Aiming for claims control

Drivers in Canada are not doing such a bad job. In fact, this nation’s road safety record is actually good, Robert Tremblay, public relations manager for the Insurance Bureau of Canada (IBC) told attendees at the recent Auto Insurers and Manufacturers (AIM) Forum in Toronto.

However, claims costs for auto insurers have escalated dramatically, with personal injury claims – accident benefits (AB) and bodily injury (BI) – leading the way. In keeping with the proliferation of soft tissue damage claims, particularly whiplash, the IBC is turning its attention to the proper adjustment of vehicle head restraints, Tremblay explains. This three-year campaign will involve real-life testing, with cameras used to track the number of improperly adjusted head restraints. The IBC expects to “capture” 20,000 drivers across Canada to assess the level of the problem, and then follow with a media campaign.

Consumer awareness of vehicle safety issues is high, notes Costa Kaskavaltzis, manager of automotive engineering and vehicle services for the IBC. Surveys suggest that about 90% of car buyers say safety is a factor in their purchase. And manufacturers are “selling safety”, making cars that are more safe, from the windshield wipers to energy absorbing steering columns to “intelligent transportation systems” that help drivers map routes and avoid trouble spots such as traffic jams.

However, still other surveys suggest that fewer drivers are taking advantage of the latest safety features because of “fleet turnover” problems. As cars last longer, the age of the national auto fleet has become extended, so OEM (original equipment manufacturer) innovations are not making it into the mass market as quickly. And, he adds, “aftermarket retrofits are unlikely”.

Manufacturers need to get the latest technology out early and in large numbers. One example of this need is vehicle head restraints, as evidenced by a study from the Insurance Institute for Highway Safety (IIHS). According to the IIHS, the majority of passenger cars on the road have poor or marginal head restraints, with only 39% viewed as “acceptable” or “good”.

FOCUS ON FRAUD

A second IBC focus is on controlling healthcare expenditures related to soft tissue claims. In Ontario, insurers worked with the Financial Services Commission of Ontario (FSCO) to develop the “auto insurance standard invoice” (AISI) last year as a device to control healthcare spending through data collection and tracking. Another benefit of the AISI is the potential to track fraud. “The opportunity in the system today is just sitting there” for fraudsters because there is no data, no system to track billing, services and other costs.

Like auto theft, the costs of healthcare spending associated with auto insurance are growing. Insurers now pay more than $1 billion per year in Ontario for healthcare, notes Mark Yakabuski, the IBC’s Ontario region vice president, and are seeing “huge inflation” at 15% per annum in the past decade, at the same time that the number of collisions has dropped 30%. The cost increase is largely a result of soft tissue damage claims, he explains. “We’re not talking about a huge proliferation of catastrophic injuries.”

And, AB and BI claims may be particularly vulnerable to fraud. In these two areas, fraud is estimated to cost between $219 million and $327 million annually in Ontario, according to the Canadian Coalition Against Insurance Fraud. “Proving fraud under any circumstances is a challenge”, but personal injury cases involves special challenges, notes Samuel Holland, national manager of claims investigations for CGU Group Canada. Among these is the fact that recorded statements are not required of claimants in personal injury cases as they are in auto physical damage. Also, courts tend to place more weight on the words of family doctors than “independent medical examinations” (IMEs) requested by insurers.

“Clearly one of the tools we have to make use of in Ontario is collision reporting centers,” says Holland, where claims adjusters have the first chance to take photos and assess vehicle damage, thus giving fraud indicators. Perhaps more importantly, adjusters must not be afraid to question a claim. “We all have adjusters who have never recognized a claim as fraudulent in their careers,” Holland notes.

SUPPLY CHAIN CONTROL

“The auto claim is the beginning of our economy,” says Sam Malatesta, vice president of marketing and insurance relations for CARSTAR Canada. He points out that insurers and their partners need to view the claim not as a necessary expense, but as a core part of their business. Just as in health care provision, auto physical damage is an area where insurers need to address cost and quality control.

But, life is not easy for Canadian collision repair chains, he explains, with a large number of shops fighting for about US$2 billion in available bodyshop business each year, and the average sales per shop at less than US$300,000. In comparison, sales are double that in the U.S. and in the U.K., where the number of shops has dropped from 1,500 to 500, sales “per shop” are almost about US$1.5 million. In Japan the claims process is totally consolidated, with insurance renewals sold in the bodyshop, and the bodyshop becoming a “hub” for the consumer, the insurer and the supply chain.

Insurers in North America are seeing the logic behind this kind of supply chain control, as evidenced by Allstate’s purchase of the Sterling bodyshops. That acquisition has worked, says Malatesta, with the insurer taking responsibility for repairs that reflect on its own brand. “You’re going to see insurers take more responsibility for the repair process because they’re judged on it.”

Unfortunately, Canada has a lack of consistent repair standards, and lack of attention being paid to the most fundamental parts of the repair process – those that affect vehicle safety – with customers caring more about a consistent paint job than repairs that affect vehicle structure. As well, aftermarket parts have not been marketed properly and consumers do not understand the process of part certification, says Malatesta. “Who pays the bill?” Insurers do, he says, so why should they not have some say in the use of aftermarket parts, given that safety standards are met?

STOLEN MOMENTS

“Another growing concern for insurers is auto theft, which is estimated at more than $600 million per year in Canada, notes Ben Jillett, an investigator with the IBC’s Investigative Services Division. About $45 of each auto premium goes to theft-related costs. The IBC’s response has been multi-faceted and includes the “Re-Patt” program to prevent stolen vehicles from being exported out of Canada, VIN tracking and branding, and a vehicle recovery program running in Quebec and piloting in Ontario, which gives authorities access to IBC vehicle information to aid in identification and recovery of stolen vehicles.

Theft trends have changed dramatically, notes Henning Norup, vice president of information, research and analysis with the IBC. Older vehicles are increasingly likely to be stolen versus newer vehicles. This makes a case for the installation of aftermarket vehicle anti-theft devices such as those recommended by the IBC, as well as the use of immobilizers as standard features on new vehicles.