Keeping policyholders on the road after an accident or the theft of a vehicle has driven a number of mobility solutions. But, with consumer sentiment shifting and more options becoming available to insurers, the post-loss mobility market is set to evolve
In spite of a series of legal disputes and reviews, the vehicle replacement market has operated in the same way for many years. Under this, the motorist is provided with a replacement vehicle for the duration of the repair, whether or not it’s the most appropriate solution. “After many years of cases being dragged through the courts, it’s enforced the common law that a like-for-like replacement vehicle should be provided when the motorist isn’t at fault,” says Martin Milliner, claims director at LV. “We do offer alternatives but most people expect a replacement vehicle.”
His experience is in keeping with that of other insurers too. At Zurich Insurance, Calum McPhail, head of liability claims, says that, with first-party claims, 99 out of 100 want a courtesy car when their car is damaged. “We have arrangements in place for these policyholders through our hire and repair networks,” he explains. “When it comes to third-party claims, we always try to intervene to see if there’s another solution. Commercial entities still want replacement vehicles but we are starting to see a shift among personal lines motorists.”
A variety of factors are shaping the decisions policyholders make about taking a replacement vehicle. For starters, attitudes to mobility are changing, especially among the younger generations.
As an example, Stuart Russell, chief operating officer at Slater Gordon Solutions Motor, says he’s seen a marked difference in the way the new generation of adults view mobility-as-a-service. “There’s been a significant decline in the number of 17-30-year-olds applying for driving licences compared to 20 years ago,” he explains. “Ride hailing services are becoming more of a preference for people and insurers need to consider how they respond to this change in behaviour.”
The environmental and sustainability agendas are also feeding into this change in attitude, across all age groups. Milliner says that people are looking for greener options such as car sharing and last mile journey options such as bikes. “There is a societal shift around mobility but it’s still a way out yet,” he adds. “At the moment, it’s very much the path of least resistance when it comes to making choices about mobility.”
Financial pressures are also playing a part in motorists looking for other options. On top of the expense of running a vehicle, more recent costs include congestion charges and residents’ parking permits. As well as deterring some from owning cars altogether, these costs can add to the appeal of rejecting a replacement vehicle and considering a different option.
Plenty of options are already on the insurance industry’s radar. “We encourage our claims handler to understand customers’ needs and suggest other options,” says Karl Parr, claims technical services director at Axa Insurance. “If someone only uses the vehicle once a week or they don’t want to drive a different car, they might want to consider a taxi instead.”
Cabs can also provide a valuable service where someone has sustained an injury and is unable to drive themselves.
Technology is making it more attractive to make this switch. For example, Slater Gordon Solutions Motor offers its customers e-vouchers to enable them to book their journeys through an app and Zurich Insurance has recently finalised a deal with a global provider to provide third-party claimants with vouchers for its on-demand taxi service.
Another option that’s under discussion is a car club vehicle. This might appeal to motorists who only use a vehicle at weekends or simply want the reassurance that they can access mobility if they need it.
But, even in these situations, it isn’t necessarily the perfect solution. McPhail says he’s in talks with car club organisations but admits there are some sticking points. “With a car club, you usually have to pick the vehicle up from a specific point,” he explains. “This doesn’t necessarily work, especially when a courtesy or hire car can be delivered to the claimant’s door.”
There’s a further catch with both of these options too. While service may be good within the M25 and in large cities, get further into the countryside and taxis become more difficult to arrange and car club options disappear altogether.
Mobility solutions under consideration don’t always come with four wheels. Given the growth of consumers’ environmental concerns, green alternatives such as e-bikes and even e-scooters could find their way onto claims handlers’ books.
Russell says he’s looking at other forms of transport such as e-bikes to support the demand for more environmentally-friendly mobility options. “In more rural areas where traditional transports links have been under-invested, the ability to offer e-bike transport may appeal to locals needing to get to shops, doctors or train stations,” he adds.
Cash can also be offered to cover a claimant’s mobility costs. This is more likely to happen for commercial drivers as Emma Fuller, partner at DAC Beachcroft, explains: “An insurer might offer a taxi driver loss of earnings if they’re the third-party claimant. This is attractive for the taxi driver but, as taxi credit-hire vehicles are very expensive, it’s preferable for the insurer too.”
Providing a cash alternative could also work in the wider market, with Fuller saying the economics can stack up in its favour. “If the non-fault driver needs a replacement vehicle that costs £300 to £400 a day, offering them a couple of hundred pounds a day for cabs could work in each party’s favour,” she adds.
Other financial incentives could also be put on the table. As an example, rather than a simple cash transaction, the non-fault policyholder could be offered a reduction in their renewal premium if they didn’t exhaust the fund.
Milliner has reservations. “It’s possible but the financial accounting would be tricky,” he explains. “How do you translate a pot of money into premium? It’s very complex and it would be difficult to make it transparent.”
Consumers’ lack of trust in the motor insurance market could also hamper this approach. Alongside fears that any proposed reduction might be negated by an increase in the renewal premium, consumers could also be nervous about the prospect of being tied to an insurer at renewal.
But while there are potentially flaws in this approach, insurers are alive to finding new options for post-loss mobility. “The industry does seem to be stuck in a process where a replacement vehicle is always provided,” says Parr. “With consumers looking at more environmental approaches, we must do the right thing by them and broaden the options we can offer.”
This search for new post-loss mobility options is being intensified by a change in the UK’s car pool. As more electric and hybrid vehicles appear on the roads, insurers need to factor in how they cater for these motorists if they require mobility post-loss.
Insurers admit it’s not always possible to provide them with a like-for-like replacement vehicle. “We do have access to electric vehicles and hybrids but we probably wouldn’t be able to offer one in every situation. Mobility is key so we would look to offer an alternative,” explains Parr.
Rental and credit hire companies are addressing this by building up their EV fleets but Nick Mohan, managing director at Jackson Lee Underwriting, says it’s not easy to meet demand. “Many motor manufacturers haven’t had a product offering until very recently, especially for pure EVs. This makes it difficult for the supply chain to support demand,” he says. “Where we can’t provide a pure EV replacement, we’d offer a hybrid, and if this wasn’t possible, we’d suggest cash in lieu.”
Others have found that the range of mobility options they can offer to drivers of EVs are much more restricted. “Environmentally conscious motorists will not want to drive a replacement, even temporarily, that burns fossil fuel,” says Russell. “Our customers are already beginning to tell us this. We’ve increased the number of electric and hybrid vehicles we carry and we’re working closely with our rental partners to ensure we have capacity and coverage.”
Some of the pressure is likely to be taken off in the next few years as more electric and hybrid models roll off the production line. This will be accelerated as preferential company car taxation rules for EVs are introduced in April. Under these rules, anyone driving a pure electric company car with zero tailpipe emissions will pay no benefit-in-kind tax on it, making these vehicles a much more attractive proposition.
As well as tackling supply issues, EVs also introduce new challenges for the insurance industry. Kirsty McKno, chair of the Credit Hire Organisation, explains: “Dealing with an EV in an insurance claim requires a new and emerging skillset. In many cases the battery is leased so you would need to assess its pre-accident value and present this to the finance company to discharge the debt. Some motor manufacturers impose additional conditions too, for example Renault requires its batteries to be returned to Paris so it can assess whether they can be reconditioned. This all adds time and complexity, at a time when there are deadlines to get the claimant out of a hire car.”
With the motor insurance industry reviewing the way it delivers post-loss mobility solutions, it’s inevitable that the credit-hire model currently in place will come under scrutiny too. Although it’s a well-established part of the market, it still has its fair share of critics.
Tony Newman, head of motor claims at Allianz Insurance, says that as the replacement vehicle market continues to be lucrative, especially where provided on a credit facility, it can create lead to undesirable behaviour. “Non-fault drivers can become highly sought after and valuable,” he says. “This can result in bad practices aimed at making profit over meeting the needs of the consumer.”
Issues in the market have already meant it’s come under the Competition and Markets Authority’s scrutiny. As part of its review into the private motor insurance market, it explored a number of potential options for post-loss mobility, concluding that there was no effective and proportionate remedy.
Provision for reform of credit hire is also included in part two of the Civil Liability Act. Although the timetable for this is up in the air, there are mutterings about what it may entail. “I’d like to see regulation of the credit-hire companies,” says Milliner. “Financial Conduct Authority regulation has definitely made a difference to the way claims management companies behave.”
Subrogated hire is also up for discussion. By enabling an insurer to provide its policyholder with a car, and then claim it back from the at-fault motorist’s insurer, there is the potential to control the cost of hire and reduce litigation. Although McPhail says this would make the financial incentive disappear, Fuller is less convinced that it would represent a solution.
“Every few years this resurfaces and the discussion just goes round in circles,” she says. “The present model isn’t perfect but I don’t know that there is a better solution. Policyholders expect a replacement vehicle and the credit hire companies do deliver a good service to them.”
McKno agrees. “The industry couldn’t support a subrogated model,” she says. “Credit-hire companies are able to provide a like-for-like service that should be relatively seamless. We work with insurers to take as much friction out of the process as possible. The General Terms of Agreement sets rates and behaviours and the protocols that exist in the industry will normally take these a step further. Building on this through more collaboration is the way forward.”
Certainly, with more post-loss mobility solutions becoming available and a growing demand for insurers to offer more environmentally-friendly options, there is a real need for all parties to work together. By ensuring the policyholder’s interests are at the centre of any discussions, it will be possible to find cost-effective and frictionless ways to keep them on the road.
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