The Measure of Performance

These are fragile and challenging times in the insurance industry, particularly in the management of vehicle damage claims. The frequency of these losses over the past 10 years has declined by 1-2% due to improved road safety and other factors. Yet, because of more expensive cars and parts, the average claim severity has been steadily rising by as much as 2-3% per year.

In recent years, many customers have been paying out of pocket to fix their vehicles. Some repair shops are reporting an increase of “direct” (non-insurer) repairs to the tune of 25-30%. Companies are waiting to see what happens when, or if, claims flow back into the system.

Claims managers are under pressure to deliver the highest customer satisfaction and guaranteed repair quality, while at the same time facing budgetary realities and limited staff. If any of these elements slip, you can get shoddy repairs – and a black eye to your reputation. It’s a simple equation that sometimes gets lost in the shuffle: if the repair experience doesn’t measure up to the customer’s level of satisfaction, the customer will go elsewhere for their insurance.

DIRECT REPAIR NETWORKS

Insurance companies have taken several steps to streamline the management of physical damage claims and deliver quality repairs. In many cases, this has involved the creation of a direct repair program (DRP), which is sometimes referred to as a preferred provider network. When you look at the fragmentation of the collision repair industry, this move makes sense.

The automotive service and repair industry is a $15-billion business in Canada, according to figures from Statistics Canada. This includes automobile dealers, franchise outlets, mass merchandisers and independent repair shops. The latter category is the main source of insurance repair work; it is also the most highly fragmented part of the supply chain. Quality varies dramatically across repair shops, depending on size, experience, equipment and service capabilities. In all, there are roughly 8,000 collision repair shops in Canada.

Insurance companies that actively manage their DRP have had success in reducing aggregate claim costs. According to industry figures, a well-managed DRP – which requires performance management of its providers – can realize a combined severity and loss adjustment expense reduction of 5-10% per claim versus the industry average.

However, an in-house solution may not be the best fit for all companies. Many insurers who try to manage their DRP internally face a lack of market presence with the repair industry. Claim volumes are too small or too spread out geographically to build effective relationships. An in-house DRP can be difficult to manage, and so insurance companies are exploring the advantages of using outsourced collision repair management – either by itself, or as part of a broader automotive claims management solution.

OUTSOURCING REPAIR MANAGEMENT

In Canada, accessing a quality network of collision repair facilities is an increasingly attractive option for insurance companies. Such facilities are critical to achieving the highest customer satisfaction, shortest repair cycle times, and most reasonable repair costs. Outsourced collision repair management aggregates the claims volume from multiple insurers, thus creating benefits of scale such as operational efficiencies and increased market presence.

In addition to reaping the benefits of increased market presence, outsourcing collision repair management provides instant access to state-of-the-art technology. This technology is a must when it comes to streamlining dispatching assignments, retrieving estimates and digital pictures, auditing estimate compliance, and managing information on program performance.

Outsourcing doesn’t have to be an “all-or-nothing” solution. It is possible, for example, to take a stepped approach that complements the insurer’s unique situation and needs. Customized solutions can include first-notice-of-loss, towing, glass, auto physical damage repair management, total loss settlement and salvage disposal services.

As demand for outsourcing collision repair management continues to build momentum in Canada, new providers are entering or expanding into this area. With this in mind, it’s important for insurers to do their homework: not all networks are created equally.

EVALUATING REPAIR NETWORKS

When evaluating outsourced repair networks, some factors to consider include the:

* Integrity of program provider.

* Technology and software integration.

* Quality of repair network.

* Processes to ensure quality repair: audits, re-inspections, and warranties.

* Network coverage, especially across North America.

* Ability to control costs, severity and average cycle time.

* Customer satisfaction index (CSI).

* Performance management and metrics used.

The last factor, performance management, is increasingly important in today’s marketplace. When insurance companies contract with a repair network, is the relationship based on discounts and volume? If so, it is likely the money will be made up somewhere else – at the risk of claimant satisfaction.

At CertifiedFirst/PPG, we believe performance is the true measure that separates one network from the other. If you can’t measure it, you can’t improve the process. But there must be clarity about what exactly insurance companies are measuring and how frequently the measurement is performed. Claims managers are keen to know about factors such as cycle time, how estimate hours relate to cycle time, parts utilization, average severity and capture rate. But if they are getting this information in monthly “batch” reports, it is difficult to improve performance.

One year ago, we introduced technology that takes information from estimates, puts it into database and feeds it back into the repair shop, so insurers can actually see real-time measures in the shop. This “sweeper technology” not only allows individual shops to improve their efficiency, but it provides a good aggregate measure of performance. Insurers can gauge and compare shop performance right away. Insurance companies should direct work to the repair shops that perform, plain and simple.

While clearly important, the outsourced repair network represents only one part of the physical damage equation for insurers. Cost savings on the internal insurer management side can be just as – if not more – significant than on the network side. Imagine reducing hours of tedious paperwork and phone calls by eliminating the headaches of day-to-day management of repair facilities, warranty issues, multiple vendor management, and payment of individual service providers.

Through our LYNX Services, we provide automotive insurance claims management solutions to the insurance industry, linking customers, insurers and repair facilities. We have shown in the United States that we can save $150 per claim just by having us manage the process. On average, we handle 3 million claims annually. And when you manage that kind of volume, you learn something about streamlining the claims management process.

STREAMLINING WORKFLOW

Insurers have an opportunity to reduce costs and improve process flow throughout their claims operations. We offer to go into a company and process-map their whole organization on a claim flow process – providing a snapshot of their own performance. When companies start to do this, they quickly see where bottlenecks occur and where service standards can break down.

There are distinct ways to evaluate process flow within a claims department. Centralized billing, for example, is often cited as one method for improving process flow. By some estimates, it costs approximately $20-25 for an insurance company to issue a cheque. It doesn’t sound like much, but let’s
say a company handles 40,000 claims and has to pay individual providers. If there is one centralized bill provided to a network, the potential savings are in the seven figures.

More and more, insurance companies are interested in how they can achieve such cost reductions and improved efficiency in their processes – right from the first notice of loss through to closing of the claim file.

Recently, CertifiedFirst/PPG conducted consumer-driven research to discover what is important to a vehicle owner during the repair process. According to the study, vehicle owners want restored confidence, third-party verification of quality standards, guarantee on repairs, and an easily identified branded network. This is a tall order, but insurance companies are expected to meet these expectations in today’s marketplace on a consistent basis.

What are the two best ways to deliver these results? First, a methodical approach to measuring quality in repair networks. Second, an open look at internal insurance company claims handling processes.

If a quality repair network can measure ongoing performance and at the same time offer ways to streamline claims processes, then it is not just the insurance company that wins, but the policyholder as well.