Micro-management of repair costs by insurance companies is forcing bodyshops to close and others to cut investment in equipment and skills. Their actions will leave fleets with less choice and longer lead times.
The warning was issued by Tony Lowe, RMI board member for the National Association of Bodyshops. It followed the closure of intermediary Elite Incident Management, which has gone into liquidation after losing a contract with an unnamed major insurer, and the administration of Drive Assist UK.
Elite was established in 1992 to offer fleet managers, insurers and brokers a range of accident management services, and at one time was one of the biggest providers.
The demise of both companies, like that of many bodyshops, is being blamed on insurers.
Lowe says the failures reflect an ever-hardening attitude of the insurance industry in squeezing intermediaries.
He calculates that in the past decade the number of bodyshops in the £4 billion UK industry had reduced from 17,000 to 2,500, which leaves fleets with less choice when it comes to getting vehicles repaired.
“The bodyshop sector has been squeezed to death,” said Lowe, who is group managing director of Impact Repair Centre which has four bodyshops in the West Midlands.
“There needs to be investment, but the whole industry has not invested for 10 to 15 years because it has been as lean as it can be.”
He says fewer bodyshops has a number of consequences for fleets. Repair cycle times will rise, resulting in additional replacement vehicle costs for at-fault claims.
In addition, less competition means demand will out-strip supply, which could result in higher repair costs.
Lowe added: “High fleet excesses will encourage large fleets to self-insure. The fleet insurance model may change with more opting for ‘claims cost plus’, as a way of applying some control to motor insurance premiums.
“Larger self-insured fleets may opt to establish their own supply agreements direct with bodyshops to leverage specific priority service.”
Lowe’s comments come in the wake of Aviva – one of Britain’s biggest insurers – saying that UK drivers overwhelmingly wanted to see the back of the personal injury compensation culture that has seen premiums soar.
At the root of rising vehicle insurance premiums is the way the whole industry is working – particularly in relation to personal injury claims – and the relationship between insurers, intermediary companies involved in the accident management business and bodyshops.
Aviva has calculated that if insurers handled claims directly, an estimated £1.5bn of excess costs could be stripped from UK motor insurance premiums, with fleets among the major beneficiaries.
Central to Aviva’s proposals for reform is a call for a legal requirement on personal injury claimants – dominated by whiplash injuries – to contact the at-fault insurer in the first instance rather than going to or being referred to intermediaries, including claims management companies and personal injury lawyers.
Dominic Clayden, claims director at Aviva, said: “We are campaigning for a more efficient system that removes the ‘interested parties’ and requires people to deal directly with the insurer of the at-fault party.”
Aviva calculates that removing third-party organisations from the claims process would result in a halving of the cost per claim as third-party legal fees are removed from the low-value personal injury claim.
The average legal fee is £2,500 for a typical whiplash claim. This saving could be reflected in insurance premiums.
The Competition Commission is investigating the UK’s private motor insurance market to see if there are any features which prevent, restrict or distort competition and, if so, what action might be taken to remedy them. It is due to report by September 27, 2014.
However, whatever conclusions the Commission draws will come too late for the directors of Brighton-based Elite.