Task Force work now complete

The final report form the Motor Insurance Task Force has now landed and can be accessed here - https://www.dropbox.com/scl/fi/am80m3spjqwaaqsvajanr/motor-insurance-taskforce-final-report.pdf?rlkey=ie2wrgudu18h0ub8l5w68ug7m&dl=0

The government said:“On entering office, this government was committed to tackling the soaring cost of motor insurance.

Motor insurance provides peace of mind and financial security for millions of drivers, but the cost of premiums has become a real concern in recent years, impacting household budgets and, in some cases, limiting personal mobility and life chances.

This government’s commitment to kickstart economic growth and break down barriers to opportunities as part of our Plan for Change reinforced our commitment to act.

Since it was formed in October 2024, the taskforce has worked across government departments and with our independent regulators to understand this complex market and to agree a set of actions that aim to stabilise and reduce the premiums paid by drivers.

Across government, departments will continue their efforts to address the broader factors that contribute to the cost of claims, such as vehicle theft and the cost of repairs.

This includes efforts to tackle vehicle-related crime, continue to make our roads safer and work closely with industry to encourage innovation in new vehicle technologies, driving efficiencies and reducing costs.

As well as setting out the actions government departments and regulators are taking, the report also explores the characteristics of the UK’s motor insurance market.

It acknowledges that the market is strongly competitive and innovative and has faced real and increased costs to serve motorists in recent years.

The taskforce would like to acknowledge the support and insight of the stakeholder panel, representing both consumers and the motor and insurance industries and the insight of our colleagues in the devolved administrations.

Their perspectives have been vital as we have sought to capture the needs and concerns of people and firms across the UK.

The taskforce’s work has now concluded.

Over the coming months, the government will continue its work to deliver against the actions set out in the report.”

Of note, from the report: “The government welcomes the work by the Credit Hire Organisation (CHO) and the ABI to revise the General Terms of Agreement (GTA) to ensure credit hire costs are fair for consumers.”

In more detail:“In non-fault claims, it has become increasingly common for credit hire and repair companies to provide customers with a hire vehicle and handle repairs as an alternative to a consumer claiming on their own insurance policy. This avoids the claimant having to pay the excess on their own policy. The consumer may seek out this service themselves but are often referred on by their own insurer, who will usually earn referral fees for doing so

from the credit hire company.

Credit hire rates are generally higher than direct car hire rates due to the risks attached to credit hire, and the length of time before the settlement of the bill. This is usually paid at the resolution of the claim rather than upfront and recovery may be uncertain. Costs also come from the need for credit hire firms to have a wide range of instantly available replacement vehicles to hand and from the length of hire. This is often for a fixed period. Importantly, the specification of the replacement vehicle provided under credit hire can be higher than that offered under a standard insurance policy. Standard policies frequently offer ‘courtesy cars’ (replacement vehicles not necessarily of equivalent specification) and require the consumer to pay an excess. The offering of credit hire arrangements, by contrast, presents consumers with a more appealing alternative, creating a clear incentive to opt for credit hire. Since the costs are then charged back to the third-party insurer, the incentives to control the prices paid for replacement vehicles are weak, contributing to elevated costs across the system and, in turn, higher premiums for all policyholders.

Some credit hire claims are governed by the General Terms of Agreement (GTA), a voluntary industry agreement that establishes maximum car hire rates for different vehicles. The GTA also provides a streamlined process for agreeing credit hire claims along with a dispute resolution procedure. However, it is a voluntary agreement, and several credit hire firms and compensators operate outside of the GTA.

The FCA’s analysis found that the cost of replacement vehicles rose considerably over the period, increasing by almost 50% from £473 million to £699 million, and contributing around 10% to the overall increase in the cost of claims between 2019 and 2023. It is important to note that this increase is not driven entirely through increases in the day rate cost of replacement vehicle hire. The length of repair times has also increased, with the FCA finding that lead times before work begins have doubled and repair times have increased by 36%, which mean that cars have to be hired for longer to meet consumers’ needs. The FCA determined that these processes are not being managed effectively by some insurers, and that referral fees incentivise greater use of third parties like credit hire organisations. These fees and other forms of compensation increase the cost of claims which in turn impacts on premiums.

The taskforce is concerned about the impact of practices which drive up the cost and volume of disputes and mean claims take longer to resolve. This is a driver of the increases in motor insurance premiums but also has important impacts on the efficient functioning of the courts. The taskforce welcomes the FCA’s commitment to work with industry to encourage better claims management practices and sharing of best practices, including robust procedures to challenge unreasonable third-party claims costs.

In terms of actions: 2.2 The FCA will work with the ABI and firms to consider how claims can be better managed to ensure greater efficiency and cost control, without adversely affecting customer outcomes.

2.3 As recommended in the FCA’s report, the ABI and firms are working to develop a good practice code to reduce referrals to third parties and capture the management of more claims.

2.4 The government welcomes the work by the Credit Hire Organisation (CHO) and the Association of British Insurers to revise the GTA to ensure credit hire costs are fair for consumers.

The most important point to note is that the work of the Task Force is now complete.