Going it alone

Prior to the landmark decision handed down by the House of Lords in the 2000 credit hire case of Dimond v Lovell, I recall the clear words of advice from the lower courts at that time: don't come into court and argue need period and rate if you have not made an offer to the innocent claimant. Well, so far as I can see, little has changed since that advice was given out.

KGM was driven to the view that we should graciously exit the credit hire General Terms of Agreement in July 2005 because of an overriding feeling that we were still being abused within it; being made to feel guilty whenever we dared to raise a question.

At no time was it our intention to deny the innocent party a replacement vehicle nor was it our intention to offer a substandard service. The decision was born out of the desire to take control of our spend, which we felt the protocol had lost sight of.

The decision to exit the GTA was not taken lightly. We knew there was little point in doing so if our stance was not supported by the judiciary. With that in mind, we sat down with our legal advisors and, with their help, documented our process and procedures, scripted our offer letters and then set out to identify those claims where offers should be made at the earliest possible opportunity.

Outside the protocol, we were entitled to make an approach to the claimant but we were under no illusion that, by doing so, the gloves would come off and that certainly proved to be the case.

However, the approach has paid off. We have succeeded in countless cases and some credit hire organisations have changed their attitude towards us. They are now approaching claims where KGM is involved in a more conciliatory manner, accepting mitigation rates where they should apply - rates which, after all, still offer them a margin of profit.

Litigation route

Those who persist in choosing the litigation route are hopefully realising we are committed to this stance. Some of the cases that they have chosen to fight have been surprising. In one case, when the claimant was asked what he did with our offer letter, he replied that he spoke to his CHO and was advised to 'throw it in the bin'. No surprise then that the claim was dismissed. Even then, the CHO in question threatened to appeal the decision - a threat they have yet to carry out, I hasten to add.

We have also experienced some bizarre reactions. One CHO wrote to our policyholders telling them how good they were, and how bad we were for not being prepared to pay their reasonable claims. In doing so the CHO chose to make our policyholders aware of the details of their claim and - to a man - the policyholders have agreed that these hire claims are ridiculously high and should not be settled. By their action, we achieved the support of our policyholders without even having to ask.

Our successes in fighting claims far outweigh our defeats and our stance has driven some CHOs to enter into protocols with us that are far more advantageous than the GTA ever was. Our statistics show that we are saving around 30% against our previous GTA spend and that number is improving all of the time.

These results are generating interest among other insurers, and we are increasingly being approached to explain what we are doing. We are more than happy to share our approach with them. Realistically we know that KGM alone is no match for the combined might of the credit industry but insurers working together can have an impact and that momentum appears to be gathering pace.

If that was not encouragement enough, TNT Express has been waging a war of its own from which insurers have benefited. I refer to judgments in the case last year of Evans v TNT Logistics and, more recently in June 2008, of Steadman v TNT Express - albeit I understand the latter case is the subject of appeal. From the CHO's point of view, it has to be. The judgment in Evans was to allow mitigation rates, which is bad enough for them. In Steadman, the hire claim was dismissed entirely. If the appeal fails, quite where that leaves the credit industry is anyone's guess.

Interestingly, the judge in Steadman extols the proactive approach, saying: "I have previously expressed the view that much of the so-called litigation may have been avoided, and might still be avoidable, if defendants or their insurers institute schemes to provide innocent victims of vehicle damage with suitable alternative means of transport. Such schemes would, if properly formulated, result in claimants being able to avoid loss and thus reduce the volume of litigation in road traffic cases - even though this reduction may be seen as limited to those cases where liability is clear."

I accept that the practical problems in administering such schemes pose difficulties for some of the larger general insurers but I am yet to be convinced that operating bilateral agreements is any less of a burden where individual agreements and rates differ. We have found that our approach is practical and can benefit all parties. Whatever decision insurers come to - which may or may not be influenced by the outcome of favourable judgments like Steadman - the future of the GTA hangs in the balance as does the face of the credit hire industry as we currently know it.

- Martyn Hardy is claims director at KGM Motor Insurance.