Industry looks outward to control auto costs

A recent Competition Bureau decision favoring “insurer preferred bodyshops” has provided auto property and casualty insurance companies with much needed ammunition in a pending court battle with the City of Toronto to overrule a longstanding by-law prohibiting the establishment of insurer-backed repair shops. The use of preferred bodyshops has gained momentum across the provinces as insurers have fought to control rising operating expenses in the cost-rampant auto business. Repair shop costs are, however, not the only concern of insurers, with the industry moving on several fronts to bring the operating ratio down on auto business.

The Competition Bureau recently issued a decision stating that insurer preferred bodyshops do not restrict competition within the auto repair industry, and therefore do not contravene competition law. The bureau’s decision was made on complaints received from several small independent bodyshop operators fighting against the preferred shop concept. Although the bureau’s decision is not binding as a practice, it does provide sufficient grounds for insurers to mount a formidable defense in Toronto for the establishment of preferred shops.

The Competition Bureau decision, based on nearly two years of study, concluded that insurer directed preferred bodyshops do not substantially lessen competition in the collision repair industry. The Competition Bureau’s Richard Taylor notes that the ruling has no legislative or judicial impact, but simply confirms that Canadian consumers are not adversely affected by the practice. As such, it is now up to the insurance industry and the politicians to slug out the benefits of allowing preferred shops in areas such as Toronto which restrict their use.

Another notch

One of the conclusions of the Competition Bureau report — “the insurance market is characterized by vigourous competition which ensures that any cost control or saving, in part by reliance on the preferred shops, benefit consumers in terms of premium calculations” — drew an enthusiastic response from industry representatives. “I can only call [the report] a glowing endorsement of competitiveness in our industry,” says Mark Yakabuski, the Insurance Bureau of Canada’s (IBC) acting vice president of the Ontario Region. He adds the Bureau’s finding has been entered as evidence in the industry’s court case against the City of Toronto. “Quality control and costs are daily issues that the insurance companies have to address. The bureau recognizes that preferred bodyshops are one way of achieving this goal.”

George Cooke, president of the Dominion of Canada General Insurance Company, says the victory forms just the tip of the iceberg for an industry seeking to maintain quality control over its service providers. “Ensure my right to streamline my operation and provide a rebate for my customer in the process and it’s only in my best interest to make sure they receive the best value at the end of the day,” he notes.

Not only should the result resonate at the City of Toronto court challenge level, says Yakabuski, but the Bureau’s wording should help the industry fight further non-related challenges. “By promoting the competitive qualities of the [insurance], I can’t think of better words to use. And it’s not the IBC or anyone in the industry writing it, it’s the Competition Bureau of Canada. The report is great news…this kind of finding is going to be helpful with regards to any number of issues we will be dealing with.”

Insurer/bodyshop partners

Even while the Toronto court challenge continues, Canadian insurers continue to view preferred shops as essential to maintaining customer services standards, marketshare and operating margins. At the recent CARSTAR 2nd Annual Collision Repair Industry Conference, CGU Group Canada Ltd. chief operating officer Mark Webb outlined a future vision that includes an even closer relationship between insurers and bodyshops.

Addressing a room predominately populated by CARSTAR Automotive Canada delegates, Webb notes the experience insureds have at their body shop greatly impacts their perception of their carrier. “It is in the best interest of our market to ensure execution excellence at the bodyshop level. As a result, the trend has to be to encourage projects building relationships with the collision repair industry.”

Small factions within the insurer community have gone further in their suggestions, advocating that insurers should own auto repair shops. However, Webb observes, as long as the industry can maintain a strong cohesive relationship with their collision repair partners, there is no need for insurers to enter the field.

Sam Malatesta, CARSTAR’s vice president of marketing, supports Webb’s connection between the insured’s bodyshop experience and their overall insurer satisfaction. Malatesta presented data from a consumer claim poll which found that 40% of respondents who report having had an “excellent auto repair experience” ultimately renew their coverage with the same carrier. Conversely, of the 20% who report a bad experience, eight of ten report switching carriers at renewal time. The implication — that bodyshops are on the frontline of promoting their insurer partners — is clear, says Malatesta. “We are the one’s who have got the consumer for the longest portion of the auto claim chain. Can we influence their satisfaction with their insurance policy and company?…Of course we can.”