The challenge lies ahead
I follow a number of blogs and receive newsletters on a variety of topics, one of which is an Australian publication about insurance and risk written for industry professionals. In August they featured a story predicting a downturn for general insurance in the Australian market.
Given the state of the Aussie economy, this prediction of tough times for Insurance companies and brokers for the next three or so years is not unsurprising. They suggested reasons were falls in insurance premiums on houses and vehicles due to stronger competition in a low growth environment.
Our market today is owned by Australian insurance companies. It was mentioned in one of my previous articles the big American owned Berkshire Hathaway Insurance Company was to open here in Auckland. At the time it was announced, the back story was they had recently bought a 3.7 percent stake in IAG for US$500m to form a strategic partnership so they could expand operations in the Asia Pacific region. So much for new competition!
You might now be wondering what this means for the collision repair industry in New Zealand. The answer lies in the feature story that suggests “insurers start focussing on customers, claims costs and expenses”. It then expands on this by adding the challenge lies in reducing claims costs without alienating the customer.
So it’s pretty safe to assume that due to tougher times in Australia; branch operations in NZ – particularly where it comes to claims, are going to be squeezed just a little more. Having just come through a period of intense changes it would be fair to say it’s just going to be more business as usual – unless you’ve been thinking outside the square.
Without putting too fine a point on it, divide and conquer is a great strategy, but isn’t it about time the opposite strategy was put into effect. Industry associations are great but have limited power; so how about we take a quick look at what’s working in the USA?
As an example, you might like to visit www.serviceking.com – a commercially successful enterprise described as one of the fastest growing preferred multi-state operators in the collision repair industry with 251 locations in 22 states. They have Insurance partners and dealer partners; and a national online booking and job status system so a client can simply log on to learn about the progress of repairs.
Service King also supports charities with state-wide golf tournaments, and donates money to worthy causes. The company has a two word brand promise and it’s thename. It’s “not just about the car it’s about the care”. They even have their own written warranty.
My question is simple – can it be done here? It has been said many times that herding cats might be easier than organising a group of panel beaters. But, I suspect that given the choice of economic ruin, or figuring out how to establish in the collision repair industry the equivalent level of teamwork the All Blacks have, sense might one day prevail.
An alternative might be a specialised insurance company set up by the collision repair industry to provide a greater degree of completion. It’s might have merit, but in practical terms it would be way too difficult to establish with out some serious investment. Last month I mentioned that anyone wanting “to see some real examples of humour; then look across the Tasman, choose any auction house and see what gets treated as a statutory total loss. Then think about the systems in place that created so many examples of waste; what it does to reduce the cost of replacement parts, and makes it uneconomical to spend anymore than two or three hours on labour. And these are the same systems being pushed into the NZ market.”
Recently I was tasked with an assessment on a vehicle insured by another insurer because my client had concerns over the way the job was written up. Clearly the repairer’s estimate had ticked all the Insurer’s boxes as the parts pricing had been sourced over the Internet. So the insurance company’s assessor had simply taken a cursory hack at the labour and paint allowances. The vehicle was a six-year-old higher mileage Toyota, and a bulk price on parts supply was all that had been provided.
Excuse me for sounding “old school”, but decisions over repair or replacement of individual items can only be made if you know their cost; then unless you are super busy it makes economic sense to sell more labour than buy parts. The difference between “the Aussie way” and “old school Kiwi” was over $1,000 incl. GST more.
Before you jump in and say this is a massive reduction at the expense of the repairer, you might like to consider this particular shop was not that busy, and the profit of the more expensive job would have been lower than if they had sold more labour. A higher job cost does not necessarily equate to higher profitability.
In larger shops estimators are writing dozens of estimates every week. Anyone can fit a replacement part to a vehicle, so all an insurer needs to do is tilt the deck to reduce parts prices and this reduces the need for skilled labour with the majority of repairs.
With more severe damage it works to an Insurer’s advantage to simply write the vehicle off so as to replenish the stock of used parts, or even better
– flood the market so competition to supply drives down the price. There are panel shops around the country that have difficulty getting good staff to use chassis and alignment systems. As a result they have made decisions to sell off this equipment to focus on the smaller jobs that can be turned over more quickly. My point always has been that you make money when you write the estimate, and lose it when you do the job. Good gear in the hands of a skilled operator is good sustainable business.
At this point I’ll refer back to the culture expressed in the www. serviceking.com web – they are not just co-workers they are family. They have an impressive range of benefits that includes medical, dental, life insurance and vision care. They have been ranked “Best place to work” in several states, and videos on the website feature staff who speak enthusiastically and with pride about their role in the organisation. This combined with social and community activity makes it look like a great environment to work in.
Perhaps you might like to look at the website of the organisation you operate or work for. Given that virtually all purchasing and employment is started with a web search you might just be shooting yourself in the foot if you don’t give this some serious attention. When I hear stories that it’s almost impossible to get even a few people applying for a role it’s a pretty safe bet their website is sadly lacking.
Training is often the other missing ingredient. It’s not always about the productive time lost to learn about the latest steering and suspension or ABS systems that you would always outwork to specialists. Your team needs to be encouraged to learn new methods and be forever curious about what others are doing to up-skill. The alternative is day-in, day-out same old dusty and smelly environment. If you are in management challenge your staff to learn more… and if you are on the floor, then look overseas to discover new tools or solutions for efficiency. It’s broken. To remain relevant business leaders need to emerge that challenge the status quo and create a more sustainable future. It’s not about revolution, it’s about an evolution of market forces.
There are many good examples available online of what is already here or can be found overseas and adapted to our conditions before we loose expertise in favour of expediency driven ideology imported from offshore.
“Old school Kiwi” as a style can and should be at the core of what we do as it fosters pride and achievement in a job well done. Or you can just go with the flow and be squeezed like any other commodity. The challenge is yours, and it lies ahead.
By Peter Adams, group CEO, Corporate & Prestige.