Protecting Victorian motorists: From the accident tow - to completion of repairs IAG submission to the Essential Services Commission review of Accident Towing Regulation November 2014 1
Executive Summary Motor vehicle accidents are stressful situations. This is especially true in the immediate period following an accident. Consumers can be completely overwhelmed and in an entirely unfamiliar situation. While the well documented and often public issue of multiple tow operators aggressively and unscrupulously competing for work at accident sites has been addressed by current towing regulation, these schemes have not prevented other growing forms of consumer exploitation. IAG and its subsidiary companies pride themselves on minimising the stress our customers experience after an accident. Our ability to provide a stress free customer experience is in many cases limited by the current towing regime in which many accident tow operators are conflicted by their financially driven affiliations or ownership of smash repair shops and flow on services such as hire cars, independent assessors and claims recovery services. Such services are sold to customers under a cloak of good faith or value-add. Rather than adding value to a motorist, processes that set out to circumvent insurer processes or restrict the ability of a consumer to make an informed choice, can more than double the costs associated with an accident. Ultimately most Victorian motorists bear these costs in their insurance premiums. Given the infrequency of accidents, motorists are ill-prepared to decide at the scene of an accident where their vehicle is towed to and ultimately where it s repaired. Many financially conflicted tow operators often use this unfamiliarity in their goal of delivering a consumer to an aligned smash repairer. Conflict of interest is almost always at the root of problems experienced. The scheme could be significantly improved if incentives were removed, by the separation of the towing service and the smash repair process. In reality the existing model - serves only to increase the profits of the tow company, smash repairer and the alliances we identified. It leaves Victorian motorists exposed via upward pressure on the insurance premiums they pay, or sees them unwittingly exposed to legal action in their name to recover costs they believed were offered free of charge. In some cases these motorists are unsuccessful in their legal action, leaving them with legal bills and repair costs which may not be covered by their insurer because the car has been repaired in breach of their insurance policy conditions. Such alliances are only made possible by the embedded links between many tow trucks and smash repairers. Ironically, our decision to support the entire smash repair industry by retaining the choice of repairer policy for customers provides some tow truck drivers the opportunity to manipulate the situation to deliver a crashed vehicle to an affiliated repairer. In the next section of our submission we have summarised our response to the Commission s questions. Later in this document we detail our extensive experience in the Victorian towing industry and make a series of observations and recommendations for consideration. We believe that the current regime cannot protect Victorian motorists in its present state. Following the money trail from the smash tow makes the current situation hard to ignore. Reform of the current licensing model - that has had the unintended consequence of allowing a monopoly on repair work for the few tow operators that own licenses is vital. The aim of reform should be to protect Victorian motorists and this can only be achieved through separation of the accident tow service from smash repairers and other service providers surrounding accident claims. 2
Response to ESC questions Essential Services Commission question 1. Should accident towing fees in the controlled area continue to be regulated? Are there reasons to begin regulating fees outside the controlled area? 2. Should there be separate controlled and self- management areas? If so, are the current areas and allocation boundaries reasonable? 3. Which process and criteria should be applied in setting area and allocation zone boundaries? 4. Should accident allocation schemes continue in the controlled and self management areas? How can the current scheme be improved 5. Should accident allocations in unregulated parts of the state continue to be unregulated? Why? IAG response We strongly believe that accident towing fees should continue to be regulated in the controlled area. We recommend that fee regulation be expanded to cover all other areas of the state. While consumers are expected to negotiate the cost of towing services, they ultimately rely on their insurer to meet these costs. Being unfamiliar with the towing industry and often overwhelmed consumers are easily exploited. It is often left to the insurer to argue that the costs charged by the tow operator are unreasonable. It is common practise for repairers to hold customers vehicles to ransom while demanding unreasonable costs for the towing service. This routinely delays repairs and settlement of the claim for customers. (In these cases we may also need to initiate legal action, and involve other parties such as Vic Roads, adding to the stress for customers) We support the continuation of the controlled area. Some stakeholders see merit in expanding this to incorporate the selfmanagement area of Geelong; however we are generally unaware of any compelling reason to do so. We believe the existing allocation boundaries are reasonable however, with the continued urban expansion of Melbourne, the selfmanagement area will likely experience increased activity of Melbourne based tow operators. This will likely change the current dynamics and therefore should be considered when setting future boundaries. Allocation zone boundaries should only consider the logical partitioning of a geographical area for the purposes of the tow truck efficiently servicing the area. Attempting to structure boundaries in order to evenly distribute towing allocations runs counter to consumer interests. Additionally, the practice of excluding other competent towing operators from an allocation zone limits other towing capacity that exists today. We strongly believe that accident allocation should continue in the controlled and self management areas. This mechanism has been effective at eliminating undesirable behaviour at accident scenes where multiple tow operators compete for the tow. Consumers are ill-prepared to decide where their vehicle is towed to post accident. Tow operators often have a conflict of interest with their ultimate goal often being to see the vehicle delivered to an aligned smash repairer. This conflict of interest is almost always the root of any problems experienced. The scheme could be significantly improved if this incentive was removed. We have no evidence to suggest accident allocation is required in unregulated parts of the state. It is our experience that outside the greater Melbourne metropolitan area, fewer tow truck companies are competing for work. With fewer tow trucks arriving at an accident scene, the likelihood of undesirable behaviour is significantly reduced. 3
Introduction Insurance Australia Group (IAG) welcomes the opportunity to make a submission to the Essential Services Commission s review of accident towing regulation. IAG is Australia s largest insurer and sells insurance under several leading brands in Australia including NRMA Insurance, CGU, SGIO, SGIC, Swann, WFI and Lumley Insurance. In Victoria IAG policies are also available through the RACV brand via a distribution relationship and underwriting joint venture with RACV. Motor Insurance makes up 32% of IAG s insurance portfolio. IAG insures approximately 10.3 million cars worldwide. 4
IAG and the Victorian Towing Industry IAG has significant interaction with the Victorian towing industry and its various sectors. The majority of tows outside of accident towing - are to the best of our knowledge conducted efficiently, competitively and in the consumer interest. The sectors are best understood as: Breakdown towing: The transportation of vehicles with a mechanical fault. These vehicles are generally disabled at the roadside. The scale of this type of towing activity is significant and it is our understanding the sector functions efficiently, competitively and in the consumer interest. Trade towing: The transportation of vehicles for a variety of reasons such as a mechanical fault, an insurance total loss etc. It is most often managed by insurers or other participants of the automotive industry. The scale of this type of towing activity is also significant, with the sector functioning efficiently, competitively and in the consumer interest. Accident towing: Per the previous graphic, accident towing is the transportation of a damaged vehicle from the scene of an accident to another location. In reality it is the allocation of valuable smash repair work rather than towing. Our Victorian customers are involved in more than 10,000 accident tows per annum. 5
Where breakdown and trade towing operates efficiently and in the consumer s interest, accident towing often operates in the interests of some smash repairers and their alliances. Putting aside the ability to schedule trade tows, we believe the services provided by each sector does not differ markedly. The primary difference between accident towing and other towing sectors is the value of the secondary market, in this case the insurance repair and associated add on service costs. IAG believes that by removing the ability of the tow operator to engage this secondary market, significant improvements to the sector would be realised and consumer protections afforded. From accident scene to completion of repairs: protecting Victorian motorists At the scene of an accident, motorists are often overwhelmed and in an unfamiliar situation. It is in this environment that they are pressured to make important decisions about where their vehicle is taken after the accident, in many cases the goal of the tow truck will be to see it towed to an affiliated smash repairer. Once at this repairer, the consumer often finds it difficult to choose another repairer. In some cases, repairers will intentionally frustrate the removal of a vehicle, which may lead to legal action being initiated. The following are brief (redacted) summaries of two matters where IAG has taken action: Claim No.: [number removed] - Insured: [name removed] Following a collision the insured was allocated a tow truck from XXXX Towing (a tow truck operator). Mr XXX, the director of the tow truck operator, tried to convince the insured to take their vehicle to a particular smash repairer in Suburb X, alleging that your company s preferred repairer, ABC repairers would perform a sub-standard repair of the insured vehicle. Mr XXX said that his son owned the smash repairer in Suburb X and that they would take care of him. The insured insisted that the vehicle be taken to ABC repairers, however the vehicle was nonetheless taken to the smash repairer in Suburb X, who subsequently attempted to claim quoting, administrative and storage fees that were not authorised pursuant to the Accident Towing Services Act 2007. The insured made a statement to VicRoads and the towing operator was fined for breaching the Act. Claim No.: [number removed] - Insured: [name removed] After a single vehicle collision, XXXX Towing (a tow truck operator) attended the scene to tow the insured vehicle. The insured requested that the vehicle be towed to her home address, however the tow driver convinced the insured to have the vehicle towed to XYZ panels (another repairer). The tow driver convinced the insured to tow the vehicle to this repairer by asserting that the insured was in shock and that this repairer was an RACV approved repairer (which was false) who could deal with the claim on her behalf. A few days later the insured attended XYZ panels to collect some belongings out of her vehicle and was presented with a document entitled Authority to Store, Quote and Repair, 6
which authorised XYZ panels to charge the insured or RACV a number of inflated fees (which were not covered by the insured s policy). This document was not explained to the insured, who was told that the document was a formality that everyone signs and that the fees set out in the document were something to be worked out with RACV. XYZ panels then attempted to charge excessive storage fees, a quoting fee, some unauthorised repair costs and an EPA Levy. They later released the vehicle at no cost after we litigated. The current towing regulation and allocation schemes within the controlled area and selfmanagement areas have eliminated the problem of multiple tow operators aggressively and unscrupulously competing for work at accident sites. These schemes have not prevented other forms of consumer exploitation, including those of the type outlined in the above examples. In particular, this practice of tow operators touting for smash repair work on behalf of smash repairers remains a significant problem. 7
Touting on behalf of smash repairers IAG understands that most businesses involved in accident towing are either owned by, or affiliated with smash repairers. It is also our understanding that over time towing licenses have become consolidated into the hands of a few. It is increasingly common for our customers to contact us from the accident scene, seeking advice as to where best to transport the vehicle. In these interactions with our customers, we regularly learn that on the arrival of the tow truck at the accident scene, the consumer was subjected to pressure to have the vehicle taken to a location preferred by a tow truck driver, particularly those consumers who consider themselves not at fault in the accident. These claims are far more lucrative for repairers as they are often able to avoid insurer scrutiny of repair costs charged, by repairing the car before submitting a third party claim to the insurer representing the other driver (via a legal firm or third party recovery agent). Once the car is repaired an insurer s ability to determine the fair market cost of repairs is significantly diminished. Consumer impact: This practice leaves consumers exposed to significant out of pocket costs should they will ultimately be found to be liable, or partially liable, for the accident. If they are insured they will often find that they may not be covered for these costs as they have unwittingly contravened their policy conditions by allowing the car to be repaired without the authority of their insurer. We estimate the average repair costs charged by repairers engaged in third party recovery work is more than 40% higher than the fair market rate for the repair work. The repair location promoted by the tow operator often bears no resemblance to where the consumer lives or works; rather it is aligned to the smash repairer. While touting for repair work at an accident scene is unlawful, other incentives may be offered to help the tow truck driver reach their intended goal. These offers include: Discounts on the insurance excess Repairing old damage for free Provision of a free hire car IAG believes these tactics are akin to touting and should also be outlawed at the scene of an accident. We believe that under the current model, accident tow operators cannot function without being conflicted. Therefore it is vital that the nexus between accident tow trucks and smash repairers be removed. Below are two examples of pressure being applied to consumers. The first is an excerpt from an email to management from an alarmed IAG call centre member and the second is an excerpt from case notes made by our assessor after a courtesy follow up call to our customer, these demonstrate our concern: 8
From: [name removed] Sent: Monday, 27 October 2014 9:24 AM Hi, Just wanted to pass on some feedback, I had a customer lodge a claim this morning for an incident that occurred in [area removed]. Vehicle needed to be towed and I offered... the closest partner repairer, 20mins from OI (our insured) house. OI was happy to have the vehicle towed their HOWEVER I had towie [name removed] from [towing company name removed] telling OI not to take it to the repairer and to tow it to [tow truck driver affiliated repairer s name removed]. Tow company kept telling OI that they are one of our repairers and to hang up and ring us back later once he told OI the process I told the towing contractor he doesn t work for us and not to confuse the customer, customer was very confused and told the tow company specifically that [tow truck driver affiliated repairer s name removed] is more than 1hour from his house and he would prefer it repaired closer to home Customer ended up being stressed and confused and said he would get it towed to [tow truck driver affiliated repairer s name removed] because tow company told him its easier this way I don t know if you handle this feedback as they aren t our tow company but I believe it should be passed on as it s not fair to our customers. Thanks Date case note created: 27/11/2014 10:20 AM Quality Inspection completed and contacted Policy Holder who is very happy with repairs but not happy with the pressure received from tow truck driver insisting vehicle be taken to [tow truck driver affiliated repairer s name removed]. Customer appreciated and thanked me for the call [assessor name removed] Follow the money: Other secondary markets The emergence of credit hire in Australia (originating in the UK), in particular where some Victorian smash repairers own or are financially affiliated with hire car services, is fuelling incentives for accident tow operators to direct damaged vehicles to certain repairers. While the vehicle repair is a lucrative business in itself (when the at fault vehicle is insured), so is the management of the insurance claim. Smash repairers are increasingly engaging legal firms and recovery agents specialising in third party recovery work. Where a consumer is not at fault in an accident - for example they have been hit 9
from behind by a distracted driver - these repairers and affiliated businesses will often manage the vehicle repair and recover costs from the insurance company at fault. The consumer often has no understanding or comprehension of the process they are involved in, and they believe the services they are being provided with are free of charge and has their interests at heart. Value for the repairer and associated entities is in the ability to provider other services to the claim, most often at extraordinarily inflated and uncompetitive prices. These include utilising so called independent assessors to achieve inflated repair costs, providing hire cars and recovering claim management fees. Consider, for example, the case of a Victorian motorist who is involved in a motor vehicle accident and is deemed to be not at fault and the vehicle is not driveable. The vehicle is towed to an aligned repairer or one owned by the tow operator. The repairer, at this stage, may offer the claimant a hire vehicle and directs the individual to a third party hire car company that states they will simply charge the insurer for the service. The hire car is provided to the motorist on the basis that the hire operator will recover the costs for the hire vehicle from the at fault party s insurer as a matter of course. The repairer then schedules work on the vehicle to be repaired, and in some instances the time required to repair the vehicle may require the Claimant to be in possession of the hire car for an extended period. At the conclusion of the repair period, the repairer will submit a claim to the at fault Insurer for payment. The insurer may then question fair and reasonable expenses, including the time duration required for the hire car and refuse to pay the full quantum on the claim or may dispute liability for the accident. Given the car has been repaired and the insurer has no opportunity to determine the original extent of the damage, it is difficult for the at fault insurer to negotiate a fair and reasonable price to repair the car. This leads to unnecessary and protracted legal dispute only causing more anguish and confusion for the consumer. If an insurer challenges the amount requested, legal action is often instigated by the repairer in the name of the consumer often to the consumer s surprise (as in many cases they have signed a document agreeing to a course of action without reading or fully understanding what they have signed up to) which may then result in them losing the legal action and being responsible for all costs, including the other party s. They then may not be able to claim on their own insurance policy for these costs as they have breached policy conditions by agreeing to have their car repaired and initiating legal action without their insurers consent. If the consumer refuses to initiate legal action to recover the costs, they may then be faced with legal action being directed against themselves for the cost of the repairs. It is within such practices (like the one outlined above) that unsuspecting motorists are not fully informed of their obligations and exposure. Claimants are subsequently exposed to litigation through the court system as Repairers or their recovery agents pursue debt recovery action either on their behalf or against the claimant. 10
In many instances, depending on the type of vehicle on hire and the length of time hired, the hire car costs far exceed the repair costs for a vehicle. The consumer is placed at considerable risk from this process and in fact, by not claiming on their own policy, may lose the benefit of the lifetime repair warranty provided by their insurer and the full protection against legal action by other parties offered. We believe that consumer interests are rarely served when repairers and associated recovery agents manage claims, without fully informing consumers of the possible outcomes. Removing the ability of the accident tow operator to direct work into this business model will have a positive effect for the consumer in the form of allowing them adequate time to make an informed decision, appreciating fully the implications of their decision. Case Study: The below is a summary from a statement by a consumer who, following a car accident, entered into a hire car arrangement with a repairer on the understanding that she would not be liable for the hire car costs, only to find to her surprise she was liable. The repairer said: It s a demurrage (hire) car. The [insurer] gives you a car of equal value if you are not at fault. It s just sitting there. It s brand new. It s beautiful. All you ve got to do is say you need it for work. The customer replied: I did not at first agree to take the demurrage car. The repairer appeared very eager for me to take the demurrage car. He appeared to be getting a bit annoyed that I did not want to take it. From the way he pressed me to take it he appeared more concerned about getting me into a demurrage car than he was about the repair work to my car. After I returned the car to the repairer, I did not expect to hear any more about it. Some time later I received a letter telling me that I owed almost $18,000 for car rental and to agree to the appointment of a solicitor. At some point after I received the letter I received a phone call from a female person. She said words to the following effect: o Someone s going to pay for this one way or another. We can do this the hard way or the easy way. I received a phone call from a man identifying himself to be a solicitor. In the course of the conversation he said words to the following effect: o Car claims are all I do. It s my sole business. I win nine out of ten times. It won t cost you anything. I received a phone call from the repairer which included a conversation to the following effect: o Why don t you just sign it (to appoint the solicitor). It s a demurrage car. Just sign it. 11
I said: It s $18,000. I could buy myself a new car for that. I m not going to sue the [insurer]. At no point prior to the February letter did anyone ever say anything to me that caused me to think I might in any circumstances have to have to pay for the use of the other car, or that I might have to agree to legal proceedings [against the insurers] in order to avoid paying for the use of the other car. That was not my understanding at the time when I collected the other car, and signed the documents on the clipboard [which were represented to our customer as only agreeing that there was no damage to the car]. If anyone had told me that I might in any circumstances have to pay for the use of the other car, or that I might have to start legal proceedings to avoid doing so, I would definitely said that I did not want the other car. The need to address the existing towing license model The current model that sees the number of towing accident allocation licenses restricted has created a number of unintended consequences. These licenses effectively provide a monopoly on repair work for the increasingly fewer tow operators that own licenses. Because of the value of the repair work and the secondary markets covered above, licenses are now bought and sold at rates well above the rational value of towing. Recovering these costs provides even greater incentive for operators to act contrary to the interests of the consumer using the practices we have identified. IAG supports an allocation model that removes many of the barriers to entry for competent and licensed tow operators and separates the towing service from the smash repair business. 12
The need to introduce maximum towing and related fees across the state Towing, storage and salvage fees can vary considerably outside the controlled area because the current requirement for the charges to be reasonable is quite vague. We regularly see occurrences of fees being charged that we consider grossly uncompetitive. We believe that the introduction of maximum fees, state wide will have a positive consumer impact. The following table illustrates the varied amounts being charged for basic business hours towing. Controlled area Adjacent area - unregulated Company Accident tow fee inc GST Lilydale Yarra Glen Company A $423.50 Lilydale Wandin East Company B $330.00 Melton Bacchus Marsh Company C $660.00 Melton Bacchus Marsh Company D $495.00 Whittlesea Kinglake Company E $400.00 Police instigated towing Police are often required to engage towing operators to relocate stolen and recovered vehicles. It is our understanding that the police have contracts with specific tow operators to perform this service. While the towing services are instigated by police, the cost of the service is borne by the consumer and in many cases their insurer. As a result, unreasonable towing, salvage and storage charges are a regular occurrence. When challenged on the basis that the costs charged are unreasonable, the tow operators advise insurers that they have Police contracts for this service. When asked for details of the contractual arrangements they refuse disclosure. The NSW Independent Pricing and Regulatory Tribunal (IPART) have recommended that in NSW, before these types of tows are performed, the tow operator submit their quotation for the service to the consumer or their agent prior to performing the tow. Alternatively, these charges could be aligned to the current fee regulation regime. We strongly recommend that the Commission consider these options. 13