of vehicles hired in the ‘standard’ (S) category with a spread of percentage increases seen in the ‘prestige’ (P), ‘4x4’ (F) and ‘sports’ (SP). The largest increase of 2.5% occurred in the taxi (T/NT) category.
The rates on offer for taxi vehicles make this a lucrative area for credit hire providers and there has been a definitive movement into this market by a number of credit hire organisations.
With McBride establishing the principles as set out in Stevens v Equity, we keenly await the outcome of the ongoing ABI GTA rate negotiations. The increase in hires outside of the ‘standard’ category should surely bring into scrutiny the rates pursued in these groups which are now considerably out of sync with the recoverable basic hire rate that can be achieved on the high street.
Credit repair, storage and recovery
Also continuing to drive inflation in the credit hire market are credit repair and the pursuit of storage & recovery charges.
The frequency of credit repair had reached over 40% at the conclusion of 2016, although it reduced to 36% following the winter period. However, it remains well above the 30% presented during the same period for 2016.
Menu pricing is now standard across many invoices presented along with the application of costs for many services which would have been considered complimentary less than five years ago.
Charges for estimating vehicles and subsequently valeting them after the repair completion are just two fees which can routinely achieve a CHO around £60. Sundry items (such as nuts and bolts) that were routinely considered part and parcel of any repair job are now individually charged, alongside sweeping vehicle computer systems both pre and post repair.
To compound the above, labour rates have steadily increased to a now average of circa £45.00 per hour.
Having taken advice, Keoghs’ view is that some of these charges are not always applicable and in instances where they are, the price is often inflated. That said, the market post-Coles has created an atmosphere where in order to compete, every last penny counts.
This upwards trend in credit repair was initially driven by a small number of credit hire organisations following the Competition and Markets Authority review of credit hire. However, increasing numbers of CHOs are now following suit in driving such charges into their own credit repair models which is now resulting in credit repair averaging over £2,200.
Sitting in conjunction with this increasing credit repair frequency is a sizeable shift in the number of cases where storage and/or recovery is being undertaken by the Credit Hire Organisation.
Within the Non GTA environment almost half of all cases presented in the first half of 2017 involved a storage and recovery claim with GTA companies now pursuing this head of claim in increasing numbers.
In most instances the claims for storage and recovery are inevitably disputed as the vehicle is driven from the scene of the incident only to then need to be collected after a period of use and a conversation with an FNOL handler. In some instances, the recovery of the vehicle is part of the offering of service which undermines its requirement at all.
In terms of costs the storage and recovery market is the most volatile of all. Despite guidelines from the Auto Body Professionals club, recovery can range from £100 - £300 with storage from £15 – £35 per day.
The application of dates for when storage should be charged range from the point at which the vehicle has been deemed a total loss all the way until the settlement cheque is in hand. Some CHOs have even started to charge recovery in repairable cases where the CHO has elected to recover the vehicle to a premises of their choosing before moving the vehicle on to a repairer.
The question I posed at the start of this article was whether discussions between market participants were reflective of the current market conditions.
Whilst some of those CHOs undoubtedly are able to support their position, there are just as many who will implement sharp practices and processes (dependent upon the insurer they face) in order to maximise their potential claim. It is that juxtaposition which continues to drive the negative image of credit hire operators within the insurance sphere.
The point at which a credit hire company is able to differentiate themselves from the crowd is the point where they will be able to demonstrate the management of hire periods, the mitigation of claimants and the reduction of repair costs in line with that of the insurers they present claims against.
However the question remains that if a credit hire company takes all of those steps to achieve the reasonable claim every time what benefit do they obtain?
Associate, Client Support Manager
T: 01204 672224