Motor insurance industry marked by mistrust and conflict

Peter Todd, Founder of Repair Solutions

FAnews recently chatted to Peter Todd, Founder of Repair Solutions, about motor insurance, and 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. This is particularly true of the trust aspect, where greater transparency has resulted in more trust between insurers and repairers. This has improved repair cycle times and ultimately the customer experience,” he said.

Costly endeavors

According to Todd, 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 said.

He further mentioned that much of the current practices stem from a historic model that did not align 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.

The juggling act

Similarly, he 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 the parts component of motor claims approaching 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,” continued Todd.

Todd mentioned that it is critical to develop a model that seeks to align the interests of clients, insurers and repairers collectively. By getting the repairer to focus on reducing repair costs for insurers and for insurers to share the savings with repairers this can be achieved.

“Trust must be built on a transparent system, because without transparency, insurers will never build trust in the repair process,” he said.

Building the ultimate turnkey solution

By managing the repair process, the ultimate vision is to provide an end-to-end solution spanning the complete motor accident life-cycle.

The goal, according to Todd, should be 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.

“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,” he said.

Todd further mentioned that, for mandated brokers with a claims mandate the issues apply to them equally. “In the case of non-mandated brokers, they often try to direct the repairs to their preferred repairers, which often dilutes the ability of the insurer to leverage its buying power and to manage a consistent process. My advice to the non-mandated brokers would be to fit in with the insurers’ procurement practices and not to work against them as this ultimately adds cost, complexity and customer inconvenience,” concluded Todd. 

Editor’s Thoughts:
With power being shifted towards the consumer, perhaps current business models need to change to ensure enhanced customer service and quality workmanship at a lower cost. Motor insurance risks can possibly becoming dis-intermediated unless it implements immediate cost cuts. What are your thoughts on this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.