Consumer Motor Insurance Disputes

1. Consumer Motor Insurance Disputes • Peter Hinchliffe • Lead Ombudsman - Insurance Warsaw 28 September 2009

2. Motor Insurance Disputes Background in UK: Compulsory motor insurance • Most policies are comprehensive i.e. repairs and loss covered as well as third party liability. • Motor Insurance Bureau provides cover for uninsured drivers (funded by the insurance sector). • Many insurance policies offer uninsured loss recovery – so the consumer’s insurer will recover the consumer’s losses

3. Motor Insurance Disputes Our motor insurance workload • We only deal with customer disputes. • The implementation in the UK of the Fourth Motor Insurance Directive brought third party claims into our jurisdiction. • Third party claims have been taken out of our jurisdiction after April 2008. This was due to reforms to the Court system to make personal injury disputes quicker and cheaper. • Customers can complain about insurers and intermediaries or both. • Customers can hold their insurer liable for the failure/delay by a repairer if they were appointed by the insurer. • We can make final legally binding decisions and make awards of up to £100,000. Around 90% of motor disputes are settled by agreement between the parties without a binding ombudsman decision.

4. Motor Insurance Disputes 2008/2009 • Total 6267 consumer cases. • Approx: 50% concern a dispute about liability for a claim 35% concern a dispute where liability for a claim has been admitted but the insurer and consumer disagree over repairs, valuation, delays etc 15% concern sales, administration, renewal, cancellation etc • Outcome – 50% we agreed with consumer, 50% with insurer

5. Our approach to valuation and repair disputes Valuation of cars that are written off • In 2008 we published our approach to valuing cars. See http://www.financial-ombudsman.org.uk/publications/technical_notes/motor-valuation.html • The insurance trade association (ABI) accepts this approach. • The policyholder is entitled to the fair market value of the car – that is normally the price at which a car would be sold in the market. • To calculate this, we use: 1) Trade guides – 3 independent experts’ databases. One is available to the public, two are available to the motor trade on subscription; 2) Motor engineers reports produced for the insurer or the consumer; 3) Advertisements, specialist publications etc. • Where the 3 trade guides vary we take the average unless one is clearly out of line. • We applied the same approach to third party disputes about the value of cars when they were in our jurisdiction. • Disputes remain common

6. Cost of repairs • Insurers either agree with their customers to arrange for repairs to be carried out – they then bear all of the costs and accept liability for any failures or delays, OR • Insurers agree to reimburse their customer for the costs of repair – they then bear the actual costs incurred by the consumer (unless there is dishonesty). • Because most insurance is comprehensive, consumers look to their insurer to repair their car not the third party. • Insurers have the right through subrogation to recover the cost of repair from a third party if they caused the damage. In practise insurers will seek reimbursement from the third parties’ insurer (or the Motor Insurance Bureau). • So we see very few complaints from consumers about not getting the full cost of the repairs. • Any third party claiming directly from an insurer has no right to an independent valuation and may have to go to Court.

7. Third Party Repair Costs • Disputes over the cost of repairs between insurers do not come to us. We take the view that the consumer should not be involved in intra-insurer disputes. • We do see a lot of disputes about the quality of repairs, spares etc – these are decided on the basis that the car should be restored to its pre-accident, pre-damage state. • We will seek expert motor engineer reports from either party or an engineer appointed by both parties. • We do not appoint our own engineer, inspect vehicles or employ experts. We work on the evidence provided by the parties or the engineer’s evidence that we request them to obtain.

8. Independent motor experts • As most motor claims are handled by the two insurers of the two parties involved, there is no great need for an independent expert to be appointed by a policyholder or by the ombudsman. • The willingness of motor insurers to be responsible for carrying out repairs and repairers also means that the consumer has little need to be concerned about the cost. • When we decide disputes about the quality of repairs we may require one party or both to appoint an independent motor engineer to inspect the car and provide a report. Independent motor engineers are available to both consumers and insurers and we regard their evidence as very important.

9. Current problems in the UK Credit hire/claims managers • Consumers who are in an accident may be referred to or approached by a business, who will offer to repair their car, provide a hire car and recover all of the expenses from the insurer of the other party in the accident. These businesses will advertise that no claim is made under the motor policy, there is no loss of no-claims discount and no excess, etc. • If the credit hire company is unsuccessful or fails to carry out repairs adequately etc, it may be too late for an insurance claim to be submitted. Staged accidents/fraud • There is evidence of increasing numbers of ‘staged’ accidents. These are arranged so that the occupants of one car can all claim injury losses and expenses from the insurer of the other car. Repairers and others can be involved in the fraud.

10. Current Problems (continued) Third Party Capture • There is growing concern about some insurers approaching consumers who have been involved in accidents with the insurer’s customers and offering very quick cash settlements. The consumer may accept before understanding the extent of any injury or other losses they will suffer. • Pressure for regulation or self-regulation. At present in the UK the third party consumer would have to go to Court to challenge an insurer and this is regarded as unsatisfactory.

11. Alternatives • A consumer dealing directly with an insurer is at a great disadvantage. Insurers have enormous experience in resolving claims from customers and third parties about motor insurance. Consumers may only have a few serious disputes in a lifetime of driving. • Litigation is too expensive and slow in most EU countries • Therefore it is important that consumers (both customers and third parties) have easy access to a process that they can trust and which will give them a fair outcome. • That process could be a report from an independent engineer. It could also be a free Ombudsman scheme (or an equivalent body) that can make an order to settle a dispute.

12. Alternatives • If such a scheme is available then giving the consumer a right to an independent assessment becomes less significant. Any insurer who seeks to take advantage of consumers will learn that they will be taken to the ombudsman or equivalent body and they will lose. • So in examining alternative ways of ensuring that customers and third parties dealing with insurance are treated fairly, one alternative in some EU countries may be to provide a mechanism for providing independent valuations or reports to the consumer and insurer. Another option may be to provide for an independent body to finally resolve the issue itself.

13. Questions and comments peter.hinchliffe@financial-ombudsman.org.uk