Roundtable: The future of mobility – is the courtesy car still viable?

Attendees:

• Brendan Keane: Assistant vice-president, Europe at Enterprise Mobility
• Stuart Sandell: Assistant vice-president, UK & Ireland at Enterprise Mobility
• Mike Powell: Insight consultant – banking and general insurance at Defaqto
• Chris Payne: Head of networks and engineering at LV
• Richard Steer: Chief executive at Steer
• Rob Harper: Head of damage claims and commercial at Admiral
• Stefan Elks: Head of retail claims operations at Axa Retail
• Catherine Carey: Head of marketing at Consumer Intelligence
• Dawn Marsden: Head of claims supplier management at Esure
• Marc Holding: Managing director at Vella Group
• Mervyn Skeet: Director of general insurance policy at ABI
• Alistair Campbell: Business development manager at Aviva UK

Rising costs and evolving needs

The rumble of change is reverberating through the automotive industry, and its tremors are being felt acutely in the body shop and insurance landscape. The traditional courtesy car model, once a cornerstone of customer service, is buckling under the pressure of rising costs, evolving customer needs, and the shift towards larger and electric vehicles.

“We haven’t used a traditional courtesy car for about five years,” states Marc Holding, managing director at Vella Group. “The reasons why are one, availability, and two, increasing customer expectations.”

Holding acknowledges that Vella Group’s reliance on Class A courtesy cars was falling short. Customer feedback consistently highlighted frustrations with the size and type of these vehicles, often feeling like a downgrade from their usual rides. Furthermore, the intricate repairs and logistical demands of managing a courtesy car fleet added unwanted complexities, leading to it opting for the car hire model over traditional courtesy cars.

The opaque world of car insurance

Most standard insurance policies offer small hatchback courtesy cars. One in 10 policies do not explicitly define the car types in the policy wording, resulting in policyholders being unaware of the type of car they will receive, claims Mike Powell, insight consultant – banking and general insurance at Defaqto.

Powell explains how Defaqto analyses and categorises courtesy cars into three categories: approved repairer vehicles, enhanced cars (upgrades), and total loss vehicles.

“Total loss courtesy cars, provided they are written off or stolen, create massive differences across the market,” Powell explains. “These are ‘enhanced’ options, which are often paid add-ons, and it’s not entirely clear what [policyholders] will actually get in some policy wordings.”

Stuart Sandell, vice-president at enterprise mobility, emphasises the disappointment customers may when they unknowingly buy a policy that does not offer courtesy cars for total loss cases. 

“When insuring an older vehicle, nobody tells [customers] that it won’t get repaired and will probably be written off if the vehicle is involved in an accident,” says Sandell. He adds that at this point, the customer has bought something that is of “no use” to them. 

This lack of clarity, coupled with industry challenges like post-pandemic claims inflations and part sourcing issues, further complicates providing timely courtesy cars during longer repair times. Powell emphasises that approximately 40% of policies offer courtesy cars, subject to availability, while the remainder imply some guarantee. This leads to disappointment when customers arrive at repair shops only to leave empty-handed.

“We see a lot of our vulnerable customers say: ‘I’ve just spoken to a repair centre, and I can’t get a courtesy vehicle’, – this is wholeheartedly unacceptable,” says Stefan Elks, head of retail claims operations at Axa Retail. “Yes, four in 10 policies have courtesy vehicles subject to availability, but our customers don’t care about that. When they accept a policy, whether on an aggregator site or directly through our channels, it’s not a question our customers ask – it’s an expectation.”

And with approximately 95% of policies offering a courtesy car as a standard where deselecting it as an option often doesn’t change the premium price, it’s no wonder that customers feel entitled to a courtesy car regardless of circumstance.

“Customer expectations will continue to change over the next year,” states Catherine Carey, head of marketing at Consumer Intelligence. “No one picks up their policy document and reads it cover to cover – we can’t make them do that.”

Carey explains that customer expectations will only continue to rise with premiums increasing. Customers will want to ensure they get “value” from their premiums and want their experiences to be “perfect” for the increased costs.

“There’s a huge amount of pressure on the industry, and it’s not going away,” Carey adds, acknowledging that it is on the industry to innovate and deliver mobility solutions that match evolving customer needs, ensuring their premiums truly reflect the value they receive.

Richard Steer, chief executive officer at Steer, compares the opaque world of car insurance with budget airlines like easyJet. “With easyJet, what you see is what you get,” he explains.

For about £80, consumers have their basic flights. Customers can add specific extras like speedy boarding, luggage, and so on, creating customised experiences. This transparency sets expectations and prevents frustrations of hidden fees like British Airways, where the base price might not include everything you need.

This lack of transparency plagues car insurance, too, leaving many unsure of their coverage and facing disappointment when claims arise. According to Brendan Keane, assistant vice-president at Enterprise Mobility, empowering customers to “deselect” optional features like courtesy cars could be key.

“Deselecting makes them actively choose not to purchase certain add-ons,” he explains. “The issue arises when they believe they have coverage they haven’t.”

Keane argues that customers are more accepting of their choices when they consciously make them. “They can live with their decisions,” he says. But “making the wrong decision unknowingly” and feeling entitled to something not included in their policy leads to frustration.

The financial crisis puts insurers in a bind. Customers, wary of every penny, prioritise rock-bottom premiums, often opting out of optional coverages. While this saves the policyholder money upfront, it leads to disappointment when claims are made.

Many customers prioritise finding the lowest possible price in a market fuelled by comparison websites. But this often results in customers chasing bargains without fully understanding the coverage specifics. This disconnect between price and value creates a vicious cycle.

“The consumer journey can’t be rectified at the point of claim,” says Alistair Campbell, business development manager at Aviva UK. “The customer is buying a product, but not in a fully informed fashion, because they are trying to do it quickly and under various circumstances.”

He adds: “We’re assuming that every customer buys [their policy] for the first time – but that’’s not always the case. A decent percentage of customers still go through a renewal.”

Campbell emphasises that many long-term policyholders forget coverage details after years without claims, leading to confusion and potential dissatisfaction at the point of claim. Insurers must strive to clarify elements at this stage to manage expectations and avoid complaints.

Some people simply don’t know what they’re paying for. Premiums are going up, but the industry is not making any money… it's a very difficult place to be in.

Mervyn Skeet, director of general insurance policy at ABI.

“Some people simply don’t know what they’re paying for,” says Mervyn Skeet, director of general insurance policy at ABI. They resist higher premiums, but “how can the industry be profitable” if it offers bare-bone policies?

He adds: “Premiums are going up, but the industry is not making any money… it's a very difficult place to be in.”

Skeet emphasises the need for a two-pronged approach. Insurers must craft value-driven offerings that justify justifiable premiums while finding ways to streamline operations and become more cost-efficient. Only then can they bridge the gap between customer affordability and industry profitability, ensuring that “cheap” insurance doesn’t translate to hollow promises and empty pockets.

Increasing operational costs

Recent research by Consumer Intelligence shows that 12% of consumers would actively choose a policy without courtesy cars, and 40% would consider it, states Carey. Although this shift would not affect pricing, she believes it could significantly reduce complaints.

Chris Payne, head of networks and engineering at LV, explains how the expectation of a courtesy car clashes with deselected options, causing customer complaints and forcing insurers to choose between “bearing the cost” of unexpected rentals or risking “customer retention” when their policy ends.

The current model breeds significant challenges. Increased customer dissatisfaction and complaints lead to insurers subsidising costs through supplementary rentals or complaint settlements, leading to another layer of expenses.

“Fundamentally, we’ve got an elongated repair period and changing customer expectations. This could create commercial contractual friction between insurers and their supply chain because insurers expect supply chains to deliver when they struggle to,” says Rob Harper, head of damage claims and commercial at Admiral. 

Steer adds: “We’re having to keep cars longer – two, three years now – which means there’s more incidental damage on the vehicle, which results in higher operational costs.”

Attendees stressed that managing expectations around increasing repair delays is crucial, especially with EVs on the horizon. Each echoed that the current model is unsustainable and needs to evolve with today's market.

Repair capacity is squeezed due to increased demand and limited restocking of courtesy car fleets during the pandemic. Slower car production, particularly in small and affordable models, limits the overall pool of available vehicles, and the unique needs of EVs introduce additional complexities to the courtesy car model.

Dawn Marsden, head of claims supplier management at Esure, explains how customers easily tolerated the convenience of a small courtesy car for a short repair in the past as the quicker turnaround times would not cause a major disruption. However, the rise in immobile vehicles and extended repair periods due to parts shortages changes the equation entirely.

“[Customers] can cope with smaller vehicles for a weekend, but not for ten days,” claims Marsden. She acknowledges that periods like this without suitable replacements are “just not sustainable”, especially when “car seats” and daily routines are involved.

The EV conundrum

This poses additional challenges for insurers navigating the growing demand for electric vehicle courtesy cars (EVs), which are currently offered in a very low percentage of policies. This trend is accelerating, and consumer expectations will soon align with this shift.

“Providing electric courtesy cars at our scale simply isn't feasible,” states Steer. “Imagine 50 cars at a large site, each drawing 22kW – we'd overload the local grid.”

Fundamentally, we’ve got an elongated repair period and changing customer expectations. This could create commercial contractual friction between insurers and their supply chain because insurers expect supply chains to deliver when they struggle to.

Rob Harper, head of damage claims and commercial at Admiral

Steer emphasises that with the quick turnarounds of courtesy cars, EVs would not be a plausible option in practice.

“Say a car is returned at 4 pm on Tuesday. [With a traditional car] we'll clean it, put some petrol in and give it to someone else at 5 pm to someone who has brought their car in for repairs,” says Steer.

He adds: “With EVs, the reality is that we have to charge the vehicle overnight, so you disappoint the policyholder when EVs come back with minimal range left – you can't change that overnight.”

Steer explains that petrol cars are easier overall. Still, costs have also risen significantly in the last decade: “If a car takes an average of 15 days to repair then the courtesy car cost is around £150 which is around 15% of the gross profit made on that repair. 

“As car hire costs increase then so does the effect on the margin levels, which puts further strain on the repairer’s profitability. Ultimately the model becomes unsustainable and EVs will only exacerbate the situation as their prices are even higher,” he adds.

Despite the challenges with the logistics surrounding EVs as courtesy cars, their limited availability could present an unexpected upside.

“There are very few policies that give an EV replacement vehicle of any kind,” states Sandell.

He explains that by leveraging limited EV courtesy car availability and offering transparent pricing models, insurers can improve customer satisfaction and potentially unlock financial benefits.

A glimpse into the future

The current courtesy car model faces significant challenges, but the future of mobility isn't set in stone. 

It is clear that the motor insurance policies need to adapt and offer more choice to policyholders to help them understand what their mobility options are in the event of an accident. Simply bundling in a courtesy car to gain a ‘tick’ on a price comparison site does not offer the policyholder true value. 

By embracing transparency and flexibility and exploring alternative solutions like carpooling and micro-mobility, the industry can adapt to evolving customer needs and navigate the complexities of electric vehicles. Collaborations between insurers, repair shops, and car rental companies can pave the way for innovative offerings prioritising affordability and value, ensuring a smooth ride for everyone, regardless of the bumps ahead.

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