Contact: Katie Russell, 020 7824 1859/ 07973 505 207/ firstname.lastname@example.org
CREDIT HIRE ORGANISATION RESPONSE TO OFT REPORT ON MARKET STUDY OF PRIVATE MOTOR INSURANCE
CHO EXPLAINS REPLACEMENT VEHICLE COST DYNAMICS
Credit hire companies are being wrongly attacked by commentators for the differences in the costs of replacement vehicles.
There are two common ways that non-fault accidents can be managed and which result in the non-fault party being offered a car:
1) Where the fault insurer admits liability promptly they may go to a credit hire company (or other rental company) to supply the car for the non-fault driver.
Two factors can minimise the consequential costs:
a) The non-fault party will probably be offered a cheaper, lower specification car in the first instance (and their legal entitlement to a like for like car not fully explained); and
b) The fault insurer will have entered into a contractual relationship with the credit hire company (or other rental company) under which the insurer will be offered volume based discounts in exchange for volume commitments and prompt settlement of the invoices. (30 days is typical)
2) However, at-fault insurers, more often than not, do not admit liability promptly. They therefore do not offer a car at all to material numbers of genuine non-fault parties. The non-fault party still has rights to a vehicle where he or she believes they are not at fault for the accident and credit hire companies will act on behalf of these drivers, providing them with a like-for-like vehicle before taking up the challenge of recovering the associated rental fees from the fault insurer (where such recovery can take over a year to achieve.) The insurer will still have been offered material discounts for prompt settlement of these charges (under the ABI sponsored General Terms of Agreement protocol) but for a variety of reasons, including the point on admission of liability, more often than not they fail to take full advantage of these discounts.
Data submitted by credit hire companies to the OFT has enabled them to identify that the costs to the fault insurer of the second scenario outlined above, are £560 per hire on average than the first scenario as explained above. It is not the case, as has been misrepresented today, that credit hire companies deliberately charge higher amounts than are legally due.
Both types of service provision are offered by credit hire companies. The difference in costs is as a result of the behaviour of the insurer, not the credit hire company.
REFERRAL FEES: OFT CORRECT TO ACKNOWLEDGE FURTHER
INVESTIGATION INTO MARKET DYNAMIC IS REQUIRED
The issue of referral fees has attracted considerable debate both in the market for personal injury claims (where they will be banned from April 13) and in relation to the provision of replacement vehicles. In the case of the latter, these referral fees, as identified by the OFT report, are received by insurers and assist in the off-setting of the costs associated with replacement cars.
The CHO is pleased that the OFT has identified that there would be considerable uncertainty attached to the outcome of a ban or cap on referral fees and that it is premature for it to make a recommendation without an in-depth enquiry into the consequences of such a ban or cap.
A non fault parties’ entitlement to a replacement car is established in law and the CHO is keen to ensure that any recommendations ultimately made by the OFT or a consequent Competition Commission investigation do not make access to that replacement vehicle very unlikely indeed for the UK consumer.
Notes to Editors
· The CHO Limited represents the interests of credit hire companies (“CHCs”) in the UK.
· CHCs are regulated by the Financial Services Authority.
· CHCs provide continued mobility solutions (vehicle rental) to the innocent parties of motor traffic accidents.
· CHCs provide complete advice to the consumer as to their legal rights and assume the risks of dispensing this advice and also assume the risk of ultimately failing to recover the costs of providing the vehicle rental if their analysis of, inter alia, fault in each accident is wrong.
· For more information please contact Martin Andrews on +00 44 (0)7730517699.