Bent Metal and Credit Hire: Coronavirus Impact on Claims Inflation and Deflation

Published 20 marzo 2020

The deepening crisis and ramped-up response to the outbreak of coronavirus (COVID-19) has now reached such a level that there cannot be any individual or business that is not affected by it in some way. Large gatherings are being stopped, employees are being told to work from home, hospital operations are being cancelled and schools being closed.  These are just a few of the areas in which the lives of everyone are affected.

Yet life goes on, in some areas with remarkably little change, and we will see existing claims continuing and new claims arising.  It would therefore be remiss not to consider how the effects of COVID-19 and the counter-measures being employed to prevent its spread will impact on claims in general and bent-metal and credit hire claims in particular.

These are likely to include:

• Increased claim values due to delays in repairing vehicles due not just the availability of workers to carry out the repairs but the inevitable disruption to the supply chain for parts, factors which are only likely to worsen the longer the outbreak continues. Any such delays may well lead to increased hire periods being claimed.
• Increased repair costs due to increases in the cost of parts, a likely result of shortages due to disruption to the supply chain. We may also see an increase in labour costs not just from those businesses that continue to operate but also when people return to work, particularly if workloads are such that overtime and unsocial hours working come into play.  Increased labour costs could affect both the repair and the parts production industries.
• In the event of delays in vehicle repairs there may be an increased demand for hire-vehicles leading to an increase, in an open market, of the costs of hire.
• Increases in the value of claims may lead to increases in costs being claimed by claimants.
• Even greater scrutiny than usual will be required both in relation to the need for a hire vehicle and the period of hire during the period when there are so many more people working from home and the need to travel generally is massively reduced.
• On a more positive note, with more people working from home and a significant reduction in non-essential travel, one might expect to see a reduction in the number of accidents. However, this may, to some extent, be off-set by an increase in own vehicle travel where a journey is essential by those who wish to avoid public transport.

That the COVID-19 outbreak and the responses to it will impact on claims and their value is certain: the extent to which this will happen cannot at this time be predicted with any certainty. There are, however, steps that insurers can take now, to help mitigate any negative impact.

These include:

• With the majority of office based work forces being encouraged to work from home, it is vital at this early stage to ensure discussions have taken place with customers, suppliers and opponents regarding the actions your company are taking and agree ways to communicate going forward. This may mean a change in normal working practices, and a shift to accepting correspondence via dedicated email inboxes (should this not already have been set up).
• Ensuring your expectations around third party repair handling are communicated to credit hire companies. If a vehicle is roadworthy it should not be sent for repairs unless all parts are on site and the repairing garage can confirm they have sufficient staff to complete the repairs. DAC Beachcroft can assist its clients in drafting any letters that they require.
• In these unprecedented times, temporary repairs should be undertaken if certain parts cannot be obtained. A claimant’s duty to mitigate should be extended to include actions we may not deem reasonable in normal times. Parties should be doing all they can to get vehicles back on the road and avoiding unnecessary or extended hire periods, even if they will have to be sent back to the repairer at a later date when parts are available or employees are back at work.
• Understanding the pressures in your own supply chain will be of vital importance at this time. By knowing whether a certain supplier may not be able to service your demand as it does now, you will know where to direct any captured hire or repair claim, ensuring the claimant us put back on the road as quickly as possible.
• Directing resource to your first notification teams where ever possible has never been more important. If your supply chain is fully functioning, ensure that you are making all possible efforts to get the third party into your own network. With several manufacturers around the country already closed, hire periods could potentially run into periods lasting several months. Claim spend will be mitigated if your repair network can source parts or you are paying your hire suppliers rather than a credit hire rate.
• Consider the use of green parts if new parts cannot be sourced.
• If it becomes apparent that repairing a vehicle is not possible for a considerable period of time, consider whether writing off the vehicle is a more economic proposition.
• Use your internal engineers to see if they can source parts which do not appear available. Keep claims under even tighter review than normal will be key to ensuring that any ongoing claim or in particular a claim of which you have just been notified of is regularly reviewed to understand any delays a third party may be facing in a repair or payment process. This will allow you to respond and intervene where you can and provide an opportunity to argue a failure to mitigate further down the line should a third party fail to take this into account unreasonably.

The position is an ever changing one and it is impossible to predict how the situation will develop and what even the short term, let alone the long term, effects will be: let us all hope that the situation resolves itself sooner rather than later and that the situation does not deteriorate to the level that some are predicting.  What we can say however is that the societal and business changes being seen, temporary as we all hope they will be, will impact upon claims.  It will be essential for those in the claims field, particularly those acting for defendants, to be alert to the issues that arise and to action them appropriately. 

For more information or advice, please contact one of our experts in our credit hire team.