Trends in Shop-Insurer Relations
As I write this, I am visiting a paint company in Barcelona, having just come out of a meeting where we are introducing our Bodyshop Revolution concept to a group of Spanish collision repair professionals. During the meeting, a really interesting comment was made.
The head of marketing said that Spain was moving very rapidly to the U.K. model of business, and suggested that if you’d asked him whether this was going to happen even a year ago, he would not have seen it coming.
Is this a warning to other markets and could it happen in the U.S., too? If so, how fast and what are the implications?
Let’s put a bit of perspective on this, because until you understand what’s gone on in the U.K. market, it will be difficult to visualize what could happen in the U.S., or in Canada.
In the U.K., one thing is for sure: It’s a really small minority of customers that now take their damaged cars to their preferred repair shop. Insurance carriers direct most of the work. They are very good at this redirection. They are so efficient, in fact, that should the driver wish to use a shop of their own choice, there is a clause in the policy that says the customer has to pay an extra $400 deductible for the privilege.
That pretty much puts an end to customer choice. If you want to work under an insurance contract as a collision shop, you’ll need to agree to a few rules. Little things like offering free towing on your own truck(s), or free storage of vehicles and, of course, a free courtesy car, all supplied at your cost. You might need 50 or 60 courtesy cars to do this!
Under your service agreement, you’ll probably need to make contact with the customer within the hour, collect the vehicle and deliver a courtesy car within four hours and start repairs the next day. Then you’ll need to buy paint from the paint company that the insurer requires, and from selected jobbers at the specific discount the insurer negotiates with you. You’ll have to use a mandated supply chain for certain parts, and of course fit recycled parts as well. You’ll be expected to focus on repairing everything before thinking about replacing a part, and this includes plastics, glass, trim and panels.
You’ll have to construct a bigger mixing room and hold four times the usual stock of paint because every insurer you work for mandates a different paint brand, and you need the space for multiple mixing machines. You’ll have to learn how to use four different paint systems as well.
Obviously you won’t be able to charge what the repair actually costs, because you’ll probably be on a total fixed price scheme of about $1,400 per vehicle, irrespective of damage size, but if you crunch the numbers correctly, get as much through your shop as you can, and duck and dive a bit, you might make a small amount of money.
There are no guarantees of volumes, but you are measured regularly on cycle time, key-to-key statistics and customer complaints, and put into a league table to see how you fare against your fellow repairers.
This is exactly where most of the U.K. repair market is at the moment, and this is exactly where Spain, and dare I say it, you, may end up in the very near future. Now this might look as though I’m taking a “pop” at the insurers, but I’m not. They are commercial organizations as well, and have a duty to their shareholders—most of them are, in fact, banks. What is amazing is the fact that many repairers have not prepared themselves for the change, or looked at insurers as customers. Neither do many insurers really understand body shops.
Pressure on the insurance market has never been greater, and one thing you have to really watch out for is what we call aggregator websites. I believe they are just starting to show up in the U.S., but fundamentally, these sites are like search engines that will go and find you the cheapest motor insurance policy once you have entered your details. Within a few seconds, it orders about 100 competing policies starting from the lowest cost. This fundamentally changes drivers from dog behavior (loyal) to cat behavior (predatory). Insurers can’t assume you’ll now return to them for policy renewals, so they are under increasing pressure to cut costs at the back end of their business (that’s you).
Another painful twist is the magical “deductible slider.” Say, for example, your deductible for a particular policy is $400, yet with the comparison aggregator website you can now increase your deductible by up to $1500 which of course brings your policy cost down, often by as much as $200. It is very tempting, because no one ever believes they are going to have a collision!
The consequences? Write-offs go up, meaning fewer cars are repaired. Fewer customers can afford their new “voluntary” deductible, so they drive around with damaged vehicles. Who suffers? Shops.
So, back to the original question—is this going to happen in other markets, perhaps the U.S.? Well, maybe not in the same way or to the same level. But Spain didn’t think so either, and it’s happening. It seems logical that the rate of change will be much slower, just because of the sheer land mass and inertia in the market.
Other than some legislative differences, which will stop certain things from happening, I can’t see the US market coming through this evolution unscathed.
Ultimately, smart repair shops and smart insurers should work in true partnership to satisfy each other’s requirements. Collision centers should actually ask insurers what they want and be able to deliver it, while insurers should understand that collision shops do have a finite capacity. Insurers need to use smart methods to stop overloading their preferred suppliers, and stop this ridiculous horse trading some people call estimating.
One thing’s for sure, times are really changing. It’s how you prepare yourself for this change that will make all the difference, understanding that the light at the end of the tunnel is not the end, but rather an enormous train steaming toward you. Shops need to act now to get on board.
Jon Parker is managing director of the Byteback Group, a U.K.-based information technology and services company aimed at advancing the collision repair industry. Parker can be reached at firstname.lastname@example.org.