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Letter to the Editor

Under the Microscope:

The UK Collision Repair Market

Part 2: A Special Report from BodyShop Magazine's Chris Mann

INSIGHT Note: Setting the Stage:

The UK has a population of 59 million, about one-fifth of the USA’s 275 million number. With about 25 million passenger cars on the British roadways, versus over 242 million registered vehicles in the USA, the size of the UK Collision Repair Market is smaller, despite a higher accident frequency and greater average dollar amount of total damage per accident in the UK. British body shops number approximately 5,600, about one-tenth of the estimated 53,000 American collision repair facilities. While in the USA the average ratio of clock hour to flag hour is 160 percent, in the UK a shop is working in "real time" - equivalent to the door rate.

Direct Insurers

In Part 1 we noted that the insurance companies, under considerable pressure from the new "direct insurers" started bearing down more heavily on repairers in an attempt to reduce their claims costs. Repairers, meantime, were desperate to generate more work and, in order to differentiate themselves from the competition, a number of repairers started offering free courtesy cars to customers bringing their car in for repair. This was immediately popular, and was soon taken up by the insurance industry, initially by Drake Insurance, which developed a national network of repairers, working for Drake at a standard labour rate and providing a range of "added value" services, including the provision of a courtesy car.

This was great for Drake approved repairers, who saw an increase in the amount of work generated via the Drake contract and great for Drake because they had a wonderful USP to offer motorists and were thus able to increase policyholder numbers. Needless to say, though, everyone else soon piled on the bandwagon and within a very short space of time courtesy cars became the norm. At the same time we saw the rise of the Drake concept of "approved repairer networks" through contractual arrangements with repairers who, in return for hoped for (but not guaranteed) volume business, agreed to work for the insurance company at a highly competitive labour rate, provide them with bottom line discounts on labour, parts etc. and meet an agreed range of service criteria including, typically, the provision of courtesy cars.

However, few insurance companies had the resources to be able to monitor the quality of service provided by individual repairers. The MVRA, which had previously set up a work book and operations manual designed to help repairers achieve the British operational systems standard BS5750, therefore decided to develop this into their own refinish specific standards programme and to create an elite "quality assured" QA membership. This met a whole range of operational and equipment criteria laid down by the MVRA (a similar concept to the standards programme initiated by the VBRA a few years earlier).

This enabled the MVRA to market their group of repairers to insurance companies, vehicle fleet operators and even vehicle manufacturers as a high quality national network on the basis that the MVRA had the skills, knowledge and resources, both to set repairer standards and to monitor and audit them. This proved a popular concept and encouraged high quality repairers to become MVRA members since, at the end of the day, the main reason for any repairer joining a trade association was (and is) to generate more work. The MVRA charged an increased membership fee for its QA members and also charged an "administration fee" on each repair that was directed into any one of its repairers via one of its contracted work providers.

Decline

As the MVRA grew in stature and influence, so the VBRA’s stature and influence diminished. Meanwhile other "network managers" and "accident management companies" appeared on the scene, offering consistency of labour rate and service levels via their repairer networks, and generated income through referral fees, commission based on repair value, or a combination of the two. In some cases they provided accident helpline facilities whereby motorists who had suffered an accident could ring a free phone helpline number, provided by their insurance company, for instant assistance in finding a local approved repairer, provision of a courtesy car, collection, delivery etc.

At a time of over-capacity and recession many repairers were desperate for work, at any price, and they queued up to join one or more of the many network management companies that seemingly sprung up overnight. Some of these had set up deals whereby once the repair had been completed, the invoice to the insurer was sent not by the repairer but by the network management company and the repair fee paid to them rather than the repairer direct. A number of these companies used this money as working capital, setting up large overhead operations which then, predictably, went bust, leaving a trail of debts and grief all round. (Editor’s note: This sounds like the First Priority/driversshield.com approach.)

Conflict of Interest

Some, though, survived and thrived and the concept of outsourced accident management is now well established. The MVRA has come under quite a lot of criticism from some sectors of the market that claim by trying to be both a network manager and a trade association there are potential conflicts of interest with their repairer members.

This criticism has recently intensified when a big contract they had negotiated last year with Zurich, following its take-over of Eagle Star to make it one of the biggest motor insurers in the UK, went somewhat pear-shaped. The bones of the story are as follows. Following the amalgamation of Zurich and Eagle Star a new, smaller, single national network of "Zurich approved repairers" was set up, working to a contract issued by Zurich via the MVRA. The contract required that the 400 Zurich approved repairers, to whom the company would send all of its repair work, had to be MVRA QA members, had to use the estimating system (Motex) specified by Zurich and had to meet a whole range of other service criteria. They also had to work to a nationally agreed repair rate and provide standard agreed bottom line discounts. All this in exchange for a three-year work provision agreement.

Unfortunately for the repairers, claims levels proved much lower than predicted by Zurich, which meant that work levels for the Zurich approved repairers were much lower than anticipated. Then, earlier this year, Zurich announced that it was slashing one hundred and forty repairers from its network. This generated much wailing and gnashing of teeth both from the terminated repairers and from the MVRA, both of whom thought they had got a three year contract. Zurich then pointed out the fact that there was a twenty-eight day termination clause. There was, but both repairers and the MVRA had assumed that this was to protect the insurer in case of fraud or poor performance by the bodyshop, but nevertheless it did exist and Zurich’s only concession was to extend the termination period by an additional 28 days. Since the repairers had had to make considerable investments in order to become Zurich repairers only a few months earlier they were, naturally, somewhat less than delighted when they were summarily terminated. Many saw the problem as resulting from the MVRA’s naivete or incompetence, or both, and whilst some of these terminated repairers have been reinstated and others are still getting Zurich work, albeit on an ad hoc basis, relationships between the repair sector and Zurich are currently at an all time low.

Repairers are also resentful at what they see as the abuse of power by the insurance companies who, now that the vast majority (80+ percent) of repair work is directed via them rather than generated by motorists turning up on the repairer’s doorstep, hold the fate of individual repairers in their hands. In such situations the latter end up being little more than corks in a stream. If a repairer depends for anything between 30 percent and 80 percent of his work upon one insurer or work provider, if they demand increased discounts, lower labour rates or additional no-cost added value services, he has little choice but to comply since the alternative is losing, at a stroke, a massive chunk of turnover.

(Part 3 will discuss ULRs - uninsured loss recovery companies.)

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