Review of the Quarter: Credit Hire AWARE 4

I’ll start my review of the quarter by dealing with the Competition Commission (CC) and try, at a high level, to summarise where we are in terms of progress. In the last couple of weeks the CC revealed their error in the calculation of the proposed detrimental cost to the average insurance premium as a result of credit hire. It is important to remember however, that this investigation is not restricted to replacement vehicles.

The error specifically related to direct hire rates and the application of VAT. As we know this is already a point of contention, as some believe the comparison between direct and credit hire rates to be fundamentally flawed; the argument being that the calculation of the two rates is not comparable. The main bone of contention centres on the fact that the rate for credit contains a number of additional services that the rate given to the man on the street does not.

Insurers would argue these are irrecoverable benefits, but it is easy to see why the debate rages on. The CC had previously estimated the annual cost to the consumer to be in the region of £150m. This has now been downgraded to £120m due to the VAT issue. While this means the annual impact on premium moves from £8 to £6, (although some in the market believe it is £2.50 at best); the prize is still seen by the CC as significant to the industry at £120m.

What becomes increasingly obvious, however, is that the resolve of the CC to bring change to the market has not weakened. Personally, it appears to me that the time is fast approaching when some insurers, CHOs, brokers etc will ask themselves, “Shouldnt we have prepared for this sooner?” The challenge to the provisional findings has been widespread. This is not just confined to credit hire but also in relation to the quality of repairs, and the application of standardised repair costs.

I share many of these concerns, and would urge the CC to think more about a considered and consultative feedback process to the proposed remedies, as opposed to the short-term deadlines put in place to date. This would surely mean a more qualitative industry engagement which, at present, is difficult at best. Nevertheless, there is seemingly an element of common ground to certain aspects of the proposed remedies - though these are far from unanimous:

• Primary legislative change looks challenging at a time when we are on the verge of a General Election. If you look at current political battlegrounds, priority is likely to be given to changes to healthcare, education, pensions, cost of living and energy. Primary legislative change would be required to amend the RTA (1A or 1B), and / or remove a claimants right to recover damages (1A).
• As a consequence, changes are therefore likely to be put in place via enforcement orders, with challenges around the lack of regulation in the CHO market to police these measures.
• The investigation would need to include commercial policies and motor cycles. Any remedy is almost impossible to implement without these amendments.
• As Remedy 1B seems to hold a number of potential pitfalls for the consumer, Remedy 1A is seemingly the front runner almost by default. Indeed, all lobbying I have witnessed to date suggests that this is the case, and there are thoughts suggesting 1A could be implemented under sections of the Enterprise Act.
• The main industry divide on 1A is the matter of subrogation, and whether this can be applied. Some see 1A as a rating point achieving reduction on transactional cost, whereas others believe subrogation is key to a competitive market that the consumer will ultimately gain value from.
• Remedies 1C to 1G look to be supportive measures to 1A - with general concern around circumvention. 1G (referral fee ban) is the enabler to reduce hire rates via a cap (1C), but the ban would have to include credit repair and provide clarity on the definition of ‘referral fee’.

Oral hearings have taken place and, as an output from those, we were provided 10 additional questions. These were, in the main, supplementary questions to those we had seen before. The deadline for responses was 20 March and we anticipate provisional remedies to follow in early summer. It is likely that responses to these will again be confined to the two week windows we have seen to date, with the potential for a final round of oral hearings.

Our engagement with the ABI throughout the process, and attendance at the last members’ meeting, has meant we have discussed the issues with many clients. If you would like more detail however, please do not hesitate to get in touch. I will be covering this area in more detail at Keoghs’ Credit Hire Fraud Seminar. Away from the PMI investigation we have seen significant activity in the hire and repair markets.

The quarter has seen a rise in Quindell’s share price and market cap beginning to achieve the results many thought it would. Quindell is obviously far more than a provider of replacement vehicles; but this is an area in which, especially during the last quarter, they have become more prevalent.

Their credit hire market share has also almost doubled in the last few months with new contract wins cementing their position as the third largest volume provider in the country. My opinion on what happens next is that, considering the ambition of the individuals and companies involved, and the enhanced cash flow the collaboration protocol will fund, more growth in this area could follow.

We haven’t yet seen the implications of the creation of Compass Law on the market; my gut feeling is we will find out a lot more about them in the next 3-6 months. In the last month two significant acquisitions have stolen the lime light; firstly Helphire’s purchase of New Law. There was an existing relationship between the two already and so the deal makes sense in many respects.

The group has gone through a great deal of consolidation in recent years and this very much keeps them on the up. It’s important to remember that only Enterprise provide more credit hire volume than Helphire and a greater visibility of the New Law joint ventures will only serve to cement this position. What isn’t clear at this stage is how this acquisition will shape their litigation and personal injury strategy. The Innovation Group have also made an intriguing acquisition of Crashworth - for a figure reported to be around £10 million. This has caused ripples at many of our clients, with the vast majority wanting to know more. Indeed, I have been asked more questions about this than anything else in the last month.

From my perspective, credit repair is an area that requires some redress. The cost of these repairs and the impact credit repair needlessly has needs improvement. The non-GTA market has continued to be a thorn in many insurers’ sides. Keoghs have produced what we believe to be a unique offering in this area that allows us to track trends, compile a compelling suite of end to end MI, but crucially tackle this area.

The speed at which these organisations flex strategy and approach is, at times, quite remarkable. Piloting a number of clients in this area is showing just how individual insurers are targeted. Many of these hires are provided in conjunction with PI via the portal, with volume - at least anecdotally - on the rise. Any strategies insurers employ must consider this. From what we have seen in the last nine months, it is imperative that insurers understand the tactics employed against them in these pre-litigated areas.

With this in mind, and in order to add even more value to our clients, Keoghs’ ‘Know Your Opponent’ (KYO) strategy has been particularly successful since it was pioneered over two years ago. For more information on KYO, please contact Don Clarke who will be happy to provide guidance.

Finally, we have now compiled our MI for our end-to-end credit hire service for 2013. Keoghs are now handling over 23,000 claims per year, with our data ranging from pre-lit GTA claims up to our two successful Court of Appeal (CoA) cases.

To receive benchmarking data on litigation rates, indemnity spend (pre or post litigation), or by CHO please contact me.