In perfect harmony, apparently...

Post Online have written an article titled, quite encouragingly, 'Garage closures pile pressure on credit hire relations', It is quite a long article but the takeaway appears to be that insurers and CHOs are working together harmoniously to mitigate the rising costs of credit hire caused by delays in repair and extended hire issues arising as a result of Covid 19.


The article concedes two basic facts at the start - the decline in the number of accidents as a result of the recent lockdown and the impact on repair times from the closure of bodyshops as a consequence of their inability to social distance whilst repairing cars, reduced inbound activity and a shortage of or difficulty obtaining parts. Everything else follows in relation to how those two events have impacted cost and what insurers propose to do to respond to claims passed for payment.


In the blue corner comes Emma Fuller of DAC Beachcroft. She claims that whilst volumes have dropped dramatically, the hire claims they have seen have been for far higher sums than they would expect. She concedes, and indeed claims credit for having predicted, that there would be inevitable delays in repair times. She also highlights, something I expect will find its way into settlement discussions, the fact that repairers were classed as essential services and so 'were legally permitted to remain open' even though most of them did not. Her concluding comment was that:


"We are being faced by many CHOs asserting that their clients cannot purchase another vehicle following receipt of their total loss payments due to closure of dealerships and other vehicle retailers though investigations are showing that in some cases there are ways of doing so" (emphasis added)


Members will be aware that we have produced guidance in respect of the widespread closure of the automotive industry and the fallacy underpinning some of the assertions made by, for example, Keoghs and Zurich Insurance. Undoubtedly, this will become a point of contention later. The guidance we provided recently is available here:


https://www.dropbox.com/s/sahulo74syqpddy/Keoghs%20and%20Buying%20a%20Car.pdf?dl=0


The Post Online article continues with Andrew Wilkinson of Aviva bemoaning the increase in repair period duration and an increase in the length of 'off-hire periods' and cautions that, in these unusual times, customers had less of a need for a hire car than they would in normal times. Clearly, need and reasonableness are going to figure in any arguments over period. In fairness, he does concede that with the impact of the pandemic they are "naturally expecting an increased duration - and hence costs - on these claims".


Not mentioned in the article, but of some relevance perhaps, we understand that a number of insurers that have fixed price bilateral protocols with several CHOs - protocols where they would normally pay a flat rate per hire, irrespective of the period - had sought to include all claims that were impacted by the Coronavirus lockdown in that fixed price protocol. Not unexpectedly, most CHOs fought hard to take those claims out of the fixed fee arrangement because the economic impact of uncontrollably long hires for uncomfortably low protocol rates, would have been disastrous. Of course, those claims where the hire period extedned will still have to be settled and so it may be that some of those CHO/insurer bilateral arrangements may be tested as matters return to normal.


In fact, Aviva say in the article that they have had discussions with many CHOs where duration will be impacted by Covid 19 and express concern that they are now beginning to see "unreasonable demands" being placed for 'off-hire periods' between the end of repair or the issue of a total loss settlement and the hire car being collected which they claim is at odds with how CHOs deliver the vehicle to the customer and expect them to use it on the same day.


The article also features the statement issued by the GTA at the start of the lockdown period. That statement was previously posted on the Feedback Loop and is available on the GTA website. It is also available at the link below although it doesn't advance matters much:


https://www.dropbox.com/s/1p4cvyjvltfx8b3/GTA%20and%20Covid.pdf?dl=0


Zurich also have something to add.


They comment on the significant reduction of claims during lockdown and how it is now starting to trend back towards normality, although they do say "we are still some way of pre-lockdown volumes". They claim, or at least they imply, that with their flexible working arrangements there were no difficulties for their staff understanding in detail everything that was happening with every claim. Things have clearly changed a lot since we last tried to settle a claim with Zurich!


In any event, Zurich say that few claims have been impacted with Covid 19 related problems although they add that the full picture is not totally clear because they don't have full details from some CHOs in a number of cases. They also claim, possibly indicating where the first dispute about settlement is likely to occur, that they have seen longer 'off-hire periods' where a claimant's vehicle has been determined a total loss.


Mistakenly, Kyle Gray specifically stated that "vehicles have been widely available to purchase from many mainstream dealerships and specialist vehicle suppliers online throughout the full period of the Covid 19 lockdown" (emphasis added).


In fact, the chart below shows the activity of UK dealers across the period of the Covid 19 lockdown. It is based on aggregated website activity related to new and used vehicle sales at a time when most, if not all franchised dealers and the majority of used vehicle dealers were either closed or seriously depleted of used vehicle stock.



Caroline Johnson, director of third party technical claims at LV echoed the comments of her peers, citing increased pressures on the cost of claims caused by delays to repairs due to garage closures, difficulty replacing vehicles deemed a total loss, greater demand for delivery and collection and Covid 19 related cleaning and sanitisation as consumers were locked down.


The only factual content from the article was provided by Keoghs who reported that the current average hire period, as a consequence of lockdown, has increased from 25 to 75 days. They claim they intend to remain pragmatic in resolving those claims, and particularly that they have to reflect on the stress and worries associated with the lockdown and experienced by accident victims in how they will now manage and negotiate claims.


We will be interested to see how, over the next few weeks, insurers, and their appointed solicitors demonstrate their determination to work in the harmony that Post Online believes now exists. On the back of Keoghs having just held a webinar to work through with their insurer clients how best to address some of these challenges and DAC Beachcroft having done the same, we watch developments with interest. We suspect that one of the challenges facing insurers will be concern that the court is more sympathetic of the position experienced by the lay claimant in these difficult times. In fact, the question is whether the presentation of an harmonious eco-system is a pre-cursor to something else.


On April 7th, Melanie Mooney of Clyde & Co issued a news release exploring the difficulties that the pandemic was likely to create and the challenges that would inevitably ensue. At the end of that release she said "in the current circumstances, both sides may have to "give" a little to gain more. It may also be a good time for a "clearing of the decks" in terms of debt." The last occasion when such a clearing of the decks occurred was during the Morgan Cole initiative at the turn of the last century. With the courts totally constipated, it might be something that could benefit both side of the supply chain if anyone was brave enough to suggest go first. It certainly sounds like Clyde & Co have thought about it!

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