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Judge Platt has roundly criticised the way RSA recovers the cost of repairs from other insurers A judge has strongly criticised the way a major motor insurer recovers the costs of repairing vehicles.Judge Platt says Royal and Sun Alliance has used a subsidiary which inflates charges simply to boost profits.
He found the subsidiary increased labour costs without carrying out any work itself and made other charges it could not account for.
RSA Insurance said it strongly refutes any suggestion that it has acted inappropriately.
Insurance agreements
When a car is damaged in an accident, the victim's insurer normally arranges for the vehicle to be repaired by a garage and then passes the bill on to the at fault insurer to pay.
In the case of RSA Insurance, the garage invoice is passed to its subsidiary, RSA Accident Repairs Limited, which then sends a separate bill to the at fault insurer. Insurers are not supposed to make a profit from repair work.
Continue reading the main storyThe effect of these extra charges if they are paid by defendants is simply to boost RSA Group's profits ”End Quote Judge John Platt Circuit judge However Radio 4's Money Box has learnt several insurers are disputing the size of claims being put in by RSA Insurance via its subsidiary RSA Accident Repairs Limited and are refusing to pay, claiming the subsidiary has added its own charges to the original garage bill which cannot be justified.
RSA Insurance is then taking these companies to county courts seeking payment.
One district judge estimates more than 100 such cases involving RSA Insurance are arriving at County Courts each week.
The claim Judge Platt commented on was published on 2 September and was heard at Romford County Court. It involved RSA Insurance seeking £1,825 for a vehicle repair from the insurer Equity Red Star.
Unjustified costs
Judge Platt says the hourly rate for the repairs was increased from £36 to £39.50 an hour without explanation.
£118 was added for a road test, cleaning and an environmental charge which was not on the original bill.
And £110 added for taking the car to the garage and back when it was drivable and the owner lived nearby.
Judge Platt said RSA Insurance was only entitled to claim £1,542 as that was the original bill submitted by the garage that had repaired the vehicle.
He added that he could find no evidence that RSA Accident Repairs Limited had incurred other costs which it was justified in claiming:
Judge Platt said: "In my judgment the effect of inserting RSA Accident Repairs Limited as an intermediary simply inflates the ultimate cost by increasing the hourly rate and adding extra charges, one of which I have disallowed in any event as a fabrication, and another as not reasonably incurred."
He added: "Since RSA Accident Repairs Limited is wholly owned by RSA the effect of these extra charges if they are paid by defendants is simply to boost RSA Group's profits beyond the actual cost of repair by the margins inserted by RSA Accident Repairs Limited."
He also sent out this warning for the insurance industry in general: "If RSA Insurance is correct in its argument there is nothing to stop every insurer adopting the same procedures which, if this case is a typical example, will lead to an overall increase of some 25% in the cost of minor motor repair claims. That cannot be in the public interest."
Claims disputesRSA Insurance said it was restricted in what it could say as it was referring the case to the High Court.
It said: "RSA takes very seriously any suggestion that it has acted inappropriately and strongly refutes any suggestion that it has acted so. Our model remains legal and compliant.
"However, to ensure that this remains the right approach and to avoid the need for further County Court litigation, we put in train a test case in the High Court in May of this year. In the meantime we have suspended any proceedings currently underway pending the outcome of that case."
Several insurers are believed to now be refusing to pay out claims submitted by RSA Accident Repairs Limited unless original receipts are included.
A spokesperson from The Co-operative Insurance said: "We terminated our agreement with RSA Insurance earlier this year and as such we are only paying those claims submitted by RSA Insurance, where there is evidence presented of the cost of the repair."
Under scrutiny
David Creswell, a director of ABP Club which represents car repairers and insurers, says these disputes are proving very damaging.He added: "The trust certain of the insurers have with RSA Insurance has gone to a very large extent.
And he said it was ordinary people who pay their car insurance premiums would ultimately suffer.
"It is shocking. The whole principle is recovering the cost outlaid, not making a profit out of it."
The car insurance industry is already under huge pressure to explain the recent rise in premiums.
The Office of Fair Trading has launched an investigation and the government has said it will stop insurance companies receiving fees from personal injury lawyers.
BBC Radio 4's Money Box is broadcast on Saturdays at 1200 BST, and repeated on Sundays at 2100 BST.
