Credit where it is due?

Your assessment of the merits of credit hire will be influenced by your position in the market. Many brokers see these firms as a useful source of revenue through referral fees; they might also be seen as a way to provide clients with better service than they receive from some insurers. Other brokers have little or nothing to do with them, except in instances when a client uses one then lets them know as an afterthought.

Most insurers feel that credit-hire companies add unnecessary expense to the insurance process by providing drivers with bigger and better cars than would have been supplied had they been contacted in the first place.

Then there are the other areas in which these companies can add expense. Credit-hire companies pursue uninsured losses with dogged determination which can inflate total claims costs. Also, these companies often have provisions for vehicle repair under similar credit arrangements as vehicle hire.

Likewise, if they refer personal injury cases to their preferred solicitors then the resultant costs might be significantly greater than if the insurer's legal experts had been retained.

Profit motive

Insurers also believe that credit-hire providers have little interest in managing costs downwards. Why should they? They present the bill to the at-fault insurer. The upshot is that the validity of many of their charges is often disputed, sometimes in court, generating a new source of expense.

It does not stop there. It rankles that, once a credit-hire firm is on board, control of the case is lost; these suppliers can be involved before the insurer has even been notified, the merits of which are debatable.

While insurers rant and rage, they also have to accept some responsibility for how the credit-hire industry has become so firmly established.

First, motor policies are still extremely complex regarding eligibility for a replacement vehicle. Little wonder so many policyholders are tempted by the credit-hire option if it means that they can guarantee having a vehicle at their disposal quickly and without fuss.

Next, insurers must acknowledge that - having ceded first notification to their intermediaries - their grip on the situation has been loosened. It is ironic that it was the desire to save money that led them to move away from insisting on immediate advice of a claim.

There is now a contingent, systemic problem: most intermediaries' business models are, to varying degrees, dependent on referral fees to help balance the books and meet aggregator marketing costs. How do insurers respond to this?

Some say that 5% of the cost of a motor premium is now accounted for by the costs generated by credit-hire arrangements - referral commissions, over-the-top repair rates, expensive legal representation, profit margins and so on. Justifying this to customers is tricky.

A solution is needed. Insurers are seeking to be the first point of contact in the aftermath of a claim; they are scrutinising systems to identify no-fault claimants and give themselves the chance of reducing the incidence of credit hire. It is a challenge. Insurers need to devise and deliver a complete vehicle replacement offering, which means shouldering the initial outlay and ongoing costs in the hope of achieving overall cost-reduction.

Not easy in today's climate, especially with the motor market likely to be running a 120% operating ratio.

No progress will be achieved if the market does not act as one - no concerted effort means that there will be no level playing field. Perhaps industry groups such as the Association of British Insurers can play a leading role in defining and implementing whatever measures need taking. Modifications as deep and far-reaching as legislative change - for instance through amendments to the Road Traffic Act - may be worth considering, with customers obliged to report their claims to their insurers whether they are at fault or not.

Across enemy lines

Then there is the pragmatist's case for sleeping with the enemy: forging links with credit-hire suppliers to secure preferential rates in return for speedy settlement. Companies are now withdrawing from the general terms of agreement, which may mean they need to forge bilateral relationships with credit-hire operators. No doubt other underwriters will assess this method but it will need to be accompanied by a proactive approach to litigation as more disputes inevitably emerge when a company moves away from the GTA.

Wherever you are in the motor market, the aim should be to provide a decent service at a reasonable price. However, this worthy objective is being compromised by the implications of credit hire and things must change.