The key performance indicators insurers use aren't accurate or fair to shops
When are measurements a value to your business, and when are they not? They're valuable when they are accurate and relevant to our business strategies and objectives. Today, we may be using measurements and key performance indicators (KPIs) that may not be accurate or even relevant to the core values of our businesses. These measurements actually may be hindering your performance rather than allowing your business to improve and grow, as it needs to.
Our current mix of operational KPIs includes a set not designed to benefit the consumer or improve our operations – those KPIs collected and monitored by insurers. For the most part, they delay efficiencies, increase administrative costs and as a result often also lower customer satisfaction.
These KPIs measure areas such as severity (total costs), alternative part usage, hours completed per day for vehicles they insure and repair-verses-replace ratios. All these measurements are designed to control insurer costs, not help us.
Consider severity, which is simply a result of a specific impact to a specific vehicle make, model and year. It is not a measurement to determine if a shop is over charging but is certainly used as such. Accurate measurement of severity levels that could be used to compare levels from one shop to another would require a sophisticated system of repair costs based on speed thresholds, impact points, impact types and probably accident conditions.
Think about the following scenario. If shop A primarily repairs higher valued automobiles, their severity rating cannot be compared to shop B, which repairs basic domestic vehicles and utilizes minimal equipment and training.
A few weeks ago I was notified by the owner of a small shop that he was being criticized of high severity levels a few months ago. He found out, by accident, that two total loss cases were included in the calculation. He discovered that once an estimate was written and uploaded, even if it was later declared a total, it still was counted into his severity measurement. These $10,000 estimates were included in a small mix of regular repairs.
Other measurements such as repair verses replace and alternative parts usage suffer from the same inherent defects. What can be repaired verses replaced on any vehicle is based on the extent of damage and the cost of the replacement part. Shops don't damage the vehicle. They make repair decisions on a vehicle-by-vehicle basis based on the job the vehicle owner will be satisfied with. The same kind of problem exists with measurements of alternative parts usage. How can this usage be compared when not all vehicles have alternative parts available?
Hour per day has its own problems. It is not uncommon to spend one to four additional days following all the guidelines set forth in providing a "smart repair plan" handling time-wasting administrative activities.
To make matters worst, none of these measurements can be adjusted to account for the problems noted here. If a shop does spend days receiving and returning alternative parts that can not be used for a justifiable reason to perform a repair, the shop is still chastised on its alternative parts ratio as well as the hours per day measurement.
You may be wondering why these inaccurate measurements are so widely used. They are, in part, because insurers have access to the data. Shops are guilty too since the collision repair industry has allowed them to be used.
The solution to these problem measurements is to simply allow repairers to make the best repair decision possible and hold them accountable on a repair-by-repair basis, not a composite comparison with other shops that doesn't help anyone.
If the industry direction is really to become "performance based" rather than "relationship based," then our KPIs must be based on factors that allow us to become more efficient and truly satisfy the customer, the owner of the vehicle.
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