Looking at claims in a whole new way
FAnews recently interviewed Peter Todd, Founder of Repair Solutions, about the motor insurance industry in South Africa, the challenges that are present and how best to align the interests of clients, insurers and repairers collectively.
According to Todd, motor insurance represents more than 50% of total industry claims, which makes the motor repair industry the single biggest supplier to the insurance industry. Yet for decades the relationship between insurers and repairers has been marked by mistrust and conflict. This has resulted in clients not always enjoying the best experience.
“Having looked at insurance repair models abroad, there are many of the same dynamics as in South Africa, yet insurers and repairers abroad have managed to bridge many of the gaps. For example, greater transparency has resulted in more trust between insurers and repairers, which has improved repair cycle times and ultimately the customer experience,” said Todd.
Costly endeavors
Todd mentioned that there is a significant amount of waste in the full motor claims supply chain. “For example, a non-drivable accident can result in multiple towing charges, storage costs, release fees, car hire and repair costs, which increase cycle times and results in a poor customer experience. Added to this, some of the hidden costs such as commissions paid to assessors and tow truck drivers and the real costs become harder to manage,” he continued.
Much of the current practices, according to Todd, stem from a historic model that did not align the interests between insurers and service providers. “As insurers looked to reduce legitimate fees, these unsavory practices inevitably surfaced, with the customer experiencing the brunt of an inefficient process,” he said.
The juggling act
Similarly, Todd said as insurers focused on reducing real labor rates of repairers, repairers resorted to fitting more parts than repairing parts at sub-economic labor rates. The result is that the parts component of motor claims approaches 60%, as repairers typically earn a 25% margin on top of the cost of the motor parts.
“By focusing on the labor component of the claims cost, insurers have created a disincentive for repairs to manage down the cost and utilisation of parts. This is a classic example of misaligned incentives,” he said.
Partnering with most of the leading repairers in South Africa, Repair Solutions has developed a model that seeks to align the interests of clients, insurers and repairers collectively. This is achieved by getting the repairer to focus on reducing repair costs for insurers and for insurers to share the savings with repairers.
“The core to delivering on this value proposition is the emphasis of trust built on a transparent system. Without transparency, insurers will never build trust in the repair process,” continued Todd.
Building the ultimate turnkey solution
Whilst Repair Solutions is currently focused on managing the repair process, the ultimate vision is to provide an end-to-end solution spanning the complete motor accident life-cycle including:
• First notification of loss;
• Towing;
• Roadside assistance;
• Repair management and optimisation;
• Salvage;
• Repair cost data and benchmarking; and
• Car hire cost reduction
“Repair Solution’s aim is to ultimately bring down the cost of motor insurance to the benefit of all stakeholders and not at the expense of certain stakeholders, as this will only drive the wrong behavior and ultimately lead to a lack of transparency, mistrust and increasing costs,” said Todd.
“At the heart of it all is the customer – the obsession with trying to control the uncontrollable (due to misaligned incentives) has taken the focus off the customer. This is reason enough to embrace new models built on transparency, trust and aligned interests,” concluded Todd.
Sustainable strategies aimed at making motor insurance profitable for underwriters and both affordable and sustainable for consumers and business is essential, if not critical. Only then, can true mutual interest be achieved.
