John Lewis, director-general of the BVRLA, said: 'We need to determine if an insurer can produce a workable and affordable model, and then present it to our members.' He hopes to have a provisional policy ready within three months, although any policy would not cover current fleet portfolios.
He insisted that any insurance should not compensate for a lack of diligence in residual value forecasting, and added that the current downturn in the used car market presented both incentive and momentum for the industry to establish this type of insurance. Individual contract hire companies have tried to buy residual value insurance protection, but have not been able to offer insurers a sufficiently broad risk profile to secure affordable premiums.
Only the 375,000-strong Motability Finance fleet has established a workable residual value insurance policy, although the combined fleets of BVRLA members should present a more varied model, age and mileage profile than MFL. 'The insurance could not be selectively used on just a few vehicles, but as an overall business tool that is part of a stop loss mechanism,' said Lewis.
He added that BVRLA investigations into residual value insurance had also uncovered an organisation that is considering the creation of a residual value trading on the futures market. Lewis rejected the notion, however, that any industry-wide residual value insurance policy or futures market would create an anti-competitive situation where all contract hire companies were under pressure from an insurer to set the same residual value forecasts and said the BVRLA would clear any scheme with the Competition Commission