Profiteering from COVID

As US motor insurers announce their decision to refund millions of dollars to customers stuck at home during coronavirus lockdowns, the response to the crisis from insurers in the UK could not be more pronounced.

In the US, Allstate, the country's fourth biggest car insurer, said it would return $600m (£490m) to customers whilst American Family Mutual returning $200m.

Both have seen a dramatic drop in accident claims as policyholders stay at home and roads remain quiet. Allstate will be reimbursing customers in lockdown with refunds, while most customers will be given a 15% discount on monthly premiums for April and May. The BBC report the discounts will apply to 18 million customers and Allstate say:

"This is fair because less driving means fewer accidents’ and data showed driving mileage down between 35% and 40%.

In the UK, motor vehicles usage is down by around 75% according to government figures, with claims reported by some insurers at 10 to 15% of normal volumes and many insurers taking advantage of the government furlough scheme to reduce their operating costs through support ultimately paid for by the taxpayer. Aviva have predicted that motor insurance margins could be “significantly higher” as a result of the Corona virus with the only discernible concession being an offer made to essential workers that they will be allowed to use their vehicles to commute, whilst the lockdown persists, without paying additional premiums.

But it’s not just the expectation of windfall profits for motor insurers that sits uncomfortably with the actions of their US counterparts. For an industry that has received material support from government since the last recession, specifically through changes to the civil justice system to support their profitability, and the hurdles which motorists now face in pursuing uninsured loss claims, the advice from the FCA to insurers is timely. They expect motor insurers not to reject claims because of a consumer’s understandable temporary change in how they use their vehicles in response to Government advice and the emerging coronavirus situation. It’s hard to know what will happen to premiums going forward, although in Q1 they increased by 2.8% making the total increase in the last year 5.5%.

Many policyholders have been faced with a situation, not of their making, where their car is undergoing accident repairs and they are hiring a replacement, as they may be entitled to, but are challenged by a diminished bodyshop industry and businesses that supply replacement parts heavily impacted by Covid 19 resulting in delays to repairs and an increase in hire periods.

Even the ABI has issued guidance that Insurers’ main priority is to make sure their customers can continue to have their claims paid in this challenging environment and acknowledge that given the disruptions to international transport and manufacturing because of Coronavirus, it may take longer to get the necessary parts to repair a car. But what does reality look like on the ground?

One credit hire company has identified that a large number of its current customers on hire are either essential workers or have an unarguable need to remain in a hire car, with a minority agreeing to return the hire car and make do. Every CHO should have conducted a similar survey and be confident of need rather than being persuaded to act otherwise as if depriving a customer in a time of crisis is the right thing to do.

Inspired by solicitors who appear to have the sole aim of manufacturing a conflict to incite litigation when the current crisis ends, litigation from which they will generate significant profitable revenue, some insurers have responded with appalling communications aimed at restricting a motorists rights at common law. For example, a standard letter from one insurer (mirroring letters from others) reports that “we are working remotely to ensure we can continue to provide a service. Our inbound telephony is limited to supporting those with new claims” and offering, but not actually delivering, an email response is hardly supporting the advice from the FCA and ABI.

Nor is the admonishment, communicated by more than one insurer, that:

“We earnestly feel that this should not be a time where companies seek to profit, nor indeed profiteer, from the misfortune of others.” Then continuing to say:

“If the above actions are not undertaken and we experience inflated costs that could have been avoided by your organisation, we will be robustly defending the claim presented and seeking the appropriate cost sanctions from you.   We will also provide a court with a copy of this letter to show that we have offered to co-operate with your firm throughout this difficult period. We reserve the right to bring this letter to the attention of the Court should claims arise because of your firm’s failure to take these reasonable steps.”

I think by now, we have the measure of what co-operation really means to some insurers.

The latest advice I have seen on this issue is from Clyde & Co, where Melanie Mooney, formerly of Keogh’s, is now employed. They say that:

“traditional claims handling for credit hire is unlikely to be of benefit during the ongoing measures, and this position will be the same for both sides of the market. Therefore, these claims will require creative initiatives on the part of insurers and representatives in order to keep costs down and bring about prompt settlements.”

They also warn that:

“some credit hire companies continue to seek unlimited extensions on hire periods as they are unable to collect the hire vehicles. Those same companies need to stop working on the premise that insurers have bottomless pockets.”

However, the most important take away from these, and other communications from similar solicitor firms, is that insurers are not yet engaged with these strategies. That is clear from the final paragraph in the Clyde & Co communique. This simply them touting for business knowing that there is going to be an issue associated with volume later.

In those circumstances, there is a clear gap for those who are concerned about the future trajectory of claim settlement to consider and formulate a response, even if it evolves as a press release neutralising the noise generated elsewhere. I have in mind a communication which sets out the real commercial position, that identifies the current insurer profit windfall, that highlights the true position about delays in the repair network and formulates a mechanism for a backlog that will rival that which we last saw after the decision in Dimond v Lovell where Morgan Cole took the lead in behalf of insurers.

Five years ago, I would have said that the trade body should lead that initiative. However, today, the trade body has fewer credit hire company subscribers than ever, does not appear to appreciate the difference between those that subscribe to the GTA and those that do not, fails to recognise and champion the interests of the smaller CHOs who do not have the benefit of the insurer protocols that the larger CHOs benefit from and currently appears incapable of speaking with, rather than to, their members to formulate a plan.

I feel sorry having to make those points but for an organisation with several employees, a chairman and a variety of committees and sub-committees, the clear and focused guidance and leadership that the wider industry deserves is noticeable by its absence. I can even understand why it might be slow in emerging, when most of the executive are focused on the challenges in doing their day job. However, a trade body still needs to function in the interests of the industry it represents unless, that is, it only sees its purpose as managing engagement with insurers through the GTA Technical Committee. If that is the case, then there is a clear vacuum that needs to be filled.

Difficult and different times call for clear, focused and effective strategic thinking, especially where the difficulties facing some CHOs, and the inevitable financial challenges that will follow, could not be more serious. Be in no doubt, the longer the lockdown continues, the greater will be the volume of unsettled older claims outside the GTA and, when the lockdown ends and claim volumes return to normal, the more likely that insurers will engage Clyde & Co, Keoghs, Horwich Farrellly, DAC Beachcroft and the rest, to do exactly what that insurer I mentioned above admonishes CHOs not to do - to take over the volume of outstanding claims, to raise every argument possible to delay settling claims and to “profiteer from the misfortunes of others”. It is in their DNA no matter how much anyone pretends insurers want to be aligned with the interests of CHOs.

Anybody that genuinely believes that being nice to insurers in the expectation that they will reciprocate, should look no further than the difference between the actions of US motor insurers refunding premiums and the actions of their UK counterparts increasing renewal premiums, crowing about increased motor margins whilst expecting accident victims to take it lying down. That does not mean any progress made over the last four years needs to be thrown away. However, it does mean that the industry needs a more coherent plan to navigate this challenge in a way that either avoids the inevitable bulk litigation of claims that will take two years to come to trial, or has a plan to pre-empt it with the industry acting in a unified manner, exactly as insurers do through their legal representatives in FOIL. If the current plan is to pretend that this is business as usual, keep calm and carry on, then that is doomed to fail. I do not doubt that every CHO has changed their model in response to the current crisis. The trade body needs to do likewise.

The latest from Clyde & Co is here:

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