What is happening to the Credit Hire market?

“An idea, like a ghost, must be spoken to a little before it will explain itself.”

Charles Dickens

The recent announcement that Drive Assist has gone into administration is the second high profile casualty amongst credit hire operators in a very short period of time. No doubt, the reasons for their demise will be many and varied. Fundamentally, however, it is hard to deny that the relationship between the credit hire market and insurers is dysfunctional and needs urgent review.

Any rational observer would have to accept that we currently have a situation which layers costs, thus adding to premiums. Yet, despite the enormous amount of money in the system, and accepting that their problems have been compounded by an economic slump - which has resulted in fewer driving hours and lower claims, the credit hire industry has found it a difficult market in which to operate cost effectively.

When looking at the genesis of the problem, it would be wrong to ignore the fact that the credit hire market evolved to meet an area of need that the insurance market had failed to properly address. However, it was undoubtedly because of the way in which the market developed that the right types of checks and balances, for both sides of the market, were not put in place at an early stage.

In an effort to establish controls, the adversarial environment produced a great deal of satellite litigation, but this was at significant frictional cost - and with patchy results. Eventually, a market agreement was reached through the GTA.

Whilst it is easy to understand why the GTA failed to resolve some fairly substantial issues between insurers and hirers, it is also easy to forget that, at the time, the GTA did provide some much needed stability.

The key problem is that the GTA should have been the first stepping stone to a more conciliatory approach to the credit hire issue and to a more mature relationship between the parties.

For whatever reason however, this unfortunately has not happened to the degree that it should. Accordingly, there remains too much frictional cost in the resolution process, with key issues, such as the differential between fault and non-fault periods of repair and hire and rates, remaining hotly contested.

With the above in mind, the recent publication by the Competition Commission (CC) of their “Statement of Issues” document should be welcomed by both sides of the divide (albeit it is a shame there is a divide at all). It is heartening to see that the remit they have set themselves includes looking into the market dynamics where the supplier of services post-accident does not always bear the ultimate costs liability.

This is analogous to the, “skin in the game,” issue addressed by Jackson LJ in relation to personal injury claims, whose solution has been accepted by the Government and embedded in the approaching civil justice reforms.

In addition the CC also intends to investigate whether any harm is caused by the fact that the beneficiary of post-accident services is different from, and is possibly less well-informed than, the procurer of those services.

It is to be hoped that the CC arrive at a sensible solution to these thorny issues which have caused so much concern for insurers, added to the costs of premiums and helped develop the existing adversarial dispute resolution process in the credit hire arena.

Whilst trying not to second guess the CC’s conclusions however, there are grounds for optimism, and it is to be hoped they will ensure that the non-fault driver and their needs are put back at the centre of a slicker, more cost-effective process.

In the meantime insurers will, quite rightly, have to continue to be more solution focussed and proactive in their management of credit hire claims. They need to continue to concentrate on understanding the behaviours and intricacies of the market that ultimately impact claim spend, and shun those processes that simply focus on savings after the event.