As seems to be the norm these days I have to start this section with a review of the CMA.
I was taught to read documents of this nature several times in order to fully comprehend the contents. Whilst each read does indeed lead you to spot further snippets of insight, it does not answer the many questions the vagueness of the document still provides. From where we could have been today, most insurers we deal with feel an opportunity has been missed and that the credit hire market are probably happier than they are.
The CMA has given timescales that could take us to mid-2016 to realise these changes and we appear to be looking at June 2015 at the earliest before these can be implemented due to the, “complexity,” and, “exceptional circumstances,” surrounding the rate cap. What we do know in relation to credit hire is as follows:
At this juncture, the CMA does not provide much detail on many of these points, nor how they are intended to work in practice. As a consequence, this uncertainty makes a qualitative response difficult. Examples of the most common questions we are being asked include:
The answer to most of these questions is that it is just too early to tell. We are however, able to make an educated view on some.
We are already aware what the proposed low rate cap is, and that it will continue to be subject to lobbying from CHOs. The industry seems to accept a low rate in practice but the 50% of the GTA rate being touted has caused CHOs concern. The CHO Trade Association met on 1 July to review the report. My view is that we will not end at 50% based on where we are today, but we will be under GTA for the low rate, perhaps 70% of it.
Three days to make a liability decision seems a bizarre recommendation. The CMA accepted 1B was going to be difficult to implement for numerous reasons, and cited one of the reasons as respondents opposing this remedy on liability processes: “Practical difficulties where liability is uncertain or split. At-fault insurers would be required to make quick and uninformed decision on whether to accept liability without the benefit of any detailed evidence.”
Three days is at odds with this statement and also with the 15 days to decide liability as part of the MoJ Portal. Whether there is a view from the CMA the information provided by CHOs is materially different to that in the Portal to enable this to happen, remains to be seen.
When looking to decide whether an admission prejudices other heads the answer is unclear in the decision document. The scenario is referred to when the document deals with an insurers’ requirement to pay the hire for the period liability is admitted at the low rate: “If the at fault insurer accepts liability within a short period (we propose a period of three days from being informed a replacement vehicle is being provided to the non-fault claimant) a low rate cap will apply. In this scenario the at-fault insurer is committed to paying for the replacement vehicle regardless of any subsequent change to liability (eg with relevance to a repairs claim or a personal injury claim).”
This would suggest they do not propose the decision to be binding, or at least an insurer can reverse a liability admission (as the document does discuss) however, claimants may feel that is an answer best decided by the courts? With a lack of judicial guidance one can envisage disputes in this regard. There is yet to be any clarity on the level of late payment penalties that will apply, although the CMA sets out how they plan to, “incentivise settlement within three months.”
This is one of several adoptions from the present GTA including the concept of first to the customer and monitoring off hire. Although the CMA hasn’t seemed to recognise a significant amount of the dispute on duration within the GTA is not over off hire; it is the delays during the period and the interpretation of sections such as 4.14 of the agreement and booking in of driveable vehicles. Also, at a time when insurers are implementing BACS, CHAPS and even Faster Payment, is seven days the right period after a total loss?
An area where the GTA interpretation is not clarified as the go-forward is the classification of exclusions by vehicle. The CMA sets out, despite fairly unanimous lobbying for the remedies to apply to all policies (commercial and private), that it will not do so: “Several parties have suggested to us that, as the proposed remedies under ToH 1 only apply to PMI, they would distort other areas of motor insurance (eg commercial motor insurance), because claims arising from different market segments have an interconnected relationship.
“For example, where an accident concerns a non-fault commercial vehicle and an at-fault privately-insured vehicle, our remedy would not apply; but where it concerns a non-fault privately-insured vehicle and an at-fault commercial vehicle, our remedy would apply.”
The answer as to what is a commercial vehicle is unclear. Could it be a truck, a transit van, a car insured on a company fleet? Or is it dictated by the type of policy? This needs to be clarified or else the impact is not just potential ‘distortion’, it is that the cost will be seen for insurers who have to make these decisions at FNOL that looks set to become increasingly complex.
On the point of subrogation I have heard many comments that have been very much made tongue in cheek, but I think this has been done because in all seriousness they again haven’t quite grasped it. The CMA suggests the cap applies, “at the point of subrogation to the at-fault insurer.” Indeed, the CMAs own definition of subrogation states: “We note that, although not the technical legal meaning, the industry uses the terms subrogated bills, invoices or claims to refer to the documentation sent by subrogated parties (eg non-fault insurers who have indemnified a non-fault driver on the basis of their comprehensive policy) to fault insurers. We have used this shorthand terminology throughout the report.”
Does this sound like credit hire? More clarity please.
There is much conjecture as to what this will mean for compensators in the short and medium term, with the most common views being:
The present position is fraught with unknowns, and the clarity around those will inevitably shape the processes to come. Responses to the CMA were due on 4 July with final decisions expected in September.
Away from the CMA other market news of note relates to Quindell.
Following the shorting activity on their shares, last month saw the share price suffer further, with the cause likely owing to failure to secure a main listing. Robert Fielding has taken the helm as Group CEO with many looking on to see whether this will bring any change in how Quindell interacts in the market on credit hire and PI claims. Quindell is the largest organisation in the portal based on volume of CNFs and the third largest CHO.
With ever increasing new claims volumes in Keoghs’ pre-litigation teams, we are in the process of providing client benchmarking data on performance but also the most common reasons for claims not to be settled. After liability as the primary area, we have seen increases in claims where there are issues with time to inspect; specifically where the CHO then points to 4.14 of the GTA as the mitigating factor for recovery of charges.
My experience tells me CHOs quote this section when the engineering has fallen down, they do not tend to split processes by credit repair and total loss for inspection as it is too costly to do so from a process and supply management perspective.
We are continuing to engage with the engineering companies globally on such claims in a bid to understand why their version of the loss of use doesn’t match the CHOs. This is complemented by our investigations into why some engineers are failing to procure the best labour rate and discounts for CHOs / hirers when they authorise credit repair. Some independent engineers who have their fees paid in part by insurers are currently wanting us to point our enquiries at the instructing CHO. We are continuing to try and understand this with them. In addition we see a continued appetite to provide vehicles aged over six years to an equivalent GTA group.
The courts have shown interest in Keoghs’ approach when we compare claimants’ vehicles to a proposed suitable replacement in a ‘comparison table’ looking at aesthetics, performance, economy and spec. Surprisingly, in evidence claimants are also agreeing with this approach despite going through a process of mitigation at FNOL.
Finally, we have seen a noticeable increase in attempts by some GTA CHOs to recover over-hire over the 24 hour period on the grounds of reasonableness. Interestingly, rebuttal of this stance is faced with a threat of litigation. In all of these disputes however, when we respond with the robust average recovery data within the GTA vs that via litigation, the majority of these are falling away from the CHOs concerned. This shows the importance of such data as part of an effective negotiation tool.
John Gibson
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