Insurance company mergers
The auto insurance industry finds itself in an unusually long-term quandary. Baby Boomers are insurance carriers' most ample customer base, and there is no new customer base — be it teenagers, new immigrant population, or otherwise — waiting in the wings to enter the market place and play as significant of a role as the Baby Boomer population is right now. As a result, the industry is up against the substantial challenge of zero or negative growth as a whole, with each individual company struggling to grow its own business. Currently growth can come from several avenues. One is advertising, which insurers use to draw customers away from their existing insurers with promises of saving $300 or more. In fact, advertising budgets have swelled exponentially, and according to the Insurance Information Institute, property/casualty insurers spent an astounding $4.3 billion on advertising in 2008.
The second method vehicle insurance companies traditionally use to spur growth is buying other companies in the market. It's no secret that acquisitions have been slowed by the lousy economy and produced worse than anticipated earnings so far this year. However, once the economy begins to revive and eventually gets back on track, we will see "merger mania" and a corresponding slew of merger activity to a degree we have not seen before. The result: A plethora of heavy hitting national carriers will have more market presence and an increased ability to drive their philosophies and claims programs, leaving smaller and regional carriers struggling to keep up with the technology and efficiencies that large size brings to direct repair programs.
Increased total losses
OK, you're thinking that seeing increased total losses is a pretty safe bet. Still, hear me out. Totals will increase in a magnitude we haven't experienced before. If there ever was a perfect storm, this is it. First, our dismal new car sales in the United States means that we're driving older cars — in fact, the average age of vehicle on the road is higher today than ever before. Once our economy recovers, we will see that pent up demand explode and folks will go on a buying spree, in or near the fall of 2011.
Second, when consumers go on that buying spree, that new car (and it will be a car or crossover, not an SUV) will be lighter to meet new CAFE standards, which will be achieved by increased use of alloys, aluminum and plastics that are often "one way materials." These materials cannot be repaired and must be replaced. This new host of vehicles also will come equipped with standard passenger side airbags (mandatory in the 2010 model year) and standard electronic stability control. These two costly items have the potential to push moderately damaged cars into the total loss category.
Third, by the time we start buying new vehicles in increasing numbers, the new breed of Chinese or Indian vehicles will be ready and waiting to entice consumers with prices in the sub-$13,000 category and already loaded with the necessary standard safety features, making these vehicles extremely vulnerable to being declared total losses. Regardless, these vehicles will be more expensive to repair.
Increased partnerships with repair shops, fewer staff appraisers
Another byproduct of the "no growth-negative growth" property casualty market is the need for insurers to reduce expenses, a large portion of which is staffing. Insurers are taking a very close look at their direct repair program models and noticing "outsourcing" appraisal services to a trusted partner not only saves money, but as our AutocheX surveys tell us, also increases customer satisfaction.
So, just as sure as you will see auto insurance commercials during this year's Super Bowl, you'll see auto insurance companies increasing direct repair programs. They believe that DRPs save money, reduce cycle time and increase customer satisfaction — a winning combination for them.
Increased collision repair certification from OEMs
I recently spoke with collision repair representatives from several high-end European manufacturers about how their certification programs are evolving. All agreed that their programs are headed in the same direction, making a turn towards significantly increased training requirements.
The advanced materials and construction used to assemble these cars is mandating that technicians must attain a heightened level of skill to repair the state-of-the-art equipment and return these vehicles to their pre-accident conditions.
As these advanced metal and assembly technologies make their way down the "automotive food chain" and into the everyday Ford, Toyota and Hyundai vehicles we will drive in the future, so will the OEM requirements for specific training and tools to repair them, just the same as high-end manufacturers.
I envision a system where automakers will require repairers to complete Internet training and testing to ensure that they fully comprehend the material learned prior to even being able to order the parts needed to repair the vehicle. Such a system is scalable at a faster rate than having manufacturers select specific repair facilities and train those technicians on all the various required repair techniques.
Another interesting aspect that OEMs are putting into place is embracing collision repair as a potential part of the vehicle ownership experience. OEMs are looking to drive a "brand experience" to ensure that the repairs are done properly and that the vehicle owner participates in the process.
The Audi A8 repair experience, for example, allows owners to conveniently drop their vehicles off at their local dealer and pick up a free Audi loaner while Audi determines which of its certified repair centers will repair the car. Audi will even transport the car via flatbed to another state if structural repairs are required to ensure proper repairs and a pleasant repair experience for the customer.
So, what is the underlying concept of these predictions? It is the idea that the affected party, i.e. the entire automotive community from stem to stern, is adapting to a changing market. From the claims executive adapting by moving a greater amount of business to a more efficient claims inspection model, to the auto manufacturer using advanced materials or collision technology to meet federal mileage standards or federal safety standards, each segment is adapting to meet the new challenge it will face.
Editor's note: Greg Horn is vice president of industry relations for Mitchell International.
