This book includes a plain text version that is designed for high accessibility. To use this version please follow this link.
PARTNERS IN REPAIRS


The collision, insurance and parts industries are at this critical point, and we are in this together. They are not mutually exclusive, in fact the performance of one directly affects the others.


Insurers will Incentivize Repairers to Optimize the Parts Mix!


Repairers make a considerable margin on their OE parts purchases. Traditionally, they have made more when using OE dealer parts than on any other part type. As a result, insurers asking them to use alterna- tive parts* at a reduced price and margin for the re- pairer is not often well received, and understandably so. Why would you want to use a part that takes money out of your pocket? But let’s just test the logic here from an insur-


er’s perspective and how incentivizing the re- pairer will increase uptake of alternative parts, and the benefits to all stakeholders of doing this – even the OEM’s!


I’ve written a bit on the benefits of the re- pairer and insurer working together to opti- mize the mix of parts used in the repair process and notwithstanding that all parties need to do their bit to make this work (which will form part of future articles), much of the opportuni- ty hinges on repairer incentives. The beauty is that by paying repairers more, the insurer will actually save money. In fact, it is this anoma- ly, this conflict in “logic,” that has challenged insurers over the years and to a degree I un- derstand it. However, if the use of alternative


while others will disappear. There will be new house- hold names, while others will be slowly forgotten or become irrelevant. Insurance will not look the same in 10 years’ time as it looks today with the advent of collision avoidance and driverless car technologies. Consequently, the collision repair and parts supply industries will also change – there will be winners and there will be losers. So back to John’s experience. John has worked closely with his work providers and with his parts sup- ply chain to develop a model whereby all three parties achieve the outcome they all want. As a result, John has differentiated his service offering from most oth- er collision repairers and created a great value propo- sition, all the while increasing his volumes and margin at the same time as reducing his average repair cost.


The Secret Sauce Stop right there. I know that you are thinking that


this is not possible. That thinking will restrict your op- portunity, so stay open minded and at least give it a chance. No this is not a typo and Yes this is possible, so let’s start to think and act differently!


* Alternative parts in the context of this article includes recycled and certified non OE.


30


It turns out that the thing that we are so protective of, the secret sauce, is not such a secret after all. You see, on average, 45 percent of a repair cost is in parts. This is a large proportion of the value of every repair and herein lies the opportunity.


parts does not grow, and the insurer simply pays the repairer more to use what they are already using, then in fact the cost of parts will increase.


The Success Story


Between 2004 and 2011, I was doing work with one of the major insurers in Australia. Recycled parts us- age was low, less than six percent of the repair cost and this insurer wanted to increase usage and benefit from the overall cost savings that were forecast at $1 million for every one percent increase. The pricing model we developed incentivized repairers to use alternative recycled parts and delivered a savings of at least 25 percent of the OE list price every time a recycled part was used. We did the numbers and on paper the logic worked, the model was sound. The question was would repairers embrace the strategy and use more recycled parts? You could say it was the million-dollar question.


Within six months, recycled parts usage among the participating repairers doubled to over 12 percent and in some regions spiked to 24 percent. An extraor- dinary outcome – driven by the fact that there was a win in it for all participants.


But there were other benefits that came with this model: • We systemized the process to the point where the assessor/adjustor did not have to intervene at all.


March-April 2018 • AUTOMOTIVE RECYCLING


iStockphoto.com/gargantiopa


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64