The lines between accident management and credit hire are becoming increasingly blurred as most insurers now have relationships with credit hire companies – who were once their sworn enemies.
Credit hire arises after a motor accident where liability can be established.
The non-fault driver whose car has been damaged is provided with a hire car of a similar type while his car is off the road being repaired.
The cost of this hire, which is provided on credit without any initial payment, is then claimed by the credit hire company from the insurer of the driver at fault in the accident.
Among the first
Helphire was among the first credit hire companies – it began in 1992 and floated on the Stock Exchange in 1997.
The need for credit hire arose because at that time the insurers didn’t look after the non-fault victims.
Initially the insurers had very little control over the amounts claimed by the credit hire companies.
This often resulted in litigation as the insurers refused to pay what they perceived as inflated claims.
And it saw many credit hire companies go out of business or exit the market.
Expansion in the sector
Avis bought 3 Arrows, one of the larger players, in December 1998, and renamed it Centrus in 2001.
It closed in 2003, having lost Avis more than £50 million in five years.
The insurers set up a GTA (General Terms of Agreement) with the credit hire industry in 1999, which set out an agreed procedure and pricing matrix which was subsequently approved by the OFT.
Today, this GTA still exists and the majority of insurers and nearly 200 credit hire companies are signatories.
The agreement’s current rental rates (exc VAT) start at £28 a day for a Micra, rising to £130 for a BMW 520, £232 for a Range Rover and £616 a day for a Bentley Continental GT.
The GTA also contains penalty charges for the insurers of an additional 7.5% if they pay between one and two months, and an additional 15% if they take more than three months to pay.
Accident management primarily started with the fleet market – offering fleet drivers a single point of contact to report their car accident to.
The accident manager would then also arrange for the car to be repaired at an approved bodyshop.
Initially this was paid for by charging the fleet operator, but it quickly moved to the bodyshops paying a referral fee to the accident management company for providing the work to them.
A number of insurance companies, especially the smaller ones, then took up the idea of outsourcing this
element of their claims handling, effectively for free, to an accident management company.
Inevitably the credit hire companies have developed their offerings so that they now can handle the whole claims process.
The credit hire industry has two trade associations; NACHO (National Association of Credit Hire Operators) and AMA (Accident Management Association).
The AMA came into existence in 2001 as the replacement for BAACH (British Association for Accident Car Hire).
The two competing trade bodies clashed recently over the delay in reaching agreement on the recent increase in the GTA rates, with NACHO saying it was “in the main, the fault of the AMA (Accident Management Association) due to what the insurers and NACHO considered to be excessive demands by the AMA”.
The key to the credit hire market is getting hold of the non-fault customer and this totally depends on where they turn to for help.
- Read this story in full in the 19 September 2008 issue of AM. To subscribe to AM magazine click here or call 01733 468659.