2008 and the credit crunch

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The credit crunch impacted insurer cash flows (particularly those that were bank owned) and this in turn put material strain on GTA compliance as insurers took extra credit at the expense of receiving the GTA discounts (GTA rates are for payment in 30 days and, if unpaid, penalties apply; 7.5% after 30 days and a further 12.5% after 60 days).

This in turn led to credit hire organisation's (CHO) cash flow difficulty and increased litigation.

The disruption to CHO cash flow reduced the willingness of bank and investor to finance CHOs for both working capital funding and vehicle acquisition funding. This reduced the scale of activity of most CHOs, giving less choice to consumers when they had an accident.

Post bank refinancing, insurers have resumed taking the GTA discounts and there is more market harmony, though investor and bank support for CHOs is still much diminished. While the credit hire industry has grown appreciably since 2000, growth has levelled off and even reduced in recent years. This resulted from the recession, a reduction in vehicle traffic, a fall in the frequency of accident claims and a reduction in the lengths of vehicle hire.

A data collection exercise of the then current CHO members showed that the value of closed claims for private motorists being provided a temporary replacement vehicle via credit hire, in the 12 months ended 31 December 2013, was approximtely £195 million.

For the latest Competition and Markets Authority investigation into motor insurance (and credit hire) click here.