Fleet News

AA and RAC face underwriting threat from rivals

THE Automobile Association and Royal Automobile Club are under pressure from rivals to set aside hundreds of millions of pounds to underwrite their roadside repair services. Under the terms of the Insurance Companies Act 1982, the two organisations are exempt from such a requirement.

In response to claims by Direct Line and Green Flag that the exemption is unfair and puts the consumer at risk, the Financial Services Authority is understood to have agreed to look at the issue in discussion with the Treasury 'in time' and will arrange a consultation period through which the opposing roadside recovery companies can make formal contributions.

Under the terms of the act, Direct Line and Green Flag's use of independent garages to provide repairs poses an insurance risk that must be underwritten. The AA and RAC are exempt from such insurance-based policies because they employ their own patrol teams and instead simply charge a membership fee. Andy Cornish, chief executive of Green Flag, said: 'The consumer is not being protected. The AA and RAC should be required to ring fence cash and put it in a separate pot like the rest of the industry.'

A spokesman for Direct Line said: 'The main reason for reserves is to cope with excessive claims. If all our members claimed on their policy on the same day, we would have to pay for the claims to be met. The same is true for the AA and RAC. We are making progress in getting a change to the law.' A spokesman for the AA said: 'The law makes it clear the exemption is based on us employing our own repair staff. An RAC spokesman said the complaint was a 'non-starter'.

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