Claims inflation: The continuing rise in credit hire claims

The reforms introduced a fixed tariff for valuing whiplash injuries alongside a pre-medical offer ban, the creation of the Official Injury Claims portal and the increase of the small claims limit. The reforms were introduced to control claims’ costs and benefit consumers through reduced premiums. Whilst the success of the reforms is debated, it is accepted that the volume of motor injury claims has significantly fallen since their inception. The Compensation Recovery Unit reported 348,806 motor cases between 2023 and 2024 which contrasts starkly against 446,976 cases reported in 2020-2021. Yet, despite falling numbers of recorded injury claims, motor credit hire claims experience unprecedent inflation. The Insurance Times recently reported a five-fold increase in the average credit hire invoice since 2014, and a six-figure credit hire bill is no rarity. So, what is leading to the growing cost of credit hire and how do we tackle this problem?

The cost of credit hire continues to rise such that one of the major credit hire companies frequently applies a daily credit hire rate of £999.99 plus VAT per day. When such exorbitant rates are charged, then only a 9-day hire is needed to result in a cost bearing case. It is no surprise that such rates are sought, as credit hire case law does not create any cap on the sums charged. Rate challenges revolve around stripping out the charge for irrecoverable benefits (provision of accident management services etc) by reducing the hire down to a market rate. However, if the claimant can demonstrate that they are ‘impecunious’ and did not have the funds to hire from the ordinary market, then the full credit hire rate is recoverable - Lagden v O’Connor [2004] 1 AC 1067. Once the claimant is impecunious then the usual rate challenge falls away and the rate can only be argued based on failure to mitigate because the credit hire rate is significantly higher than that of other credit hire companies. Yet the duty to mitigate only requires the claimant to act ‘reasonably’ and it is hard to contend the claimant ought to shop around for lesser credit hire rates when credit hire companies obtain work via referrals not advertising. Whilst competition between companies normally controls pricing, the way in which credit hire companies obtain their ultimate customer removes that control in the credit hire space. The position is therefore arguably a blank cheque.

In addition to increasing daily rates, several world events such as the war on Ukraine, Brexit and Covid 19 have fed into elongated periods of hire. Supply chain problems have caused delays in receiving parts, and issues in the repairer network. Furthermore, the rise in hybrid, electric and automated cars have fed in to longer and more expensive repair times.

The number of fraudulent motor claims is well known and widely reported. However, a recent decision from the Court of Appeal opens the door to the sanctioning of credit hire claims where the claimant’s use of the vehicle pre-accident was illegal. In Ali v HSF Logistics Polska SP Zoo [2023] EWHC 2159 the claimant had gone on to credit hire even though his vehicle, damaged in the RTA, had been without an MOT for 4 months. At first instance the credit hire was challenged on the basis of ex turpi causa, the claimant ought not to benefit from his illegal act and recover credit hire as a substitute for the loss of use of a vehicle being used contrary to criminal law. The challenge failed, with Patel v Mirza [2016] UKSC 42 being applied. When ultimately the case reached the Court of Appeal, although the illegality point was not the subject of the appeal, the Court of Appeal validated Patel and reiterated that credit hire claims would not be debarred due to illegality unless denial of the claim could be considered a proportionate response to the criminal offence considering the level of offence and its punishment. The Court of Appeal also rejected the first instance court’s attempt to alternatively reject the credit hire based on there being no recoverable loss (as the loss of use had been illegal). An endorsement that it is right to allow the cost of hiring a replacement car following an RTA with a car which has not been legally compliant is a major concern when the insurance industry continue to tackle exaggerated and fraudulent claims.  

What can the insurance industry do to react to these developments and their knock-on effect on indemnity spend? The issues suggest that government intervention is much needed. The credit hire organisations are currently unregulated by the Financial Conduct Authority and fall outside of the scope of Financial Ombudsman Service as rental agreements are exempt from the Consumer Credit Act. Although previous considerations by the Competition and Markets Authority (CMA) have resulted in no intervention into the credit hire sector, perhaps the CMA need to address the question once again. Also, with concerns around the volume of credit hire litigation, the introduction of a specialised pre-action protocol for credit hire matters could lead to greater collaboration and the compromise of more claims pre-litigation. 

Furthermore, the Association of British Insurers GTA have already announced that they are looking to revamp their agreement to include compulsory arbitration, clearer rules, an annual independent data-driven review of hire rates and revised penalties for late payment.

Individually, insurers and self-insureds can look to address the increasing rates with a robust intervention process and should be looking at their processes to ensure that constructive total losses, application of green parts etc assist in swift dealing of vehicle damage claims.