Controlling the cost of repair

It is commonly applied practice in the insurance industry to prescribe a list of suppliers policyholders are required to use in the event of making a claim. Very few insurers, both within the direct and traditional environments, permit their clients to simply opt for a panel beater or glass repair provider that is convenient or competitive. These suppliers must abide by certain checks and balances in order to be accepted by the insurer.

Although some might suggest this practice harms the consumer by limiting choice and freedom, it is intended to achieve the opposite.

By working with automotive repair suppliers that meet a particular standard of workmanship and service, insurers are protecting their policyholders. Here, reliability and standardisation are the watchwords. The end goal is a quality repair that will not fail in the long term due to poor practice or substandard materials.

Naturally, this approach has a knock on affect for the insurer. In an increasingly competitive market it is of paramount importance that these organisations minimise cost per claim. Permitting consumers to simply select the after market repair supplier of their choosing would significantly increase the risk of failure, often resulting in yet another claim at a later date.

Some members of the public might react angrily to this assertion, asking why their insurance providers are more interested in profit than allowing their customers the freedom of choice.

The reality is that this practice would ultimately drive up premiums on a national level, resulting in a higher cost to insure vehicles and assets. Standardising and vetting suppliers makes good business sense for insurers, but it also protects the consumer’s pocket.

There is, however, an element associated with this practice that is impacting insurance providers in an unexpected manner.

Renewed regulation recently introduced by the Financial Services Board has seen many of South Africa’s larger providers taking on portions of the repair supply chain in order to manage overheads. The majority of traditional insurers now require panel beaters to use supplies that originate from their own extended business networks.

This has resulted in these organisations taking on significant overheads to manage the associated processes. Businesses that were once solely focused on underwriting their customers are now heavily involved in an area that is unfamiliar to their particular level of expertise – the supply chain.

Consolidation, stock management, procurement and administration can apply strain to the bottom line. Here, it makes practical business sense for insurers to work closely with partners such as Innovation Group to wisely manage these overheads by reducing staff costs and applying business intelligence technology to this framework.

It is impossible to argue with the assertion that the South African insurance industry is highly competitive. Recent changes to regulations and an influx of direct insurers have forced traditional insurers to investigate new ways of reducing the cost of claim. In the process, these groups have moved to control and supply the repair market. While this might be a shrewd tactical move it is vital to partner with providers that understand this market.