Collision Repair: Change Is the Only Constant

With more than 50 body shop representatives and their industry partners meeting in Calgary, AB for the PPG CertifiedFirst Network Conference, three themes dominated the agenda: insurance, technology and marketing.

The collision repair industry must continue to be proactive about adopting change moving forward, says Lee Smith, director of refinish for PPG Canada. Specifically, Smith cites several key technological areas where shops must focus their energies on managing change: vehicle and product technology, estimating, production, systems and claims automation.

With claims frequency on the decline, Smith says body shops face a new reality. In a recent study, two-thirds of all shops surveyed had seen their claims volumes decline, with some shops in Ontario seeing ‘customer-pay’ representing up to 50% of their business. However, body shops must still maintain a focus on where the majority of business is coming from.

“Who is the customer? Who pays 90% of the claims?” Smith asks. The ‘insurer’ remains the ultimate customer for most body shop owners, and Smith emphasizes that the goal for insurers is to minimize their costs and increase throughput of vehicles being repaired to achieve economies of scale. The key goal of a network is to provide this kind of economy of scale and consistent service levels – and network partners must be more than just a marketing play, he adds.

SEEKING QUALITY CONTROL

Smith stresses that all insurers are looking for sustainable control of “key performance indicators” (KPIs). In their use of direct repair program (DRP) relationships, this means management of severity maintenance/reduction, estimate accuracy, quality repair and alignment of strategy, process, organization and technology.

According to Smith, there is a race on to garner commitments for claims assignments for the group who is pledged and committed to performance measures beyond in-house DRP programs.

Referencing Accenture Consulting’s “Unlocking the Value in Claims” study, Smith quotes: “In an era of heightened competition, increasing customer expectations and the need to deliver greater shareholder or policyholder value, insurers are faced with significant pressure to make noticeable improvements in results.” Specifically in the area of auto physical damage claims, “historically, insurers have viewed the claim function as an area that offers considerable opportunity to address all these dimensions. Claim payments and loss adjustment expenses consume 80% of annual revenue, and claim service has always been considered a “moment of truth” in the total insurance transaction.”

The Accenture study, which analyzed more than 12,000 settled claims, and included interviews with more than 5,000 claims personnel in North America and Europe, produced some dramatic findings:

* Claim settlements can be reliably reduced by up to 15% and still be fully compliant with good market conduct and high-quality customer service practices;

* More than 40% of the time spent in the claim handling process is associated with routine overhead functions that have little or no impact on the outcome of the claim or on improving customer service;

* The link between superior customer service and policyholder satisfaction is clear – better-served customers are more likely to retain their current carrier while poor service has a negative impact; and

* Technology is an essential component of a total solution that will simultaneously improve the outcome of the claim and reduce the amount of time consumed by low-value functions.

Smith adds that the objective of the research was to answer three questions: Why has no insurer clearly demonstrated a competitive advantage in claims? How much opportunity exists in claims? And how can companies achieve sustainable results?

CONTINUOUS IMPROVEMENT

Further research from The Romans Group sees the winds of change making their way through the collision repair industry. “We see the possible beginning of yet another paradigm shift developed through the early understanding and adoption of a ‘total quality management process’, not only within the aftermarket parts industry, but also within the broader auto body repair industry. Various quality management initiatives have been employed, such as QS 9000, ISI 9000, TS 16949, ISO 14,000 (environmental), Total Quality Management (TQM), Six Sigma, etc. As recently as a few years ago most of these initiatives didn’t even approach the radar screen with the auto body repair industry.”

What about government insurance? The issues are much the same for public and private market insurers, Smith says, with both looking for performance improvement in several key areas:

* Sustainable control of KPIs

* DRP utilization/conversion

* Severity maintenance/reduction

* aftermarket parts usage

* repair versus replace labor

* average cost trend

* refinish cost trend

* Estimate accuracy

* Quality repair

* Loss of use/rentals

* Loss adjustment expenses

* Customer satisfaction indexes (CSI)

* More efficient claims handling

* Consolidated bill payment

According to Ernst & Young’s insurance and actuarial advisory services, “alignment of strategy, process, organization, and technology is the key to unlocking the power of information. It can be the difference between success and failure.”

So what can collision repairers do? Smith asks. He sees several steps the collision repair industry can take to improve its position vis–vis insurer expectations:

* Measure yourselves;

* Assist in managing the claim;

* Invest in technology enabling applications;

* Commit to continuous improvement, including measuring, comparing, and incentivizing “best of class”;

* Demonstrate greater transparency with insurers, which can include automation on a national level through a network;

* Evolve KPIs; and

* Market your brand.

These key measures must be continually improved in order to meet insurers’ requirement to reduce costs and increase customer service and satisfaction, Smith explains. The “game changers” in terms of performance include average estimate to repair days; throughput hours or average cycle days; and low supplement rate.

VALUE CHAIN OPPORTUNITY

The opportunity exists to examine and analyze the throughput measure in body shops – to identify where the bottlenecks are and eliminate them, as clearly there is congestion in the current process, Smith says

Inherent in the need to reduce cost is the function that “throughput is inverse to lead time”. As throughput goes up, lead time goes down (see Example 1).

There are a number of problems in the current repair system, including the inefficiency inherent in visual estimates, requiring supplements and waiting delay as parts are ordered two or three times, and variability which makes scheduling difficult. These problems lead to congestion in the shop, vehicles in progress all over and low predictability as to when work will complete each phase. Inherent to this, each department is measured on labor hours worked, regardless of whether or not the vehicle can move downstream.

Smith stresses that for the body shop, the goal should be ‘complete teardown’ for estimating and ordering parts prior to scheduling the job in shop. As such, a scheduling system needs to be in place that levels flow by severity, to level activity in departments upstream of paint and insure paint booth flow remains steady through the week. With
in the shop, Smith notes that “variable reward systems’ should be developed based on product flow, lead time and throughput.

Reducing lead time will represent a meaningful advantage to insurance companies, including:

* Lower rental car cost;

* Lower supplement rate;

* Control of customer satisfaction indexes and severity; and

* Higher policyholder satisfaction, the ultimate goal.

MAINTAINING RENEWALS

For the policyholder, customer service is the focus, says Ken Rayner, CertifiedFirst Network’s insurance relations consultant, and himself the president of a Toronto-based insurer, Omega General. For the insurer, referrals and repeat business are very important because, on average, a policyholder must be “on the books” for two years before they pay for themselves and the insurer starts to make a profit. Collision repairers can play a key role in helping brokers and insurers retain these customers & keep their renewals.

Claims frequency is down, and in one sense this represents and challenge for insurers in terms of their relationships with collision repair partners. “Insurers are having enough trouble sending business to their existing DRP relationships,” Rayner says, making it all the more important to differentiate oneself as a body shop of choice.

Collision repair shops/networks can help by saving carriers overhead via technology solutions, integration of the complete value-chain and by providing a total claims solution, he adds.

The key concern for insurers it to see its clients taken care of, agrees Rick Yates, claims manager for direct insurer Meloche Monnex. The insurer has developed a “partnership philosophy” which means its looks for providers who are industry leaders and who demonstrate strong client service, quality performance/products, qualifications and compliance, ethical business operations and efficiency. Yates explains the list of criteria which goes into assessing the ability of business partners to meet each of the insurer’s standards:

Client service. Highest regard for client service; clean and welcoming reception areas; client satisfaction surveys; knowledge; knowing Meloche Monnex’s guidelines; communicating the process to the client; priority handling.

Quality. People; building(s); equipment; controls; process flow (how to get the vehicle in & out more efficiently and cycle times).

Industry leaders. Client service; cost control; training/apprenticeship; process flow; A voice in the industry

Qualifications/compliance. Licensing; building; equipment; staffing; environment; insurance.

Ethical. Respected in the industry; community involvement; relationships; confidentiality of information; policies; personnel; management.

Efficient. People; process flow; checklist that follows car through repair process to ensure all jobs completed; quality control; cycle time management.