(Editor’s note: Repair-Tech Publishing, Inc. is INSIGHT’s licensee in Japan, providing a translated edition of INSIGHT each month to the Japanese collision repair industry.)
There are currently 27 Japanese and 28 non-Japanese auto insurance companies operating in Japan. It is required by law for all drivers to carry mandatory liability coverage. The percentage of collision insurance policy covered vehicles is approximately 30%, which is about 20 million out of the total registered vehicles of 71 million. The top 10 companies dominate the auto insurance market with 84% market share.
Based on our estimate, the total Japanese collision repair market is 16 million repair orders, or US$ 16 billion per year. The total annual insurance payment for collision repair is approximately US$ 11 billion. That is over 5.5 million repair orders annually with the average repair cost of US$ 2,000 per R.O. Therefore, the percentage of collision repair paid by insurers is about 34% in repair order numbers and 69% in total dollars spent.
Each insurance company has a "service center" where claims adjusters are responsible for appraising damaged vehicles. There are approximately 7,500 claims adjusters, and 95% of whom are employed by various insurers’ Claims Appraisal Divisions. Claims appraisal for damaged vehicles is usually processed by these claims adjusters on site at repair facilities. Claim amount is then negotiated between the adjuster and repair facility. However, as an exception, few insurance companies and Kyosai’s have their drive-in claim center on site at collaborating repair facilities. Even for these insurers, however, claim settlement is processed by the adjusters present on site.
Traditionally, Ministry of Finance has always controlled the Japanese insurance industry. Under the outdated "Insurance Act of 1901," insurance business was divided into two segments, life insurance and property & casualty insurance. Even after a major revision in 1939, it specified that life insurance companies were not permitted to offer any property or casualty insurance policies, including auto insurance.
After a long period of virtual monopoly by limited numbers of insurance companies, the Japanese auto insurance industry is finally about to change. In April 1996, as a part of government’s "de-regulation" campaign, the Insurance Act was revised again for the first time in 56 years. This change allowed life insurance companies to offer property & casualty insurance policies. On October 1, 1996, a subsidiary of six life insurance companies started their auto insurance services.
In November, 1996, the pricing issue was formerly addressed by the Life Insurance Association of Japan to Ministry of Finance for review. Due to the continuous pressure from the US trade negotiators, on December 15, 1996, the Japanese government has finally come to an agreement where all insurance companies will be free to compete in pricing of property & casualty insurance premiums. All auto insurers will be allowed to set their own premiums by September, 1997.
As insurance companies are forced to become more efficient, some auto insurance companies have sent in their applications to Ministry of Finance to be granted a permission to sell policies by a "direct telemarketing" method. In August, 1996, American Home Insurance Co., Ltd. filed the first application, and started as a direct insurer on December 1. It is expected that many other auto insurance companies will follow this route.
In order to complement "telemarketing" approach in insurance policy sales, these insurance companies are expected to employ new techniques in cutting claims handling costs. New entrants to the battlefield, Nissei Property & Casualty Insurance Company, Mitsui Life Property & Casualty Insurance Company and Sumisei Property & Casualty Insurance Company had decided and formally announced that they will start new claims handling programs where collaborating repair shops will directly write damage estimates for their customers’ vehicles.
These shops are expected to eventually submit estimates electronically with digitized images of a damaged vehicle. At present, the largest of the three, Nissei, has about 135 participating repair facilities in their program with a network of 38 claims handling centers throughout Japan.
It is still difficult to predict the future direction of the relationship between collision repair shops and insurance companies. However, with all the changes taking place at the current pace, it is not too long before insurance referral will become an important source of securing repair orders for collision repair shops. In fact, many repairers are very interested in becoming a DRP shop for these insurers. When performing repairs for insurers, there is still at least a 10% profit margin on parts sales for repairers. In addition, insurers are not requiring much of a discount on labor sales at present.
Once these insurance companies succeeded in convincing their policy holders of benefits in bringing damaged vehicles directly into their DRP shops, it may very well be the profitable alternative for collision repairers to OE dealers and mechanical repair shops.
The Japanese Collision Repair Industry is experiencing these dramatic transitions. The most notable of all changes is that of the insurance industry. As they are allowed to set their own pricing of auto insurance policies later this year, there will be a serious pressure for insurers to cut overheads. Existing insurers have many adjusters to handle their claims. On the other hand, those new subsidiaries of life insurance companies are starting their own DRP to be competitive. Once the cost advantage of DRP is recognized, it is predicted that DRP will rapidly become a mainstream of claims handling process for the Japanese insurance companies.
At Repair-Tech, we think this will happen very fast, probably within a year or two. Collision Repair Shops will then be forced to adapt into this new, and drastically different environment. When that time comes, those who can adjust themselves will likely be the winner. There are different ways to survive the new environment. But no matter how they choose to do so, Japanese collision repair shops will have to change the way they conduct their business soon in the future.
(Junnosuke Inoue can be reached via e-mail at: jinoue@repair-tech.co.jp.)Reprinted from the October 1997 Issue of Collision Repair Industry INSIGHT.
© 1997 Collision Repair Industry INSIGHT. All Rights Reserved
Return to Archives