Have you noticed a gradual rise in your insurance premiums over the last few years? I certainly have – every time I go to compare car insurance prices I’ve noticed a steady rise in my premium, and the chances are you will have too.
There are plenty of reasons for this. Some of the more obvious ones include the costs of accidents involving uninsured drivers as well as the increase in ambulance-chasing law firms claiming huge payouts for ‘physical injuries’ that, a few years ago, most people would have shrugged off as a bit of a stiff neck.
There’s another cause of the hike in premiums and, unless you’ve been involved in an accident, you might not be aware of it. This is the growth of ‘credit hire’, which involves an ‘accident management’ company stepping in if you have a car crash. They will then offer you an equivalent hire car while they manage the repairs to your car, which sounds like a reasonable service to offer.
Beware though, because the hire credit agreement is between the accident management company and you personally, not your insurer. What you might not realise is that the rate being charged for the replacement car may be far in excess of what you would pay from a normal rental company, maybe as much as three times the going rate. This is how the accident management company makes its money, and of course it is in their interest to drag out the time it takes to repair your car and keep you in the hire car.
When you get your car back the accident management company will then charge the insurer of the at-fault driver for the hire of the replacement car. This is where the ‘credit’ in ‘credit hire’ comes in, because if the insurer thinks the charges are unreasonable and refuses to pay then you will be liable for the full rental cost, and that’s a bill that could easily run into the thousands of pounds.
Honest John, the motoring guru at the Daily Telegraph, has been warning about these companies for some time now. Last year he received a letter from a reader who was charged £31,700 for 77 days rental (£411 a day) of a replacement X5 while their own was being repaired. The cost of the repairs was £9,500 and the car was valued at just £20k, so when the claim went to the insurance company they saw the extortionate rental bill and refused payment.
In some cases where insurers have refused to pay, drivers have even been sued for the credit hire costs of a car provided to the other party involved in the crash.
Of course, if the insurer doesn’t question the costs then they will pay the inflated charges and you’ll be none the wiser. This in turn increases the total cost of your claim and eventually means that we all have to pay more to keep the insurer’s profit margins intact.
If you are approached by one of these accident management companies after a crash then you should read the small print in the contract very, very carefully. Check whether the car being offered is a ‘courtesy’ car or a ‘credit hire’ car, and make sure that it is equivalent to your car. No matter how tempting don’t accept a Porsche if your budget supermini gets smashed. Also, if your car is still driveable then the insurer will take a dim view of you taking on a hire car to cover the days or weeks until your car goes in for repair.
One final thing is that you should be absolutely sure that you weren’t at fault in the accident. If you are found to be partially at fault, or worse completely at fault, then you may find that rental bill appearing through your letterbox.
For more information look at Honest John’s guide for a full background on credit hire. There is also a list provided by the Association of British Insurers that details the maximum amount insurers should be expected to pay for the rental of an ‘equivalent’ car.
Anon, if you’re running a tight ship and not one of those back alley companies then you’re to be commended, but not everyone is as fussy about how they earn money – and yes, I agree that includes the insurers. Just the other day I was quoted £26 for a single day’s cover on a courtesy car. Ridiculously expensive (the Ford dealer did it for £12 and you know they were making a profit on that) but also irritating, because a few year’s ago my previous insurer would have quite happily done it for free.
On the subject of extortionate charges, why does the innocent party have to have a like-for-like replacement? I understand that for some people a large car is essential for work or family use but surely they should be the exception. After all it’s only a temporary replacement so if, as in the example in the post, someone’s X5 gets stuffed surely they could make do with a Focus/Astra replacement for a week.
To be honest the whole insurance industry is in a sorry state of affairs, but seeing as we’re legally obliged to buy it then we’re a captive market.
600m+ comes from profits, yes I have to agree with that, and whilst the insurance industry will do everything humanly possible not pay these costs, they also happily offer a poor service, rip injured people off and generally behave like money grabbing fools (this isn’t to say that lots of AM companies don’t) I just think it’s unfair to pick on companies who genuinely want to help people and then say insurance premiums going up is an issue for credit hire companies to deal with.
I am an owner of an AM, I hate back alley companies, quick claims outfits and anything which involves getting the client in and out the door for maximum profits. I’m not profit naive but believe customer service, a solid agreement with a credit hire organization operating under strict terms, a genuine no-win-no-fee agreement with an approved panel of PI solicitors can do wonders for accident victims.
I appreciate your comments back and apologize for my rather snapping tone. I hadn’t had my coffee 🙂
Oh, and GTA? Loved that series of games, although I haven’t yet plated GTA4.
Sorry, you meant the General Terms of Agreement between insurers and the credit hire companies.
Hi anonymous. From the tone of your comment I assume you work in the industry.
I will happily admit that in the cases where the claim goes smoothly there are benefits for the innocent party. Things get sorted out without them having to worry about chasing garages and insurers and they eventually get their car back fully repaired with minimal disruption to their life. But, as you confirm, there are cowboys out there and the purpose of this article was to highlight this practise to people who have never heard of accident management. As long as they know to ask questions before signing on the dotted line they may avoid being caught out.
As for this industry, where there is a service there is a charge. The figure of £600m+ you quote – where is all of this money coming from? In the first place from the insurers of the at-fault party. Are the insurers swallowing these costs? Of course not, they want to keep their profits intact. So the people who end up covering the costs are all of the paying customers. So that’s £600 million a year being added to the nation’s car insurance bill – a very rough estimate would be £20 per policy.
How on earth did we manage to get our claims sorted before this service industry was born?
Hi, can you prove any of this? Are you aware that insurance companies have their own solicitors and this is called “third party assistance” where claims are bought and sold between the two entities to the advantage of the insurer and compensation amounts are capped and innocent people are deprived of what they absolutely need in order to live or function.
Perhaps also you are not aware of the GTA- you probably think thats a video game…
There are rules and regulations in place now which limit credit hire rates which INSURANCE companies have agreed themselves with the credit hire industry.
Whilst I agree that there are a lot of cowboys out there, the naysayers and doomsday puppets like you and honest John will continue to be negative, awkward and generally unhelpful to an organisation which makes £600m+ a year and will keep on thriving.
How about stating the benefits of an accident management company instead of jumping on the bandwagon.