INSURERS ENTER CREDIT HIRE ARENA - HOW WILL IT IMPACT BROKERS?

"A NEW DAWN FOR CREDIT HIRE"

An article in the Insurance Times today reports that AA/Saga plans to take its credit hire arrangements in-house in an attempt to save millions of pounds. The move could trigger other insurers to follow suit as frustration grows at the level of expenses incurred in the process.


To read the full article "A NEW DAWN FOR CREDIT HIRE" click here

The insurance industry has opposed the activities of credit hire firms since the emergence of the industry in the eighties. For over twenty years insurers have adopted an adversarial stance to the existence of credit hire as a concept, with both sides entering into protracted and expensive litigation on points of law. A number of legal precedents have been set down from the High Court and Court of Appeal as a result of the arguments between the two industries.


An insurer owning its own credit hire company is an interesting business concept, something which insurers have looked at for some time, and now AA/Saga has taken the plunge.


It will be interesting to see how this affects the AA/Saga relationships with other insurers. Will negligent insurers pay the AA/Saga credit hire claims any faster than the existing credit hire operators?

In a seperate Insurance Times article on the subject, Ai Claims Solutions commercial director Chris Shaw countered that not all credit hire companies had adversarial relationships with insurers. He said: “The issue was not about referral fees but about hire durations".


To read this article click here


On the face of it, this comment seems to be somehwat naive. Of course it's about referral fees, they are part of the problem the insurers want to remove. Insurers have been applying pressure to brokers for many months now regarding their relationships with accident management and credit hire companies. Insurers have threatened brokers with reduced commission levels if blacklisted credit hire and accident management companies are being supported.


The arrival of the comparison site aggregators, a prolonged period with soft rates and the current economic climate has forced brokers to seek alternative sources of income to supplement diminsihing margins from motor insurance. The accident management sector has become fiercely competetive in its search for non fault accident victims, offering increasingly lucrative inducements to brokers for such referrals.


Insurers have cashed in on the deal too, with many millions being paid in referral commissions to insurance companies by credit hire companies for the introduction of non fault accident policyholders. Commissions are paid for credit hires and personal injury cases, with referral fees as high as £800 being paid per case.

There have been instances of large insurer organsiations writing motor insurance premiums with 0% commission to increase market share. The business model of a number of these companies includes owning their own accident management company. Let us look at why such an organisation would write premiums at 0%.

Assume 1000 motor policies are sold with average commission of £75.00 = £75,000
A 20% claim ratio = 200 claims. Assume £500 income per claim = £100,000

These organisations have learned that there is a greater income opportunity from claims income than from policy sales.

Insiders from within both industries have long since speculated that this level of referral rates were not sustainable in the long term.

The same insurers receiving generous credit hire referral fees have also been exerting pressure on brokers for supporting credit hire companies!

These factors are undoubtedly part of the rational behind the development of the AA/Saga credit hire operation. With such a business, they will control their own exposure to such claims and undoubtedly generate significant income streams from those cases where their customer is the non fault party.


BROKERS

Of greater interest perhaps, is the potential impact insurers providing credit hire will have on insurance brokers in the UK.


The success or failure of the AA/Saga credit hire venture will either encourage other insurers to follow suit, or seek alternative strategies to combat the growth of the sector.

One thing is certain. The credit hire and accident management organisations will not take the competition lying down. They will use their considerable resources to protect their business models. The non fault accident market has become a race to see who can capture "First Touch" of the customer. The accident managers have become adept at the practice, which is undoubtedly why the insurers are now considering "playing them at their own game".

Other insurers may follow the lead of the AA/Saga team and develop their own credit hire solutions. This would have the effect of restricting the size of the potential accident marketplace, reducing income opportunities for brokers working with accident management companies.

Prudent brokers will not have put all their eggs in one basket and become over reliant on accident management referral income.

The more successful brokers have quickly recognised the benefits of adding value to the customer experience.

In a marketplace is dominated by price driven consumers, innovative thinking brokers will always succeed in securing and retaining business by providing enhanced service that the internet cannot compete with, qualified advice and quality products.

Brokers that have developed successful "Add On" strategies for such quality products are booming even in the midst of an economic downturn.

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