Credit hire – is it driving up the cost of car insurance premiums?

Credit hire is a relatively new kid on the block. Its conception was inspired by the need for drivers who have had an accident to get back on the road as quickly as possible but don’t want to go to the personal expense of hiring a car for themselves. Credit hire is a provision offered by some insurance companies that allows a driver access to a car of similar size (often referred to as a ‘like for like’ vehicle) with the cost being met by the insurer. These fees are then recovered from the insurance company of the person that is found to be responsible for the accident in the first place.

It sounds complicated, but basically credit hire is a system that has found favour among many insurers who want to make sure that their customers get back on the road as quickly as they can without incurring too much in the way of personal costs.

Driving insurance costs up?

However, credit hire is being cited as one of the key factors that has been driving up the cost of car insurance premiums over the last couple of years. So is this service actually responsible for pushing up premiums?

The AA, one of the UK’s leading motoring organisations, believes so, claiming that credit hire car premiums are excessive. They also believe that some agencies are extending the period of repair of the policyholder's car for as long as possible to increase profits from the hire agreement. They go on to say that the other party’s insurer is then not only hit with the costs of repairing the driver’s own vehicle, but also forced to pay the costs of the credit hire agreement too. They claim that some of these charges can be excessive and the cost is then passed on by the insurance companies to their customers through higher premiums.

The fault of fraudsters

So are credit hire agreements driving up the cost of insurance premiums? It’s a little early to predict exactly how much of an impact they have on insurance costs, as credit hire agreements are a relatively new phenomenon. Most commentators agree that insurance premiums are being driven up because of the cost of fraudulent claims and excessive costs in many personal accident claims, and that credit hire agreements actually have little if any impact on the cost of motor insurance. The truth is that to a driver who depends on their car for business or who lives in a rural location where public transport is not an option, having immediate access to a car that is paid for by the other party’s insurance can mean the difference between carrying on with their daily life and being stranded. The impact can be significant, particularly if the driver runs their own small business.

So credit hire provides an additional layer of protection for those who are willing to pay the extra on their premiums for the service. While there may be some need for regulation of the credit hire market, it is still too early to accuse it for being directly responsible for an overall increase in the cost of motor insurance. The blame for that lies elsewhere, particularly at the doors of those who are willing to give only a cursory glance at insurance claims that are suspect at best and downright dishonest at worst.