National schedule of repair costs for network damage (Green Claims) – pilot outcome
Since 24 June this year (2019) Highways England has been assessing the benefits of utilising a national schedule of repair costs for claims against drivers or owners of vehicles who are liable for causing damage to our roads.
We have been engaging with the insurance industry through the Association of British Insurers and despite our best efforts, have been unable to reach a consensus for the National Schedule as it currently stands.
We are therefore suspending the use of the Schedule while we assess our options for a different set of repair costs that better reflect the open market and the needs of insurers.
We now have a greater understanding of the requirements which will need to be met to enable a National Schedule to be successfully implemented and used in the future, and we remain confident in the benefits this could provide to all interested parties.
Why did we introduce the National Schedule in the first place?
As owner of England’s motorways and major A roads we are legally entitled to recover from the driver/owner of the vehicle causing the damage (or more usually the relevant insurer) the reasonable cost of repair so as to restore the network to its state before it was damaged.
It has been apparent for some time that insurers consider the pricing of Green Claims in individual cases to lack transparency. The contractual arrangements between Highways England and its service providers, often containing separate regimes for claims above and below a £10,000 threshold, and different pricing methodologies, have led to varying labour and equipment rates and therefore significantly different repair costs being applied to similar repairs. Understandably, this has led to disputes over the reasonableness of individual claims (often of relatively low value), delays and under-recovery.
By introducing a national schedule, we had hoped to provide the insurance industry the benefit of the rates that we had been able to secure in a competitive market.
Our intention was to introduce a more consistent methodology for assessing claims, to create an environment where there was greater trust between Highways England and the insurance industry, and to reduce the number of claims being disputed.
This would have improved the rate of recovery and made the whole claims process less burdensome to all parties.
What was different?
Contracts between Highways England (and in the past the Highways Agency) and maintenance contractors have often referred to the basis of recovery as “actual” or “defined” costs. We do not have schedules of rates for the unplanned/emergency repairs specified in those contracts. This lack of transparency led to concerns in the insurance industry that drivers and insurers were not being correctly charged for repairs.
To address this, Highways England introduced a National Schedule of Repair Costs as a means to pursue typical claims on the basis of estimates rather than actuals. The National Schedule was introduced on 24 June this year.
The National Schedule does not purport to reflect or represent actual or defined costs on most occasions. The “actual” costs of repairing a specific item can, in practice, be difficult to isolate and quantify (hence the potential for inconsistency referred to above). Nor, in legal terms, is actual cost necessarily relevant: the asset owner is simply entitled to charge a reasonable cost of having the damage repaired.
The aim was (and remains) to bring much greater transparency and consistency to repair costs and thus provide confidence to the insurance industry that what is being charged is reasonable and therefore should not be the subject of further dispute.
We believe a National Schedule can achieve these aims and could lead to the earlier resolution of claims by narrowing the issues of dispute between the parties.
This in turn would lead to costs savings as claims could be settled more efficiently and amicably. The need for the parties to resort to litigation to progress or resolve claims would be reduced.
The National Schedule set out a range of typical repairs to the network. The repair costs were built up from contracted labour and equipment rates, shifts and materials rates. The labour and equipment rates were based on an average of rates submitted by successful tenderers for planned maintenance work.
However, it is apparent that these repair costs do not have the level of granularity required. It is also clear that the rates themselves need to be looked at. To address these issues, we have now instructed a Quantity Surveyor to review our proposals and to provide ongoing expert advice on what will be needed to ensure a revised National Schedule successfully meets industry requirements.
On what basis have we paused the introduction of the National Schedule of Repair Costs?
Successful implementation of the National Schedule could only be achieved through consensus with insurance companies, and a recognition that the repair costs were reasonable and supported through good evidence of damage.
We have been engaging with the insurance industry through the Association of British Insurers, but have been unable to reach a consensus for the proposed Schedule as it currently stands. Taking feedback on board we believe that the National Schedule of Repair Costs needs to be re-worked to a more granular level, and with rates which better reflect wider market rates. We have therefore suspended the pilot. We will be taking forward the lessons learned.
What happens next?
We will revert to pursuing claims based on the actual cost of carrying out the repairs and will continue to explore options for a transparent and equitable set of rates.
We will be actively pursuing the settlement of older claims too, as there has been a slowing of settled claims creating a sizeable a backlog of outstanding claims and monies owed to Highways England.
What will happen to claims that have already been submitted using the NSORC?
Any claims that have been priced under the National Schedule of Repair Costs will be re-priced using actuals and re-submitted.
Where a claim may have reached a point of litigation, the claim will not be litigated under the current National Schedule of Repair Costs. We will ensure that any legal proceedings already issued are amended to reflect this.