With the current controversy in the credit hire market regarding spot hire rate validation, Daniel Dunkley reports on the far-reaching and damaging impact and outcome this could have.
There is rarely a dull moment in the credit hire market. Credit hire firms are often the subject of contention and controversy within the insurance industry, and recent developments have placed scrutiny on Autofocus, a company used by insurance companies for spot hire rates in validation claims (Post, 24 September, p3).
When insurance companies fail to respond to an innocent driver's need for a vehicle following an accident, CHOs often step in. The costs then attributed to the insurer of the 'at fault' driver by credit hire firms can lead to lengthy legal disputes between insurer and credit hire firm, over what is an appropriate rate.
On 17 September, a case involving credit hire firm Accident Exchange was postponed due to concerns over evidence provided by Autofocus, with the latter providing rates deemed to be inaccurate and below value by the former.
The implications of this case are potentially far-reaching, with insurers allied to Autofocus possibly facing a review of cases they have won. These concerns, if realised as genuine faults on behalf of Autofocus, could re-open a wide number of credit hire cases, setting back any progress made between insurers and credit hire firms on the issue of cost settlement.
Litigation, however, remains a common occurrence, with insurers and CHOs continuing to battle over the costs incurred by replacement vehicles and other services offered to innocent drivers following an accident.
Anthony Hughes, president of the Forum of Insurance Lawyers, says credit hire issues are as contentious as they have ever been. "Over the past couple of years we've seen a return to the bad old days, whereby there are an increasing number of disputes about credit hire. Insurers are seeing this as an ever-increasing problem, and their indemnity spend has gone up significantly. We've seen insurers such as Axa leaving the general terms of agreement. Although this was a non-binding agreement, the trend of companies pulling out of that shows the current attitude towards the problem."
Credit hire firm Helphire says it will begin its own investigations as a result of recent developments. Group technical director Alan Gilbert states: "We are starting our own investigations as you would imagine we would. If these cases come to court we will seek more disclosure. Insurers have the right to find this evidence, but if companies have been manipulating to get better results and more business, then it needs to be exposed."
Axa, despite withdrawing from the industry's general terms of agreement, remains convinced of Autofocus' merit as a trustworthy provider of spot rate data. David Williams, Axa claims managing director, told Post: "We have absolutely no problems with Autofocus and we will continue to use the firm where we think it is proper. We have always found Autofocus to be completely and absolutely professional and very thorough. Anybody suggesting that we have withdrawn from the GTA because of Autofocus data is barking up completely the wrong tree." (Post, 1 October, p1).
Niall Edwards, a partner at Halliwells who acts for the defence on the side of insurers and claims handlers, suggests the motive behind CHOs questioning hire rate data is to force insurers to pay out of court agreements. Mr Edwards also suggests the economic environment has been a crucial factor in the rise of disputed claims.
He says: "This whole crisis is set against the background of the economic downturn. As a result, CHOs are taking a more radical and risky approach in litigation, and are taking it further then they would otherwise have done, as if they think they can scare money out of insurers."
A risky strategy?
Tony Baker, director general at the Accident Management Association, which numbers Accident Exchange as a member, disagrees: "I don't believe it is a risky strategy for Accident Exchange to have this approach. They have mentioned it in stock exchange announcements and elsewhere. They have made it clear they have checked a sample of Autofocus reports, that they have found issues of which they have grave concern, and have had settlements paid in full when they started questioning the Autofocus evidence. There is a considerable issue here. At this stage, however, nothing has been proven."
Mr Hughes says the number of disagreements has seen a spike in the recession, though the disagreements preceded the credit crunch. "These problems were evident two years ago, in terms of the disputes between insurers, they may have taken a different turn due to the economic downturn and the availability of funding for the CHOs, but that is a different matter. Unless there is a change in the way alternative vehicles are provided, then we won't see a dramatic change."
Mr Hughes suggests that the declining fortunes of credit hire firm's balance sheets has left them looking to recover money from financial institutions. "Any business that has a cashflow issue could well struggle. Where there are disputes, then inevitably CHOs are going to look to funding from financial institutions. The CHOs want to recover as high a proportion of their claims as they possibly can. If they believe they are being unfairly treated in terms of evidence presented, then I'm sure they will take a very hard line on that, but at this stage we don't know what will happen."
Mr Edwards agrees and believes Accident Exchange is looking to force insurers to pay money it claims it is owed more quickly than they may otherwise have done. "The game plan for Accident Exchange at the moment appears to be to try and sweep Autofocus out of the way in court as quickly as possible, raise the threat of trying to re-open older settled cases and then try and scare money out of the insurers against that threat."
Mr Baker says there are huge implications if Autofocus' evidence is found to be less than adequate: "There are significant implications for companies that have used Autofocus if its information is proved to be incorrect, as there will have been cases settled using Autofocus' data that is now thrown into question. Also, there will be the issue of ongoing cases, as well as what you do in the future if you want to challenge rates in court, how do you produce evidence that is robust?"
Mr Edwards says the insurance industry has traditionally been too reliant on a handful of firms, and that the current storm could reduce the dominance they have had in providing spot hire rates validation.
"The insurance industry as a whole has placed too much reliance on too few hire rates evidence providers. There has been some movement away from that in the recent past anyway. People have been producing their own evidence from internet derived rates of hire, and covering statements, and any number of other smaller loss adjusters have been providing similar rates evidence.
"With the questions from Accident Exchange over Autofocus' data, it is likely that other providers of spot hire data may prosper, and that insurers themselves may begin to explore the possibility of using in house methods of collaborating data," he states.
Mr Hughes says insurers would be more inclined to look at sourcing spot hire rates from alternative sources, if Autofocus' evidence is found to be insufficient. "This would happen inevitably. I'm sure that if there is found to be a problem with the Autofocus information, then insurers will look to attain appropriate information and good faith elsewhere."
He adds Foil and the Motor Accident Solicitors Society were looking at a process to standardise evidence used in credit hire court cases. "We are trying to create a dialogue with Mass to try and come up with standardisation of evidence that goes before the courts. This would get around the problems suffered at the moment, where there is a dispute on what evidence should be presented to the court."
Mr Edwards says insurers are now more likely to look to their own resources, but suggests such action is unlikely to be imminent. "Insurers may want get together and recruit in market researchers and people from the hire industry and put together their own alternative sources for hire rates evidence, but I can't see that happening for the moment. It's a real shame the ABI couldn't perhaps create a database of regional spot rates of hire akin to the first tier hire rates database which hopefully the credit hire industry and courts would respect."
ABI spokesman Malcolm Tarling says: "It is a commercial decision whether insurers will look to alternative sources for spot hire rates. Companies always want to get the best deal, to make sure they are paying a competitive rate for credit hire. The credit hire agreement was there to avoid cases going to the courts in the first place."
If the case against Autofocus develops, the nature of evidence to be supplied in such cases is likely to change. Mr Baker says the level of records kept by companies offering spot hire rate analysis would need to be more detailed in future.
"Companies have chosen to outsource in the past, even with other options. If the allegations against Autofocus are proved to be correct, then it will increase the level of information required to be successful in court. There will be suspicions around any reports lodged in court, and the evidence required will be greater."
Post approached Autofocus to discuss the points raised but no one was available for comment on the Accident Exchange dispute.
The right way of addressing the issue is for a greater of number of claims to be settled under the GTA, avoiding litigation, says Mr Gilbert. "The best solution to the problem is to get the percentage of cases that settle under the ABI GTA to a very high level. We already have a very good, well laid out understanding with a good process of governance for dealing with these cases, and it is the ABI GTA."
Mr Tarling also points to the GTA as a method of tidying up the credit hire issues seen in recent weeks: "Insurers will always look to use any expert advice possible. The GTA is there to smooth these situations out. It is a voluntary agreement and not applicable to all firms. Insurers will always support this agreement, to try and avoid problems over credit hire rates."
However, with Axa, one of the largest insurers leaving the GTA within the last month, the issue is likely to be a hotly contested one for the foreseeable future. For now at least, a comprehensive credit hire agreement remains an elusive one.
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