Carstar Conference 2002: Moving Forward

The line between insurers and bodyshops is a direct one – about 90% of bodyshop business comes from insurers, and a majority of customers will use shops recommended by their insurer. But currently both industries face challenges. Shops are dealing with a fragmented market with not enough business to sustain the vast number of small shops across the country. Insurers are coming off their worst year on record, both in Canada and the global market. Despite these dire straits, attendees at the CARSTAR Canada Industry Conference held recently in Mont Tremblant learned that the opportunity for insurers and bodyshops to join together has never been better.

COST PRESSURES

At the end of 2001, three or four insurers were struggling to meet the Canadian regulator’s capital test, says George Cooke, CEO of Dominion of Canada General Insurance Co. “Capital now has feet,” he notes, explaining that geographic boundaries are no longer relevant, investors and companies will move where there are solid returns to be made.

And global woes, from September 11 to losses in other lines of business from banking to investment operations, are trickling down to Canadian p&c companies. In fact, Cooke notes “We haven’t yet seen the full impact of September 11”, it will show up in this year’s results and be passed into prices next year.

That the industry has under-priced its products for so many years “amazes” Allstate Canada CEO Michael Donoghoe. In terms of insurer performance, he says, “I’m not sure that this year is going to be that much better. We’re still getting the same revenue as six years ago and yet the cost of almost everything [i.e. claims] is up.” Losing the cushion of investment gains, insurers are facing up to factors that have contributed to underwriting losses and looking to “stop the bleeding” on claims costs.

Ontario auto has been a major thorn in the industry’s side, representing a massive portion of the business, but other regions and other lines are similarly facing claims growth outpacing premium increases. “I don’t think lawyers have done us any favors lately,” says Donoghoe, referring to the rise of class action lawsuits such as McNaughton v. Co-operators and unease around aftermarket parts. And, he adds, “existing legislation has been very unfair to us”, for example Ontario accident benefit laws that are punishing insurer loss ratios, and “poorly-crafted” no-fault auto laws in the Maritimes.

For insurers, the immediate answer is price hikes and market withdrawal, but the long-term answer is to run the business better, says Cooke. In this regard, suppliers including bodyshops have something to offer in terms of helping insurers address claims as a core business process. “Your opportunity is immense, even better than it was a few years ago,” he tells shop-owners.

CUSTOMER GOALS

“Ours is a mature industry. Real organic growth for this industry is somewhere between slow and non-existent. It’s likely that our market is even shrinking,” says Donoghoe. The opportunity for growth is in having customers buy more policies with an insurer, a process he calls “customer encirclement”. But this requires making customers “love” their insurer and the vendors who work on their behalf, and more importantly in today’s corporate-wary world, to make them “trust” insurers.

“What we offer is a piece of paper and a promise, and for this we ask people to pay quite a lot of money.” Claims is where we earn that money, Donoghoe observes. “This is not a time to be cutting back on claims staff.” What is needed is better tracking of claims costs and better data. And, the customer provides the link between insurance distributors, carriers and the supply chain. “The broker has entrusted the customer to us [insurers] and we have entrusted the customer to you [bodyshops],” says Cooke.

To capitalize on cost-efficiencies, insurers and shops have entered into “preferred shop” or “direct repair” programs where bodyshops benefit from volume of business and insurers benefit from lower costs and faster turnaround times. But many brokers have been leery of such programs in the past and perhaps not without reason, says Cooke. “In the early infancy, when everybody rushed to put these programs in place, there were some companies that didn’t do it very well.” Although, he does sees this trend changing with more recent programs.

After asking Pollara to conduct a survey around direct repair programs, Cooke was surprised to discover the level of mistrust of corporations apparent in responses. In this “age of corporate skepticism”, the penalty for companies who fail to keep promises is that customers simply “walk”. Another finding is that customers are largely unaware of these programs and the potential benefits. “We have a lot to do in terms of selling these programs to our customers,” Cooke says.

Allstate also has a preferred shop program in place in Canada, and Donoghoe notes that what customers want is a guarantee of the work done. Rather than regarding claims as a “cost center”, insurers should be viewing it as a “moment of truth”. In the U.S., Allstate purchased a chain of bodyshops, Sterling, in order to effect claims control, but Donoghoe does not see this happening in Canada right now, particularly given the tough financial picture facing insurers.

TECH RESPONSE

One step in solidifying the relationship between insurers and bodyshops will be the growth of technology, predicts CARSTAR Canada CEO Sam Mercanti. The company has added to its arsenal of “insurer partners”, but is now looking at streamlining the claims process through technology.

“Technology has not given us, as yet, the advantages we were looking for,” admits Sam Malatesta, CARSTAR’s vice president of marketing. But he sees this changing in the near future. A solution that can capture the claims process “from crash to cash” is needed, says Mercanti. This is not only about better service, but about having an open link with insurers. “Our insurance partners need better information,” he says. His vision for the company, which would see shops achieving ROI above 30% and six-figure profits, is directly linked to drawing insurers into the picture to ensure high volumes of business.

CERTIFICATION DEBATE

Insurers and their repair shop partners could face a challenge in the Ontario market with the introduction of a private members bill calling for certification of shops. The bill would also require insurers to deal with certified shops.

Cooke calls the bill “a total crock”, saying, “Nobody should be impeding my ability to enter into agreements with you [bodyshops] for the best interests of my customers.” The legislation does not allow for differentiation of shops, between the excellent and the merely acceptable, he adds. “Don’t lose your competitive advantage,” he tells shop-owners. However, Donoghoe takes a more moderate stance, noting, “I’m not opposed to certification, we do need to have standards, but regulations cannot be just a beast of burden.” Laws need to respect preferred shop programs because they lower costs, and should not hamper competition, he says.