With the tenth anniversary of Dimond v Lovell approaching, Post hosted a candid debate on the issues surrounding vehicle provision in motor claims. Jonathan Swift reports.
As the tenth anniversary of pivotal credit hire case Dimond v Lovell approaches, the issue of vehicle provision in motor claims remains as prominent as ever on the list of challenges facing the insurance market.
With this in mind, Post — in association with Enterprise Rent-a-Car — gathered together a group of claims managers and industry figures to explore whether the insurance sector has learnt any lessons during the past decade and discuss where the future of vehicle provision may take us.
Kicking off the debate, Axa Insurance claims director David Williams said the noughties were marked initially by “a tacit acceptance” of credit hire, although this changed as the decade wore on and the behaviour of some credit hire operators began to tarnish the image of the entire sector. “There are some operators that, if they went bust tomorrow, I would leap for joy at their passing. But there are others we now have better relationships with than ever before. The problem is we only talk about the adversarial elements,” he commented.
Aviva director of motor claims Andrew Morrish interjected: “It is a binary thing. Do we like the cost? Absolutely not. But as an industry I would agree with David that there are some providers who are almost intent on creating a bad name for the industry and probably carry too much voice in swaying opinion. Yet there are volume providers in mobility provision who are behaving sensibly and we work reasonably closely with.
“Over time we have seen a deviation in that market, as insurers have got more sophisticated. Ten years ago we would have reluctantly agreed to pay a CHO but didn’t want them to last very long. Since then, we have come to a different view and now find ways of working with some providers in a more sustainable way. I don’t think it is a case of one-size-fits-all.”
Royal Bank of Scotland Insurance director of fulfilment and supply chain Chris Wilson agreed there is no simple “them and us” strategy, while the Association of British Insurers’ assistant director of motor and liability Justin Jacobs commented: “What we have seen is the natural cycle when you face a challenge. You start with a denial of the problem, then you go through anger and confrontation before you reach a point where you try to find common ground.
“Then it is case of ‘what comes next’ and whether we can arrive at a whole new world or not. But when you look at the past 10 years, it has become much more than a claims issue; credit hire is now an integral part of business decisions, whether in terms of product development or the differences between broker and direct pricing. It started in claims but has spread out.”
Looking ahead to a potential ‘new world’, Mr Williams commented: “I honestly believe there are a number of claims changes ongoing, such as the Jackson review and Ministry of Justice reforms, that are going to alter aspects of the market — meaning we may not have the same levels of fees involved.
“So, CHOs may come to the opinion that, by working with an insurer, they will make their business more efficient to the benefit of the man in the street. And, as a consequence, they will have a greater chance of retaining or obtaining new investment, as well as access to credit, which are important when you need to buy vehicles to run a business. If they are running inefficient business models, they will always be looking to add on cost.”
Provident claims director Adrian Furness expressed the view that it was almost impossible to imagine a situation where insurers did not come across CHOs because there are already so many “fingers in the pie”.
“We can talk to other insurers about the issue, but we also need to involve brokers, providers, supply chains that offer hire cars and accident management companies,” he continued. “I am not trying to be difficult — because at Provident we also took the view that it is not a case of one-size fits-all — but even the cost of dealing with those we think are better at providing a service to the end customer far outstrip the costs of us being able to sort out the claims ourselves. “Until we get that cost narrowing it is very difficult to imagine a situation where we can starve some of the suppliers out of the market. Because for me that is where we were pre-Dimond; we thought we could starve some of the providers out of the market. But they survived and that is the danger now.”
Towergate claims director Simon Gifford offered what he considered “a different view” of the past 15 years, in that the reasons CHOs remain so prominent is that insurers have failed to meet customer demands with regards to motor products: “During that time customers have been telling us what they want and we are still not delivering. So, whether it is an adversarial situation or not, the product we are selling the customer is not the one they want — which is why CHOs are still in business, whether they are milking the market for all they have got or not. “If you are going to break the cycle you need to give the customer what they want, which is — fault or non-fault — access to an equivalent car.”
Breaking competition law
Mr Williams noted this raises the issue of breaking competition law — in that if the market reached a consensus to do this, purely to cut out credit hire, the CHOs could take action against the insurance industry en masse. Instead, insurers needed to act independently to fill this customer gap: “We have got to look at the monster we created and look at the impact on the man on the street that is paying over the odds for the service. The question is, who is going to go first?”
Mr Furness agreed: “Everyone around this table has to do it to make it work, otherwise there is no advantage.” Mr Gifford said he believes that, if the market could fill the gap currently occupied by CHOs, car insurance would be cheaper because providers would no longer have to pay the chunk of premium going into the providers’ pockets.
However, Mr Jacobs shared the fact that, having personally tried to purchase a policy with a like-for-like replacement vehicle recently — which he would happily have paid more for — he found a dearth of options, adding: “I feel insurers must not believe the demand is there.”
Mr Williams responded: “We have done work to see what the take up would be and customers still imagine they are never going to be involved in a collision. So, insurance providers continue to be focused on price and being on the first page [of an aggregator website].” Mr Furness added: “But even if an insurer offered it free of charge, it would be a cheaper product than what we are paying for now, because the cost of supplying the service is cheaper.”
At this juncture, the issue of changing policyholders’ perceptions was raised and the fact they currently have no vested interest in their vehicle being repaired quicker — despite hire days costing their insurers significant sums sometimes. Mr Gifford commented: “Why would customers worry if the repair takes an extra fives days if they have use of an equivalent car? Is the customer likely to say ‘I am not happy with the hire period being elongated, so I am going to give the car back’? No. Unless there is a change in behaviour, or change in product, it is not going to happen.”
Despite wanting a like-for-like replacement himself, Mr Jacobs noted that for some customers alternatives may be the preferred option: “If you are talking about mobility, we need to ask the customer — if they do not use their car much — whether they would be better served with the use of a taxi, or interested in the use of a lower-value car plus some shopping vouchers, which may still cost less. The focus seems to be on getting the right car, which may not be the policyholder’s priority.”
Talking about mobility Mr Wilson, who is a relatively new entrant to the insurance sector, added: “We are definitely talking about mobility here. And, to use a sporting analogy, we used to act like rugby teams — the referee was there to keep things smooth and it was mostly good practice. But now we have moved towards a football situation where it is more a case of how much we can get away with, and people are diving in the box.
“So, companies have looked at mobility and thought ‘we can make some money here’, whether it be repair, salvage or personal injury. Yet if we can get back to more of a rugby mentality — where people look after each other’s money like it is their own, and we said ‘no matter what happens we will look after you’ — costs would come down. That would kill the non-fault market because we are generally the people they call first.”
Considering one option, which has already been tried in attempts to reduce the cost of credit hire — bilaterals — Mr Morrish said: “My view is that they do work. But I don’t think we ever thought they were going to be the silver bullet.
“We thought they might start to moderate insurer-to-insurer behaviour and, at the same time, allow us to differentiate our approach to other insurers. But are bilaterals going to solve everything? No, because we know the majority of mobility decisions are not made by insurers. So it is a part solution, and a sensible one for insurers to embrace. But it is not going to solve the overall problem.”
Ecclesiastical technical claims manager Andrew Brown added that, while bilaterals help moderate behaviour, insurers are still not actually trusted by the public; people may prefer to rely on someone other than an underwriter to supply a mobility solution. Mr Wilson continued: “You make a good point there because, although we as insurers only currently control around 40% of the vehicles, we pay 100% of the bills. And that is somewhere we believe we can make a huge difference.
“In a market where many elements of a CHO’s business have been squeezed by interest rates, we have not helped ourselves in the past by generally being poor at paying our bills. So we had extra penalties and were giving them additional sums of money, or doing debt deals.
“Our experience has been that, by investing a lot of time and resource into that part of the process, we are now paying what is due and fair. Getting that sorted, just paying them what they are owed to the last penny, is having a big impact on the companies we deal with. By doing this, we are removing another part of their cost base, which means they have to get more efficient.”
Mr Furness cited the example of one listed CHO who told the City that it was making £1.20 for every £1 the insurance industry billed, and that if it could get this to £1, or to an even better 90p, there would be big savings to be had. Reflecting on this Mr Williams added: “Some companies do want to do deals, but others have racked up so much debt they want to pursue every last penny through the courts just so they don’t have to tell their naive investors that the huge amount of money they keep telling them they are going to get does not actually exist. But there are very different approaches — some are less focused on cash flow and more focused on pursuing money. And they are the ones causing us problems.”
Mr Morrish then said: “At Aviva, we invested in more than 100 people to manage the cost of incoming claims because, although there are CHOs looking to make £1.20 for every pound, there are others saying they are willing to trade that 20p for cash flow.”
At this point, guests agreed that having the right data is important to pinpoint the “sensible players” worth doing deals with, although Mr Furness predicted there would be more litigation in 2010 than in 2009.
Returning to the issue of the general public and whether they are aware of the potential for premium increases if some behaviours go unchecked, Mr Williams said the industry had to avoid appearing “too heavy-handed”. Mr Wilson noted that many policyholders would view a hire car as a “perk” having paid out premiums for years, while Mr Brown went as far as describing it as “free” in the customer’s eyes.
Not adding enough
The problem, according to Mr Morrish, is that credit hire is not adding enough to premiums to make a difference — pointing to the Irish example where motor insurance only became a major issue when it became prohibitively expensive. Citing a recent report from EMB, which claims premiums would have to increase by 20% for the motor market to return to profitable stability, Brendan Keane, who looks after insurance development at Enterprise Rent-a-Car, asked where the tipping point could be. “If we carry on with bodily injury the way it is shaping up, we might see something that will drive change,”
Mr Morrish commented. “Mobility on its own is not painful enough and does not add enough to the costs. We’ve invested in capability, are seeing some moderation in behaviours, and will see the trickier players drop off or become marginalised. I am not as worried by mobility as I am by the other farmed components of claims.”
Mr Jacobs agreed: “As far as customers are concerned, they are not seeing an increase in the price they are having to pay so there is no dynamic there. If the market started seeing large increases then the industry would have to be ready to have conversations about what the solutions are. But they are not there.”
Commenting specifically on winning the insured’s trust back, Mr Morrish said: “I think we have got into the habit of making customers think making a claim is bad thing. It isn’t that they don’t like their insurance company but if customers can avoid claiming and get their money from another source, they will do that. This is perpetuated by no claims discounts, where the message is that ‘if you claim, you may have a problem getting insurance, or the cost will go up’. We must understand the risk to us of customers going elsewhere.
“Because the 40% of claims we think we can control — that we manage via bilaterals and that don’t go into a regime we don’t like — that will erode away systematically over the next five years as others get their noses in the trough. Companies that have greater customer allegiance will start to make more headway. This is not simple because we are insurance companies, it is because of the language and behaviour we use.”
This prompted a range of comments — with Mr Jacobs pointing to the MoJ reforms that call on customers to notify insurers early, while the role of the broker was mentioned by Mr Brown who talked about them reclaiming their customers. Mr Furness added it is imperative underwriters inform intermediaries about the impact they could have on claims costs. “Will it be enough for them to turn down the referral fees?” he asked. “Maybe not. But by trying to work on different models with some joined-up thinking, there could be wins for everybody. Those conversations are ongoing and brokers are more receptive.”
Replaced income stream
Mr Gifford was more circumspect, commenting the “cat is out of the bag” with regards to how much money could be made from referral fees and add-ons, given that few brokers make much money from motor insurance products. He asked whether insurers are prepared to replace this income stream by offering discounted premiums or higher commission, concluding: “If you don’t, we will be here in 10 years time, talking about the same thing.”
As to future developments, Mr Williams offered a scenario where the likes of a major motor manufacturer, such as Mercedes, could become a CHO because the technology is there via telematics for it to know instantly when one of its cars is damaged. “I am pleased it has not progressed that far yet,” he concluded, although Enterprise Rent-a-Car vice president of sales for UK & Ireland Don Moore suggested this could soon become a reality.
He explained that, in the US, General Motors has its ‘On Star Vehicle Diagnostics and Advanced Automatic Crash Notification’ system, which makes crash data available to participating emergency centres and helps dispatch appropriate personnel and equipment to crash scenes quicker. It isn’t too far-fetched to assume they could also phone and offer a replacement vehicle.
Time will tell.
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