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CMA goes into reverse

Back in December last year the Competition Commission suggested seven ways to address the separation of cost liability and control it saw as leading to the generation of revenues with little or no regard for costs. In June the CMA stated it would only introduce two of those measures, one of which was a proposal to introduce a dual rate price cap that would lead to a reduction in hire costs in fault accident claims. The CMA has now announced that it does not have the power to implement that proposal and it has been scrapped.

The CMA had proposed that in cases where liability was accepted by an insurer in a short period of time then a low rate cap would apply, with a high rate cap applying in cases where liability was not admitted. The amount that would become recoverable by the hire company would be restricted to one of the two rates. The CMA has now concluded that it does not have the power to implement such a cap, restricting as it would the amount recoverable by a party in tort.

Instead, the CMA is now proposing a cap on the charges that a hire company can make in fault accidents, so that a claimant presenting a claim for hire in a fault accident would be sure of recovery of the hire charges at whatever rate it was that the CMA set. But the CMA recognises that it might have to abandon its attempt to implement a rate cap altogether, leaving CHOs and insurers to adopt aspects of its proposals in GTA II, by the introduction of a credit hire portal and/or by reaching bilateral agreements with individual hirers. 

Comment

It appears that the response the CMA received to its own consultation has caught it by surprise, but, as the CMA recognise, it had already had its attention drawn to the fact that it had no power to restrict the hire charges in the way that it subsequently proposed in June. We wonder why it did not pause for thought before it made its announcement.

Given that it is likely that any attempt to restrict the amount that hirers charge will be met with a challenge that that would represent a restraint of trade, we now view it as unlikely that a rate cap of any form will be set and that it will be left for CHOs and insurers to attempt to sort out their differences.

The result of the CMA investigation is likely to leave CHOs more entrenched than ever before, as they will take the view that they have successfully seen off a challenge to their business practices and that their position is unassailable. It is possible that any offer by insurers to review and “beef up” the GTA (as the CMA has encouraged CHOs and insurers to do) could be rebuffed but much of what has been proposed by the CMA makes sense in principle (for instance a lower rate being offered where liability has been admitted). A credit hire portal seems a natural progression and would remove some of the frictional issues, but if GTA subscription is not mandatory for all CHO’s and Insurers and the portal is confined to GTA subscribers, then it is unlikely that the orginal aim of the CMA's recommendations will be achieved.

Next steps

The CMA has now issued a notice of further consultation, with responses due by 4 August. We will wait to see what happens next in this long drawn out saga.

Contact

For further details please contact Gavin Perry, Partner on 0151 907 3493.

By Gavin Perry

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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