Canadian Underwriter

Collision Repair Following Global Leadership

January 1, 2002   by Vikki Spencer

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“There is no way one can cut the combined ratio 5 points through the claims function.” This quote, made by the ex-president of an insurance company characterizes the view of claims that is outmoded and incorrect, says Wendy Hillier, of CGU Group Canada. “That’s the historical way of looking at claims. We’ll just pay the money out. All that hard-earned premium that the underwriters have gathered in, we in claims just love to pay it out, willy-nilly. But we don’t.”

She says that claims handling is about efficiency as much as it is about customer service. On that point, she observes, the relationship between insurers and the supply chain — and repair shops in particular — is changing rapidly. On both sides of the fence there is interest in understanding the business environment each is operating in. Repair shop owners are coming to understand terms such as the combined ratio and what these indicators mean for insurers, she points out.

The “fourth party”

The traditional insurer-repair shop relationship has been a “two-estimate” system, requiring claimants to seek out quotes for the insurer. Now, these relationships follow along a spectrum, from that traditional system to preferred supplier relationships to outright ownership of bodyshops by insurers. This is evident in last year’s purchase of Sterling, a U.S. bodyshop consolidator, by Allstate.

Speaking on behalf of CGU, which has a partnership with CARSTAR, Hillier notes that even in that relationship there is a need for continual change. A recent Accenture study gave top marks to CGU’s auto physical damage program, but there is always room for improvement in terms of efficiency. Other insurers are now beginning to understand the value of supply chain relationships rather than supply chain control, entering into an array of new arrangements. “We can’t sit down on our butts and watch the rest of the world catch up” in terms of these kind of relationships, she notes.

Alliances are the key to insurer success, notes Dale Delmege of the Chelsea Management Group. Companies too often look at “how well we buy, how well we sell and how well we operate”, overlooking the business of alliance-building. The Canadian example of CARSTAR’s insurance partnerships is a good model, he says, one which U.S. counterparts should be looking at for guidance.

Ignorance of the importance of supply chain alliances is particularly evident in the U.S., where “we are behaving as if we have just figured out that if customers have a bad repair experience they will change insurance companies”, says Delmege. Policyholders will base their buying decisions on the claims experience, he observes, a fact that insurers must recognize. This comes at a time in the insurance market where there is increasing competition over capacity and when customers will change companies “in a heartbeat”, he adds.

Insurers are also ignoring what Delmege calls “the fourth party at the table”. The traditional “triad” of insurer, insured and repair shop ignores the front-line influence of field adjusters. As insurers move into new relationships with their supply chain in order to better serve their insureds, they do not realize they are carrying an “invisible dinosaur” into the equation, in the form of “the old, unreconstructed field claims culture, impervious to their own company’s needs, operating on a powerful instinct — self-preservation”. In terms of claims service, “there are many insurers who talk a great game, but they can’t get their own field claims organizations to execute that game”, he says.

European rules

Hillier notes that the insurer-bodyshop relationship is also impacted by technology growth. She uses the example of CGU Belgium, with its online claims system, called OSCAR. Vehicles are taken to a central appraisal center for estimate, with digital photos posted online so that shops can bid on the repair job.

Within 20 hours, guaranteed bids for both repair time and cost are collected and the chosen shop is notified by fax, and later paid by bank transfer. Customers can access the system either online or through a call center, she adds. “This is a very sterile relationship, very remote, but the focus is on customer service rather than on the insurer-bodyshop relationship. The benefits are a short cycle [turnaround] time on repairs, reduction in loss adjustment expenses and reduced loss costs. “It’s not gouging the cost, it’s getting the right cost for the job,” she says. Another example is Axa, which is centralizing its claims processes on a global level to take advantage of economies of scale and purchasing power.

U.S. diversity

In the U.S., USAA is generally regarded as the leader in customer service, providing value-added services beyond claims (customers can arrange travel and other services in one location), Hillier says. This kind of approach is all about customer retention. As insurers, “we want to keep our customers”.

Three of the leaders in the U.S. insurance industry are taking three very different approaches to claims, Delmege observes. Allstate, Progressive and State Farm, are in a “falling down the stairs panic” over marketshare and are taking steps to retain customers through new claims approaches. In the Allstate case, he sees the Sterling purchase as making sense for the repair chain, but not for the insurer. For Sterling, the sale was a “de facto IPO”, to get investors’ money back. However, for Allstate the move is a big gamble, particularly when the similar tactic on the part of European insurers a few years ago turned out to be “a fiasco, a disaster, a humiliation”, he pronounces.

“I’m baffled by this acquisition,” Delmege admits, wondering what the scheme will bring in terms cost reduction, and how Allstate will run the repair shops successfully given that their competition is not likely to want to send customers to an Allstate-owned facility.

Progressive, on the other hand, has developed what it calls “Concierge” service, which has been treated as a marketing gimmick, but actually has deeper meaning for the bodyshop industry. The Progressive plan has the insured dropping the vehicle off with the local insurance office, picking up their rental car there and later returning to pick up their vehicle there. It effectively takes the bodyshop out of the customer service loop. “Is this just a neat marketing idea? No,” says Delmege. “I think they [Progressive] are interposing themselves between the shop and the customer.” He adds that he does not see such a plan working. Customers traditionally spend much more time talking to the repair shop than to the insurer in a traditional claim, he says, and insurers are not going to want to deal with this time-consuming process.

State Farm has come up with a program called “Select Service”, which brings together front-line insurance staff and repair shop employees to learn better customer service and getting the job done right. This is a better alternative, Delmege insists, as it spreads the same customer service philosophy to all points in the system, addressing the “invisible dinosaur” of outmoded field claims philosophies.

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