After years of being at odds and struggling to find some common ground, can credit hire companies and insurers bury the hatchet and work together in harmony? Sarah Hills reports
Credit hire has always been a prickly topic in the insurance industry with insurers and credit hire operators constantly clashing, despite the implementation of the General Terms of Agreement by the Association of British Insurers - which was meant to act as a framework in which insurers and CHOs could operate in harmony. Post invited two industry leaders from each of the trade associations in the credit hire sector - Tony Baker, director general of the Accident Management Association, and Ralph Ferguson, chairman of the National Association of Credit Hire Operators - to discuss the current market. A selected number of questions from Post's Claims Club were put to Mr Baker and Mr Ferguson, by the chair of the discussion, Post's senior reporter, Sarah Hills.
Lynn Day, director of general insurance claims, The Co-operative Insurance: Most of the CHOs are regularly seeking dialogue with insurers and professing to want to improve the relationship. Is this driven purely by a desire to speed up the payment process, or is there a genuine appetite to find some common ground?
Mr Baker: Common ground needs to be found with regards to speeding up the claims settlement process; insurers are currently paying tens of millions of pounds in penalty charges because they are so slow in settling claims.
They also pay out vast amounts in courts settlements because they leave claims beyond 90 days and then many CHOs litigate at their full commercial rate.
Mr Ferguson: Insurers are regularly failing to adhere to the payment conditions in the GTA (see box, p6). Nacho's members have instigated various methods with insurers to try and improve the speed of payment. At the moment, Nacho is looking at an initiative to standardise a payment pack so insurers can deal with them more simply - all of our relationship building with insurers is done to improve common processes.
Mr Baker: Generally speaking insurers are under-resourced. They lack trained staff that are able to settle credit hire bills quickly, which means there are enormous backlogs. Results from a recent AMA questionnaire showed that on average between 35% to 40% of all claims are not settled within 90 days - the GTA specifies they should be settled within 30. After every 30 days, insurers pay 7.5% more, and after 90 days CHOs can issue their full commercial rate, which tends to be 30% to 40% higher than the agreed GTA rate. The insurance industry is paying out unnecessary costs that could be avoided if they got their act together in resourcing and training staff.
Now third parties are setting up to monitor the payment packs - that's an additional cost. That slows down the process because insurance companies hold onto the files for a while, then decide they haven't got the capacity to deal with them. They then pass it to the third party, who starts the administration process from scratch.
Nick Gunter, head of technical claims, Fortis: If there is a spirit of co-operation and an adherence to the terms of the GTA by CHOs, why has a new industry been spawned centred on managing presented credit hire bills? Among others, Nacho's own members market services to act for insurers to manage the hire period both before presentation or after presentation, with the promise of savings to be made.
Mr Ferguson: Nick's question is one to ask the insurers. This has come from insurers not being able to handle the volumes of claims - they've created this new industry by not having the resources internally to be able to manage the volume of claims being presented by the credit hire industry. The volume has increased over the past 12 to 18 months and will continue to increase. In addition, more insurers are supporting the credit hire industry with referrals to companies - which is also driving growth.
Mr Baker: The settlement process should be easy because the whole point of the GTA was to introduce a common practice. The process should be like a factory - staff should be trained in this process, they should be able to decide quickly from looking at the payment pack whether the claim can be paid, or if any further enquiries need to be made. The insurance industry has not been able to incorporate that factory mentality into the process of dealing with the volumes of claims.
David Williams, managing director of claims, Axa Insurance: Instead of hiring on a long-term basis for total losses, why don't CHOs agree to buy a replacement car on credit instead or give them the cash instead? This would reduce the argument about disproportionate hire, and more or less guarantee payment with no questions asked - other than are we actually responsible for the accident.
Mr Baker: Credit hire companies would be delighted to provide their clients with a brand new car if the insurers were prepared to pay the depreciation on that car. You loose 30% on day one - do insurers want the bill for thousands of pounds?
Mr Ferguson: The vast majority of customers are comprehensively insured, so the insurers can do that if they wished - why would it be the responsibility of the CHO?
Mr Williams, Axa: Does the panel feel there is a future to the GTA? If not, what do they see as a likely successor?
Mr Ferguson: There is a future to the GTA without a doubt. Everything our trade association tries to do is to strengthen and move it forward. The joining of Norwich Union this year was a move forward in strengthening the whole of the GTA. That also shows the desire on the insurer's side to move forward with it. However, there are many issues that need to be solved - governance is the biggest concern in the market at present.
Mr Baker: AMA members are fully supportive of the GTA and we want to work to make it mutually beneficial - as does Nacho. It's frustrating to work with the current management structure in the GTA. The governance needs to be updated because at the moment unless all parties are united, nothing happens. In addition, the insurance industry has a major problem in that it lacks any leadership as far as a credit hire is concerned. It lacks resources, the ability to work together and to deliver on its promises.
Mr Ferguson: There's willingness by some parties in the insurance industry, but there's no cohesion, so any prospect of moving forward is stalled by insurers dragging their feet.
Mr Baker: Credit hire is 100% of the life of the Nacho and AMA members - for the insurers it's only a small part. However, there are so many issues with the wasted money that is being incurred by insurers, that they should make credit hire a priority. The surveys that we have undertaken show that on average a CHO recovers more than the GTA rate, because ultimately they recover the commercial rate.
Chair - Ms Hills: What changes would you like to see in respect of governance?
Mr Baker: You need a mechanism whereby complaints on the GTA are investigated - the industry needs to reach a conclusion and have sanctions if needed. AMA and Nacho have said we will bind that entirely - insurers have said nothing.
Mr Ferguson: We could produce a league table of how quickly insurers pay. Why would one well organised company be able to settle 70% to 80% of claims with no problems within the terms of the GTA, while another company on the opposite end of the scale achieves only 25%? There can be no differentiation of the claims they are receiving - it's down to the fact that their internal procedures cannot handle or deal correctly with the presentation of these claims. Within the GTA we have no mechanism to address these issues with the insurer. Also, if insurers have an issue with a CHO, there needs to be a mechanism for them to deal with that. Both trade associations are happy with that situation to be tackled and resolved speedily.
Mr Baker: At AMA and Nacho if we see one of our members behaving incorrectly, we will notify the member and get them to alter their procedures - that doesn't seem to happen with the insurers. They don't have an AMA or a Nacho; the Association of British Insurers has disassociated itself from the operation of the GTA - which is part of the problem.
Mr Ferguson: There are a huge number of good insurers in the market who pay in accordance to the GTA - but there's another huge trench that have mediocre to poor performance. If some can do it, why can't others?
Nick Gunter, Fortis: What does the credit hire industry think of bilateral agreements? Do they see them as a threat or opportunity? If the former, how will they maintain their business model and if the latter why? What role will they play?
Mr Ferguson: That aspect of the market is growing, but it is not having much of an impact on our members. Bilateral agreements are the source of providing mobility to clients - and the credit hire industry doesn't see it as a threat. It will be part of a mobility solution that insurers can utilise.
Mr Baker: It's important to bear in mind that the credit hire industry was only set up because of a denial by insurers of the right for mobility for the motorist. It was a gap in the market that insurers didn't wish to be plugged; and therefore someone else did it, and the credit hire industry was created. This happened because customers demand a much higher level of service.
Mr Williams, Axa: What can the industry do to weed out bad practices bringing CHOs in to disrepute?
Mr Ferguson: Nacho whole-heartedly supports governance of the GTA to take action on both sides - we've been trying to push that agenda forward, but the issue has been dragged by the insurance industry.
Mr Baker: Generally speaking, an expensive elongated hire bill is the result of the inability of the insurer to take action. The number of cases beyond 90 days is a product of insurers not taking action.
My estimate is that the credit hire part of the industry is little over £600m. For credit hire and credit repair, the market is about £900m. If I was an insurer I would be taking much more interest in credit hire.
Mr Williams, Axa: With rival CHOs spending much of their time criticising the tactics of their competitors, is it any surprise the industry has such a poor reputation currently?
Mr Baker: I disagree with the statement - AMA and Nacho work together well with only a few disagreements. The reputation of the industry is extremely high - that's why it's been growing by around 20% compound per annum. In 2001 when the GTA was opened up to everybody to join, the credit hire industry was little over £100m - it is now £600m. The reason it's growing is because we are delivering the service wanted by motorists.
Chair - Ms Hills: Do insurers in the credit hire industry work together?
Mr Baker: They do have focus groups, where motor insurers meet and discuss issues. The problem is that they don't have anyone resourcing, preparing proper agendas, minutes of the meetings and undertaking the actions agreed. You can't expect insurers to do an industry job - but that is what is being required of them.
Mr Gunter, Fortis: CHOs will recommend to customers the use of their credit services when their involvement in the claims process is connected in some shape to a motor insurance policy purchased by the customer. How do CHOs square their responsibilities under FSA principles by offering a service that the customer has already paid for, the subversion placing the risks associated with a credit agreement on the customer? An example would be the provision of credit repair when it is quite common for insurers not to charge excess or impact NCD on non fault claims. Is this treating customers fairly?
Mr Baker: TCF is an FSA initiative and it impacts on everything an insurance company does, therefore they should be pointing out both sides of any issue to policyholders or third parties. CHOs do treat customers fairly, but are not required to do so unless they are FSA authorised. Many are not - and if they are, it only applies to the authorised activity. I would reverse the question and say CHOs always treat customers fairly because they deliver what the customer wants. At the end of the day, it is the CHO taking the risk - if they do things incorrectly, hire out the wrong car, or the period of hire is too long, they would not get that claim paid. There is mounting evidence that insurers are not treating customers fairly for third-party claims, and this is an issue that the FSA has to address - whether it be for personal injury claims, or damage to an asset such as a motor vehicle.
Mr Ferguson: Nick has given the example of excesses or no claims discount. Part of the reason insurers now do that is because of the services that the credit hire companies have provided. They've implemented those changes because credit repair means that a customer doesn't have to use his policy, it doesn't impact on his excess and doesn't affect his no-claims bonus. Our industry has driven a positive step forward by insurers to treat customers more fairly. Why did they charge people in non-fault accidents in those cases?
Mr Baker: The insurance industry is generally slow to innovate. It is difficult to make changes within the industry - it normally takes a catalyst from outside; credit hire and repair has been an amazing catalyst for change. Without the credit hire industry we would all be driving around in Fiat Puntos. That would no doubt keep costs down for insurers, but customers would not be happy.
Richard Ellis, head of technical motor and bodily injury claims, Norwich Union/Aviva: If CHOs were footballers: would they be Joey Barton or Gary Lineker (never cautioned or sent off).?
Mr Baker: If I was issuing a red card it would be against insurers for failing to state whether they are willing to accept discipline and sanctions within the GTA. My suspicion is that when we do finally get the views from insurers on governance, it will not deal with penalties and the ability to sanction people. That must be important to the GTA because neither insurers or CHOs want people to sign up to a protocol that they don't believe in and don't deliver on.
Chair - Ms Hills: Speaking more generally, is there anything currently taking place in the industry that could impact the credit hire sector?
Mr Baker: The changes in the Ministry of Justice's road traffic accident injury liability will be challenging for the insurance industry - they will now have 15 days to decide on liability, but this is also an opportunity for them to get their acts together regarding credit hire. I hope insurers use their preparation to deliver on the personal injury claims reform to also gear up to deal with credit hire claims reform. There is a distinct connection - on the new claims form, it does mention credit hire. So we will wait and see what happens and how it impacts the GTA. There are big reputation issues for the insurance industry - they've pressed for these reforms, now are they going to resource to deliver?
In order to bring insurance companies and credit hire industries together the Association of British Insurers introduced the General Terms of Agreement in November 2001.
This agreement sets out the arrangements between subscribers for the provision of replacement vehicles to innocent third-party motorists (referred to as customers throughout), and, where appropriate, the undertaking of repairs. While intended to provide comprehensive guidelines, these are entirely voluntary between the parties involved. If any parties use this agreement as a basis for a contractual agreement it remains the responsibility of the contracting parties to ensure it remains appropriate.
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