Insurance Post

Credit hire sector right to fear OFT move

The credit hire sector stands to be the biggest loser if the Office of Fair Trading pursues its provisional decision to refer the private motor insurance market to the Competition Commission for a full scale investigation. And it is right to be fearful.

motorinsuranceIt is hard to see this not going to the Competition Commission given the political, consumer and industry consensus that an inquiry will benefit the sector and drive out unnecessary costs. The OFT is gathering views on its initial report and recommendation up until 6 July but, so far, only the credit hire sector has come out strongly against a full-scale inquiry. The Credit Hire Organisation will have an opportunity to make a last ditch stand a few days ahead of that deadline when it meets the All Party Parliamentary Group on Insurance & Financial Services on Tuesday 3 July. Frankly, this is unlikely to move opinion very much and will probably serve to identify to the credit hire sector the ground on which it will have to do battle once the Competition Commission gets its teeth into the issues.

The spokesmen for the sector will certainly have to come up with better arguments than they have managed so far. Casting doubt on whether an organisation like the Competition Commission is capable of conducting an inquiry that will produce useful conclusions is not a good way of making friends and influencing people. The credit hire companies need to understand the vulnerability of their position. This is not a sector with the most secure of business models and many firms in it operate on tight margins: squeeze those and it could be very painful.

Instead of arguing that an investigation isn't needed, the credit hire representatives coming to Parliament on 3 July would be better advised to start rehearsing their arguments for what they would like to see come out of the – almost inevitable – investigation.

It will also be interesting to watch over the next few weeks is the pressure the OFT could come under to widen the remit of its referral to the Competition Commission. At the moment, it is quite tightly focussed on credit hire and repair costs but could probably benefit from being broadened out to include some of the other cost pressures insurance companies finds so difficult to deal with, such as the role of claims management companies and their close associates among claimant solicitors.

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