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The most pronounced difference between the U.K. and the U.S. when it comes to automobiles is that we drive on different sides of the road.
However, important differences also exist in the way auto insurance companies in both countries manage their repair networks. Failing to manage the repair network effectively leads to higher costs for both the insured and insurers. Add body shops into the equation, and the most important component -- the customer -- can get caught in the middle.
The notion that insurance companies should directly manage the repair process is debated in some quarters as a relatively new concept in the U.S. To contrast, in the U.K., the concept of end-to-end customer care for the insured has become well accepted. However, U.S. auto insurers could learn much more about the benefits and operational issues from their U.K. counterparts before electing to drive down this path.
Most insurers have a host of core competencies that range from managing risk to developing new products, so the nuts-and-bolts of managing a repair network only adds to their transactional headaches. However, in order to provide this end-to-end service in the U.K., major insurers increasingly rely on third party service providers to manage their networks. This, too, requires communication and governance to ensure the partnership benefits all parties.
Why should a change in management of repair networks be an imperative for evaluation in the U.S. at this particular point in time? Like most industries, American auto insurance companies are challenged by the current business environment.
?A slowing economy is leading to the purchase of fewer new vehicles, which tend to carry more comprehensive and expensive insurance coverages. New vehicle sales in 2008 are expected to dip to the lowest levels since 1995, according to J.D. Power and Associates.
?An aging demographic could lead to more accidents. Drivers over age 75 are 10 percent more likely to be involved in an accident than those between the ages of 30-59, and more likely to be at fault, according to the Insurance Institute for Highway Safety. The 76 million baby boomers begin to hit retirement age in the next decade, and are expected to be more active, driving more than previous generations.
?Lastly, the recession has squeezed other costs of living, such as health care and mortgage payments, and has blown up credit card balances. More than ever, consumers put a premium on obtaining the cheapest insurance rates they can find.
With less growth in new accounts and increased competition, insurers able to deliver the best service to their customers concurrent with the most aggressive management of their cost base will thrive in this market.
Fixing the Relationship
It's true that U.S. customers typically see managing the repair process as their responsibility rather than that of insurers. This was, at one time, the case in the U.K., too. The relationship was between the repairer and the customer, and the insurer was seen as little more than the bill payer. Over time, however, U.K. insurers noticed a decline in service that their customers were receiving from repair shops. Customers had little understanding of the repair process or clarity into when repairs would be finished. Lack of a commitment to service, coupled with concerns over the uneven quality of repair workmanship, led U.K. insurers to enter into the management of the repair supply chain. U.K. insurers let their customers know that if they had a great repair shop, fine, but if not, by selecting one from a vetted network, insurers could guarantee quality standards.
Over time, a shift occurred in the customer/repair shop/insurer relationship, and repair shops began to view insurers as their customers. This wasn't always easy and it didn't happen overnight. But the buying power of an insurer far outstrips that of the customer, and repair shops started to see the relationship between quality service and revenue production.
In the U.S., the relationship between insurance companies and repair shops has been historically contentious, with repairers concerned about suppressed rates and lack of clarity into the claim process. There were similar concerns in the U.K. When insurers became involved in the repair process, body shops were afraid that they would try to squeeze rates. After seeing efforts made by insurance companies to partner with the repair shops, the relationships improved and flourished.
To build a strong relationship with repair shops, insurers need a solid foundation built on two pillars. First, insurers must send a continuous pipeline of work to the shops. Second, they must pay repair shops on time, every time -- period.
Repair shops shouldn't have to live on a feast-or-famine basis. They need to be able to count on steady work, but at the same time, they do not need a long line of unfixed vehicles backed up outside. A consistent flow of work is critical to staffing, business planning, and working capital management, and for the repair shops, cash is king. On-time payments are crucial, and repair shops know that large insurance companies can pay. Historically, however, insurers have been poor payers, due in part to poor internal billing processes. This, along with the myriad daily functions required to manage a repair network, is persuading more U.K. insurance firms to partner with outsourced service providers.
However, the fact is that many large companies simply cannot adapt their operating models -- or transform them quickly enough -- to deal with changing business environments. This is notable for the U.S. auto insurance industry, where the 15 largest insurers control 75 percent of the market, according to Standard & Poor's.
Facilitating strong communication between insurers and repair shops and repair shops and customers, validating the quality of the repairs, and ensuring timely payment to repairers requires constant management. In reality, insurance companies should focus on developing new products, managing risk, and signing customers rather than managing a supply chain fraught with angst. Couple this with the fact that the technology underpinnings needed to make repair management a smooth process are something few insurance firms are able to invest in or develop, and insurers are compelled to look for help managing these relationships.
In the U.K., auto insurers of all sizes have looked to outsourcing providers to process auto claims and manage the repair networks. Service providers focus on daily management and customer service, which in the U.K. includes everything from on-site inspections and quality rankings of the body shops, to informing customers when the repairs will be finished and updating them on the process and ensuring that repair shops are paid on time. Since the accident-management provider works with the shops on a regular basis, the providers are more likely to know which body shops are actually qualified and have the availability to complete the repairs more quickly and to a higher level of satisfaction.
There is no secret to customer satisfaction following a fender bender: customers want their automobiles fixed completely and competently, and as fast as possible. A good repair-network management provider will inform customers when they can expect their vehicles to be fixed and returned within the first 48 hours of an accident. Often, given the relationship with repairers, insurer repair networks are given priority over those that are not, which increases the speed of repair.
Even if customers know when their autos should be fixed, human nature drives them to call the repairer or insurance company for an update. Although this could be viewed as a minor inconvenience, insurers often fail to calculate this as a cost to them that can be trimmed. In the U.K., providers give repair updates either by email or text messaging, which is quite popular in Europe. If anything will delay the repairs -- such as back-ordered parts -- the service providers can call the customer directly. This is a process that insurance firms generally neglect.
Service providers have the technology and process excellence enabling them to deliver better service and higher value. Some systems even allow repairers to update the repair process online for customers. Most insurance firms, especially the large and complex organizations, lack the resources or funds to develop such systems in house.
Outsourcing Success
While insurers see the value in outsourcing repair network management, there are a few take-home points that can help insurers select the right partner and develop the most beneficial relationship.
Build the right foundation. The decision to outsource should never be taken lightly, regardless of the process or the scope of work considered. Building the foundation of an outsourcing relationship requires companies to first understand how tasks are currently performed and how the processes will be transitioned to the service provider.
First, baseline metrics must be set. Insurers must consider how processes are currently executed and what metrics are currently reached to understand how an outsourcer can truly improve the service. These metrics can include the average "keys to keys" repair time (how long it takes to process a claim and the time it takes to pay the repairers). Secondly, insurers and providers must collaborate on how these metrics will be improved and expectations set. Third, insurers and providers must work together to determine how to transfer ownership of these processes. Change must be managed for the relationship to be successful.
Failing to start with these three tactics are the main challenges to making outsourcing succeed.
Test a provider's domain knowledge. As outsourcing becomes more complex, it increasingly requires service providers to have a deep understanding of the industries in which they serve. In the past, companies primarily outsourced horizontal functions, such as IT management or call centers. Today, industry understanding is crucial. To manage a repair network, assess accidents, process claims, and pay repairers, providers must understand the insurance and repair industries, their business drivers, and operating environments. The lowest cost provider will offer little help if they do not understand the difference between a credit card and a crankshaft.
Look beyond cost savings. Cost cutting has historically been the main reason for outsourcing, but limiting the focus to expense reduction negates many of the higher-value benefits companies can obtain from outsourcing.
A well-managed repair network generally leads to more satisfied customers, who are then more likely to remain customers and potentially extend their relationships over time. A strong repair network also can lead to better relationships with body shops, solidifying the tenuous relationship dynamic in the U.S., and should lead to lower repair costs due to volumes.
And with third parties focused on managing the repair process end-to-end, insurers can place their emphasis on product development, new business initiatives, and risk management, rather than on process management.
Ongoing Task
No outsourcing relationship is as simple as throwing tasks over the wall and signing a service level agreement. The best relationships are managed actively on an ongoing basis, with constant communication between the provider and the insurer.
While benchmarking and SLAs outline the rules of engagement, continued collaboration allows the relationship to flourish and mitigates challenges along the way. For the optimal relationship, both insurers and providers should remember three final points:
?Honor commitments
?Anticipate industry trends
?Celebrate each other's successes
Insurers and providers must put a premium on making the relationship a success for everyone involved. Perhaps driving on the left side of the road isn't all that difficult.
Tim Rankin is managing director of WNS Assistance, a motor claims outsourcing company in the U.K. and the largest independent buyer of U.K. repair services with a $500 million annual spend with its repair network. In 2008, WNS Assistance managed 250,000 claims and facilitated 130,000 repairs.
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