Analysis: Garage closures pile pressure on credit hire relations

As the coronavirus outbreak deepens, there is no sector that is not affected by it in some way. Across most businesses employees have been told to work from home, schools have limited pupils, and many retail and manufacturing business have closed their doors temporarily.

While garages have been allowed to stay open during the UK-wide lockdown which was announced on 23 March, they have been limited by social distancing, difficulty sourcing parts and lack of business have forced many to shut down.

As the lockdown has limited the number of people on the roads subsequently fewer accidents have been happening during this period which contributed to a reduction in the volume of credit-hire claims being submitted over the last few months.

Delays in repair times

Emma Fuller, partner and head of vehicle hire and damage at DAC Beachcroft, said: “Although claim volumes had dropped dramatically, the hire claims we had seen in recent weeks were, as expected, for far higher sums than we would typically see.”

“As predicted we are seeing significant delays in repair times. This is for a range of reasons including garage closures, unavailability of parts or a lack of resource at garages that have remained open. The government has confirmed that providing mobility to vehicles is classed as essential work, so garages are legally permitted to remain open but the inevitable drop in demand has meant many have already closed.

“Many credit-hire organisations are already reporting that their supply network is greatly reduced and that, in certain locations, they are unable to repair vehicles. We have even had cases where garages have allegedly shut with the claimant’s vehicle stuck inside.”

Fuller added that closure of dealership and other vehicle retailers is also contributing to the rising credit-hire costs.

“We are being faced by many CHO’s asserting that their clients cannot purchase another vehicle following receipt of their total loss payments due to closures of dealerships and other vehicle retailers though investigations are showing that in some cases there are ways doing so.”

Andrew Wilkinson, technical claims director at Aviva, noted that the insurer has already started to see an increase in repair duration and extended off-hire periods.

He said: “These are unusual times and the need for a replacement vehicle may differ during the lockdown period. Customers themselves may have less need for a hire car during lockdown than they would in ‘normal’ times.

“We have already started to see an increase in repair duration, due to garages closing at the beginning of lockdown, and trying to observe social distancing as they reopen. This has also affected the replacement of damaged vehicles. While these claims have not concluded, we are naturally expecting an increased duration – and hence, cost – on these claims, although it will be some time until the full impact will be known.”

Extended off-hire periods

“Aviva has welcomed dialogue with most CHOs to discuss claims where duration will be affected by Covid-19. However, we do have concerns that we are starting to see unreasonable demands being placed for off-hire periods before they collect the car from the customer, following the completion of repairs. This is at odds with how some CHO’s deliver the vehicle to the customer and expect them to use it on the same day.”

Zurich has also reported a reduction in the volume of credit hire claims in recent weeks.

Kyle Gray, credit hire and market agreement manager at Zurich, said:  “Zurich, like every other insurer, has seen a reduction in the volume of credit-hire claims being submitted during the current situation, which is not surprising with less vehicles on the road and subsequently fewer accidents happening. We have seen volumes start to increase again in recent weeks as lockdown measures have been eased and more people take to the roads again, although we are still some way off pre-lockdown volumes.

“At Zurich, we were able to move immediately to a flexible remote-working structure for our staff  so have been able to understand in detail what is happening with each claim – we have identified a limited number of credit-hire claims which may have repair delays or extended hire issues directly related to Covid-19. The precise picture is not clear on some cases as we have not been given full details from the credit-hire organisations involved. Across the overall Zurich portfolio of credit-hire claims, only a very limited number of claims have been so far flagged with potential Covid-19 related issues.

While vehicle repair is one of the main issues in the current environment, Zurich said its network have coped “exceptionally well”.

Gray said: “In relation to vehicle repairs, our networks have coped exceptionally well throughout the lockdown period and have been able to service customers well, ensuring prioritisation for key workers and limited delays. We have not identified any major issues with repairability of vehicles but we have in certain circumstances taken a pragmatic view to assist claimants by declaring their vehicle a constructive total loss and helping them get back to normal as soon as possible.

Gray added that it has seen longer off-hire periods during the lockdown as CHOs claim their clients have not been able to purchase a new vehicle.

He said: “On total loss claims we have seen some CHOs taking a stance that their clients have not been able to purchase a new vehicle during the lockdown period, so that despite receiving prompt settlement for their vehicle claim, with money transferred directly to their account, they will remain in hire until local dealerships physically fully open. While this may be the case for a small number of individuals, vehicles have been widely available to purchase from many mainstream dealerships and specialist vehicle suppliers online throughout the full Covid-19 lockdown period.

“These suppliers offer ‘social distancing’ safe transactions and seven to 14 days for customers to make up their mind after receiving the vehicle in replacement of a standard test drive. As a result, most of the credit-hire claims we have seen with a total loss involved have been dealt with swiftly with claimants taking appropriate and reasonable steps to mitigate their losses.

“We have been working with CHOs throughout the lockdown period to help mitigate losses by offering repair support and solutions where we can. Most CHOs have been fully supportive and working with us to deliver the best solution for their client and get them back in their own repaired vehicle or purchase a replacement vehicle.

“As repairing garages and car sales dealerships are now starting to get back to business as usual, we expect credit hire claim duration to fully return to normal over the coming weeks.”

Caroline Johnson, director of third party technical claims at LV, said: “While we have seen a significant reduction in the volume of accidents since the Covid-19 lockdown, we are observing increased pressure on the cost of those claims.”

According to Johnson, repairs (predominantly from un-drivable vehicles) are being delayed, as garages have closed or have had significantly reduced capacity. 

Total loss claims, where replacement vehicles have been more difficult to source (for example with showrooms being closed). 

She also mentioned a greater demand for delivery and collection and increased cleaning costs contributing to the increase in credit hire claims costs.

She added: “With the exception of the final point, we expect to see this reduce as the lockdown is eased and more repairers and showrooms re-open.” 

Keoghs has already identified a higher frequency of extended hire periods during the lockdown. According to Christopher Clapp, market lead for credit hire at Keoghs, the current average hire days incurred for ongoing hire claims commended during the month of March is 76 days compared to 25 days for the same period last year.

Clapp added: “Our starting point on any claims presented throughout this period has to be, and will be, one of pragmatism, and appreciation of the great challenges and concerns losing mobility in this period could cause. Hire providers will have been and will continue to be key to reducing many individual’s stress and worries of not being able to carry out essential travel. We have a crucial responsibility to ensure this is always in our minds when reviewing submitted claims in the months ahead and assessing their reasonableness.”

CHOs

Kirsty Mckno the chair of the Credit Hire Organisation, said: “At the beginning of lockdown, at a GTA technical committee meeting, the insurers who sit on there and the credit-hire companies who represent the subscribers in the UK looked at the current Covid situation and said ‘we expect problems, as an industry this is going to cause problems’ and the kind of problems we were looking at were that repairers are going to close down and we were correct, repairers literally closed down overnight and repair body shop capacity went down to below 50% within about two weeks because the repairers couldn’t stay open and the repairers that stayed open couldn’t get parts because they were coming from other countries that were also in lockdown.”

Mckno explained that normally clients are given five days to buy a new car once they receive a check from the insurer but in the current situation, they have found it harder as car dealership aren’t open.

She added: “Very early on the GTA issued a joint statement of principle that was very much along the lines of insurance and credit-hire companies must work together and communicate at all times to find a way through to mitigate loss and be pragmatic about everything they do.”

Mckno said that in order to mitigate losses, CHOs ask their clients if they really need a car, if they are a key worker or if they are still required to work.

She added: “We are very careful as an industry in checking – do people need vehicles? And most credit hire companies do what we call a mitigation questionnaire that covers that point with their clients.”

“Once they are in a car we’ve got to make sure that nothing changes. So for example, someone may say at the beginning I need a car because I’ve got to work but if they have been put on furlough we need to know about that because we’ll look at it and say “do you really need a car anymore?”

“The costs have increased, and it’s because the length of time that people are in car has increased and there are genuine reasons for it increasing like dealerships being closed or the repairers not being able to get parts or being closed so those are genuine reasons the duration has gone up.

“It’s up to us as an industry to make sure that those people should genuinely be in a vehicle and that they genuinely have a need for a replacement.”