Collision Repair: SERVICE DETERMINES PROFITABILITY

Speakers of an insurer/collision discussion panel hosted by the industry’s international education body I-Car at its recent Canadian national conference were provided with the stark theme of dealing with “reality”. On a particularly “realistic note” was the thick tension in the air of the predominantly auto bodyshop audience of which individuals at the various “refreshment breaks” expressed their view that insurance had become a “dirty word”.

However, the panel speakers from within the auto repair industry concurred that many of the financial problems experienced by bodyshop owners has less to do with relations with the insurance industry, and more to do with excessive competition and lack of national quality standards. Many of the speakers from both insurance and repair industry ranks agreed that the reality of the future depends on the implementation of a national accreditation program for repair shops – thereby setting quality service standards as well as appropriate fee/payment structures.

One of the biggest problems in the auto collision repair industry is the number of operators which currently stands at around 8,000 shops countrywide, with little distinction made between the “bodyshop” and the “collision center”, says Guy Bessette, executive vice president of Fix Auto “We have to move away from short-term thinking, the decisions we make today will decide the future.” With over 8,000 shops nationwide, it becomes extremely difficult for insurers to set appropriate fees for what ultimately their customers, namely policyholders, receive in service. “In some cases, insurers are paying ‘bodyshop prices’ for ‘collision center service’, and that’s because the [repair] industry doesn’t have a shop accreditation and quality measurement standard. We need a system to tell insurers what is happening within the shops.” Bessette is hopeful that, through industry initiatives underway, some form of a national shop accreditation program will be introduced by the end of this year.

First contact

The average auto claim takes around 13 days to settle, which beyond the initial policyholder/broker or insurer contact, the consumer spends the majority of this time dealing with the repair shop, observes Sam Malatesta, vice president of marketing and insurance relations at CARSTAR Automotive Canada. “Regardless of how the customer came to the repair shop, research [by CARSTAR] shows that ultimately the consumer holds the insurer responsible for service quality.”

As such, Malatesta points out that the “quality of service” factor has significant bearing on the relationship between the collision industry and insurers. Repair shops set the quality, and insurance companies rely on their claims handling partners to ensure that the chain of service, and therefore client retention, is not broken, he adds. “Service [standards] are a concern to insurance companies…we have to help insurers remain profitable, without the insurance industry we don’t live.”

Bessette backs this argument, pointing out that, “we’re afraid to talk about profit in this industry”. If the collision repair industry hopes to achieve desired returns on business, it has to cultivate partnerships, and creating greater transparency of the nature of the business.

Attracting talent

A significant challenge facing the auto collision industry in improving service quality is attracting new professional talent, Bessette says. The 8,000 odd shops within the industry employ about 38,000 people, of which roughly 23,000 are qualified technicians who earn on average around $35,000 per annum income. “Is this how we are going to attract new incumbents into the business?” Ultimately, he notes, the quality of the “partnership chain” between the collision industry and that of insurance relies on a two-way street: “We really need support from insurers to pay top-dollar for top-quality.”

Malatesta point out, “our inability to attract good talent into the [collision repair] industry is a real problem we are facing today – that’s because we are not providing good leadership”. Although there are “positive signs of change underway”, he stresses the need for rapid improvement in management quality if the existing players in the collision repair industry plan on surviving in the new order of cost-efficiency. “It really comes down to four basic principals: price, quality, value and service. Service determines profitability.”

Dennis Belmore of parts distributor UAP NAPA, believes that the growth in “national franchises” within the collision industry is an efficient answer to determining quality and training standards. “We have introduced standards throughout [our] franchise program.” In addition to improving the quality of workmanship, the national franchise also offers insurers the cost-control advantage of the “buying power of network value”.

Insurance perspective

Raymond Girard of CGU Canada points out that the insurance industry has undergone dramatic consolidation, largely as a result of the drive for cost-efficiency. These same forces are now impacting the collision repair industry, he notes, which will likely led to a consolidation of the number of operators, with the survivors being those that attain the cost efficiencies of size. “Back in 1987, the specialists were predicting that in a few short years there would only be about 50 insurance companies left in Canada. Today, we still have 137 companies operating in the market, which says a lot about the ‘specialists’. However, it is important to note that the top 10 insurance companies now control about 60% of the market.”

From an insurer perspective, Girard says the collision repair industry has to look at tightening up the turnaround time of the repair process. We are seeing signs of a “more creative approach” by some repair operators in addressing these efficiency issues, “but this creative approach to service is not widespread”. Girard notes that the insurance industry is aware that its claim service partners are in the business to “make money”, but ultimately the cost-pressures exerted from the “top of the chain” being the customer, will have to filter throughout the process. ‘I agree that we need workmanship standards [in the collision repair industry], but is also important to recognize that those operators who are creative in their approach to service will be the winners.”

Luciene Pare of ING, acknowledges the current uncertainty griping the auto collision repair industry. The insurance industry has undergone dramatic change over recent years, he observes, and this period brought about a sense of uncertainty within the marketplace. No one can really predict the “reality” of the future direction of the market, he adds, but reality does exist in the reliance of both industries in building quality partnerships.