A New Type Of Network
Investment partners interested in the development of a MSO Collision Center Group, “Bodyshop Express.” The development of a new Collision Center Network in order to be successful will require that the network has an offering that is new and unique!
“Organizations that can rapidly sense and respond to opportunities will seize the advantages in the AI-enabled landscape. So, the successful strategy must be willing to experiment and learn quickly.
They current Collision Networks are struggling to find the right answers for the future. They have promised insurers self-managed networks, single points of contact, and improved performance over the market. They have achieved one and two but they have not been able to outperform independent shops or show improved metrics. They are looking at ways to improve on this promise slowly but to date ineffectively. I feel we need to jump ahead of this and create a network that is forward thinking and looks 3-4 steps ahead of where the current market is. As has been the case over the last 8 years MSO’s are always working towards the next Equity swap and now ABRA and Caliber will be working for a 3-year plan towards an IPO. Where does this leave the insurers with all of their concerns and struggles, and where does this put the independent shops in a strategy to compete. I believe there is a window of opportunity here not only for insurers but also independent shops that can be more versatile and move quicker to take advantage of opportunities out there.
What are insurers facing?
- MSO’s promise to deliver better metrics and quality.
- Shortage of staff and growing dependence on MSO or shops to do the claims process.
- Geico model RX, FX, 2.0. Geico’s market share growth.
- Certification, OEM repairs and OEM Parts.
- Scan Pre. – Post, Calibrations.
- Control of severity, it is out of control.
- Industries inability to train and attract technicians.
- Aggregated web sites and the effect on policy holder retention.
- CSI as it pertains to PHR.
I believing in what the MOS’s said in wanting to compete more effectively in the market place, insurers have given a lot of control to the MSO’s and they have not seen the results that they would like as of yet. Insurers have eliminated 75% of staff with the promise of self -management and single point of contact. Yet you have not gotten the full promise? Where are the improved metrics and better cycle, in fact because of the complications of OE certification and scans cycle is headed in the wrong direction as is severity, where or when will you be able to incorporate these costs into premiums? What are the MSO’s or shops in general doing to help mitigate cost when possible?
Geico’s and the Progressive model?
Geico has a strong model as is evidenced by their huge market share growth and their marketing efforts. Geico has increased their work force and incorporated it into their repair programs. The consequence of this is strong oversight and control of their shops. Not all good, but it does create a situation that the larger insurers need to evaluate and determine how to slow their market growth. It needs to be addressed this year or in my opinion they will become the number one insurer in the nation very soon. There is a strategy for key insurers that can effectively work against them and also benefit many shops. Now Geico also facing employee shortages has advanced to their 2.0 model!
Progressive had a very effective model that helped grow their network, however they have gone back to a more traditional approach now DRP. My opinion on this was that with the impending complications of Certified repairs and pre. and post scans and now calibration the liability of their model would make them liable for all repairs. When they take the vehicle in and deliver all vehicles there is no clear distinction between repairer and insurer. They were basically saying they inspected all repairs and were guaranteeing the work. So, they actually became more liable than the shop, and obviously had deeper pockets. This was clearly an unsustainable model. What will be their new competitive advantage, do they have one?
We are seeing that OE Certification is going nowhere but up. Ford, GM, Honda, Audi, Nissan, Subaru, Toyota, Hyundai, Mercedes all have certification and repair programs. How much longer are you Insurers going to fight Certified Repairs and Certified Parts. With AI (Artificial Intelligence) and OE’s instant knowledge of what is wrong with cars, these cars are going to need to be fixed at certified shops. But, do all shops need to be or have structural certification, we will discuss this?
Pre-Post Scans Calibrations;
This argument is pretty much over, I cannot imagine and insurer today that will not pay for these charges. Yet we have some large insurers paying for charges in some markets and not others, we are simply one lawsuit away from full acceptance. At some point you as insurers are simply going to have to incorporate this into premiums, the cost of safety has to be the burden of the consumer, they have asked for it, insurers cannot absorb these costs and it must impact the consumers premiums. What can be controlled is cost for these procedures? We are seeing the emergence of multiple business in this arena with multiple pricing models. Cost can be controlled here and as always there is reasonable and acceptable cost that when combined with volume of business can make pricing much more reasonable.
The control of Severity;
Severity is out of control, OE parts, Scans, Calibrations, materials etc. the list goes on and on. There are some ways we can work together to control and mitigate some of this but it must be negotiated with the concept that shops and insurers are partners in this industry and not always one against the other. I believe insurers have moved much closer to the center and are much more willing to negotiate fair cost than in the past. Smart business owners have a great opportunity to make more money than ever before but we must also be willing to negotiate and work hand in hand with insurers.
Industries inability to train and attract Technicians;
How many years do we need to listen to the argument we have to many technicians retiring and the work force of the future is not to promising? When is the industry going to foster and environment that makes young men want to work for us, there are answers to this? I am not sure that the cost associated with technical schools is worth the investments, however the industry has not given young men viable alternatives. There are answers out there for companies willing to make the effort to make our industry worth looking into.
Aggregated Web sites and Policy Holder retention;
In England through the development of aggregated websites policy holder retention quite simply is now year to year. Average PHR is 12 months and then the policy holder simply chooses a new insurer on price and options through websites that compare 200 insurers side by side. The decision is made in minutes and PHR is out the window. You as insurers need to have as many differentiating factors and cost mitigation process in place to remain among the top market leaders. This is already happening to some degree it will only get more refined as we move forward.
Analysis of CCC Market Report;
The biggest concern is cycle or length of repair and the repairer’s inability to segment work in such a way that cycle can be reduced. Cycle is extremely adversely affected by the mixing of severities and an attempt to reduce cycle in all categories will continue to be in-affective if we continue to mix severities. We have been able to demonstrate over the last few years some effective strategies that can effectively reduce cycle dramatically.
Looking at figure 11 of CCC’s report we can see the breakdown of claims by severity or cost of repair. Looking at this chart we see that 60.9% of all claims have a severity of $100-3,000 dollars. Additionally, 12% of claims fall into the category of $3,000-4,000. This puts 72.9% percent of all claims are under $4,000 dollars. Claims in particular between $1-3,000 dollars can be repaired much quicker comparatively than claims over $3,000 additionally many claims in the $3-4,000 category are also simple claims. It is the constant mixture of these claims with much larger claims that continue to deliver cycles in larger and increasing numbers. The industry continues to struggle with these issues and is reluctant to make dramatic or experimentation in options that may be available.
If we look at figure 24 and 25 this illustrates that in 2017-2018 the average claim counts have been impacted by 9-10% respectively. There is clear delineation of areas in the US that are impacted historically by hail and weather-related damage. There, could clearly be some competitive advantages obtained by incorporating the effective handling of claims in these markets. Claims effectively handled while not impacting current work volumes would give insurers a reason to utilize our services, products and facilities over others.
Looking at charts 72-75 you can see the implications of cycle and severity. It is clear that 72% of all claims fall below the $4,000 threshold. Drivable vehicles in to out Cycles average 7.9 days and HPD average 2.9 HPD. In the Geico model their ask is 3.5 days drivable and 8 days Non-drive. The RX average is really 4-4.5 when you remove the effect of the 0 day. Many of the Geico shops do achieve this but at the determent of the customer and the other insurers in that shop. Geico cars always come first and repair concerns or quality issues many times are not always best practices. None of the current shops either MSO’s or Geico currently utilize Process, Technology, Equipment and product effectively to address the issues of cycle.
One thing that is clear is as severity increases cycle increases CSI drops and policy holder retention becomes harder and harder to maintain. There is one thing that all repairers need to understand and insurers deal with, a policy holders main contact many times is our shop when they are involved in an accident. The handling of this claim and the repair of their vehicle back to pre-loss condition has a huge impact on their insurance impression and renewal.
What I have been trying to highlight here with this information are issues and areas for improvement that any future MSO or repair group must consider. What I have been doing in my career and especially over the last five years is experimenting to determine what the new Paradigm could be. Many Equity groups are looking for market share and their time lines are predicated on the next equity swap. With Caliber and ABRA prepping for an IPO we have another three-year time line, it is actually sooner, where insurance partners may not always be the most important factor. Consequently, assimilation of cultures, technology, purchases and process change are slow to such a large network. There is only so much this new network can do in a two-three-year time horizon to ready itself for an IPO and also address demands of insurers. What will be their new excuse for not being the best they can be, how much EBITA will they invest looking into the future rather than three-year IPO strategy only.
Smart forward-thinking companies, consultants, equipment companies, paint manufacturer’s and collision shops working together to create a better model have a huge opportunity but a small window of opportunity.
What would this network look like?
- Smaller foot prints than traditional doing larger volumes than traditional.
- Express shop 10-11,000 Sq. Ft doing $5-600,000 per month. Open 6 days week 12 hours per day. OEM Certified shops but for non-structural cosmetic.
- Heavy Hit Centers 13,000 Sq. ft. doing $6-750,000 per month. Certified for structural OEM.
- Hub and spoke model. 70% of claims fall below $4,000 develop a specialized center that handles this size of hit..
- They can also handle some larger hits but they will not be included in the pricing model we will discuss later
- One technician one stall.
- Utilization of curing technology in shop and paint department.
- Entire process of handling smaller repairs.
- Express Cycles in range of 1-2.5 days guaranteed. Touch Time 6-9 HPD.
- Heavy Hit Cycles in range of 6-8 days.
- Drivable Vehicles inspections, cars scheduled into shop when parts are in.
- Cars go into production within three hours of drop. Vehicle scheduled to within 3 hours of being put into production.
- Vehicles scheduled for delivery from 1-2.5 days to a three-hour window.
(Just in Time) JIT Cars, JIT Parts, and JIT Deliveries.
- Facility open 6 days per week 12 hours per day.
- Technicians have better benefits than market, Health, 401K, Dental, 3-day work week 4 days off per week. Better quality of life and able to work on projects and more time to enjoy family while making more money than in traditional work week.
- Shop self-trains technicians from apprentice to journeymen technicians.
- Repairs that do not meet the model will be repaired at the hub shop.
- Vehicles can be delivered at the hub or point of drop off. No inconvenience to customer at all.
- Heavy hit shop also utilizes one stall one technician at all times.
- Cars at all locations utilizes the theory of constraints and continuous work flow.
How does our model address Insurer issues and concerns? In our new store design, we have put together a new facility that addresses all of the items above.
18,000 square feet Facilitie, combined HH and Express Centers:
- Estimate, Scan some dis-assembly or estimate Scan and directly into technician stall.
- Technician dis-assembly and supplement approved within 30 minutes of being put into the system.
- Technician does minor pull, dent repair, filler work, plastic work, roll prime, block, blend panel prep and then perimeter tape for bagging.
- Vehicle inspected and approved for paint line.
- Move vehicle to paint side load system after inspection.
- If further prime is needed, UV prime cure and block.
- Car blown off final bag and wash.
- Vehicle side loads to paint booth when door roll up.
- Vehicle painted 30 minutes or less, cars are ready for paint when they move into booth.
- No masking to be done in booth, car is paint ready when we move into booth.
- Vehicle painted, side slide into curing zone, by the time we have moved into cure zone and set up robot the recommended flash will be complete.
- Set cure time or Robot position, vehicle will be cured and de-nibbed by the time we are ready to move next car into the cure zone.
- Move car out of cure department make sure it is denibbed and polished.
- Move Vehicle to Detail and re-assembly department, post scan after re-assembly and before detail.
Paint Department 2650 Sq. Ft.;
Paint department consist of 4 bay side load prep area with 28-foot downdraft and adjacent curing zone. Cars slide through the prep area through the booth and into the curing zone. In the prep areas we will be utilizing UV lamps to apply and cure primer as needed. Booth paint cycles will be 15-30 minutes and cure cycles will be 10-15 minutes. The objective is to have 1-2 vehicles ready at all times bagged and prepped. Vehicles will slide into the booth be painted in 15-30 minutes and then slid through into the curing station. The objective will be to paint and cure one car every 30 minutes two vehicles per hour.
Having and infra-red curing zone and also utilizing UV primers and curing in the paint department will enable products to be cured to a 30-day cure. The ultimate goal will be to process 12-18 vehicles per day through the system 6 days per week 75-100 vehicles per week in 2.5 days or less express and 6 days or less Heavy hit. The paint department will consist of 6 bays, 4 prep, one paint zone and 1 cure zone.
Most cars arriving in paint will have all panels fully prepared for paint. Some cars may require additional priming and final mask only. We will utilize UV or Infrared curing for priming requiring 2-8 minutes for complete cure. All passed to paint will either be paint ready or ready in 45 minutes of arriving in paint.
Body Department 4,450 Sq. Ft.
The body Department will consist of 14 repair bays in total. Two Aluminium bays, two frame pull stations, and 10 body repair bays with capacity of 14 body technicians one technician per repair bay. The key is one technician one car per bay. In this shop express technicians will take every car to paint ready, dis-assembly, minor pull if needed, filler and plastic repair, roll prime and block, blend panel prep and perimeter tape. The heavy hit technicians will minimally block and prime all repaired panels or bare metal. Vehicles would be passed to paint for blow, tack, and bag then to paint and cure. If any additional priming was required, we would UV prime and cure for immediate prep. We use curing lamps for filler plastic repair and roll priming in the body stalls. This allows us to fully utilize the theory of constraints and continuous work flow. We would have a floating prep-person in body that would assist with roll prime and blend panel prep. All technicians in this department will be required to assist in the blocking and priming of all body repair. All body work will be blocked to ensure body lines are good, body work is straight and all pinholes are repaired. After all repairs are good and only then can they be moved to paint. Many cars will be completely ready for paint when they move, some may require minimal prep for paint ready condition.
Estimating 1,000 Sq. Ft. Detail Re-assembly 1,000 Sq. Ft.
To support body and paint we would have some dis-assemble in estimating and most express re-assemble will take place in the detail departments. Estimating and dis-assemble would consist of two bays for estimating and dis-assemble with lifts for inspections. Many bumper jobs would be dis-assembled here and bumpers or other parts painted off the vehicles. From this department cars may go directly to detail for pre-detail or right into express repair bays. In estimating all vehicles will be pre-scanned. We will have two detail bays that will also serve as re-assemble detail all in one. Many express jobs can be re-assembled and detailed at the same time. Post scans will be performed in this department prior to detail leaving. Vehicles requiring Calibration will be re-assembled, scanned and calibrated prior to detail, as some will require test drives etc.
Calibration Zone Pre-Post Scan.
This being an Express and heavy hit shop Repair Shop and doing many small and late model repairs it will be mandatory to have calibration capabilities. We cannot repair vehicles in 1-2 days express and 6 days heavies if we have to rely on other people or dealers to calibrates these late model hits. We will be equipped for pre and post scans, calibrations along with set calibration fees for most instances. In the model we are speaking of it is important as we move through these times of constant change in technologies that we fix cars correctly but also that we work through the new learning process with insurers and shops. What is fair and equitable for all needs to be always at top of mind.
Severity and How to Control It?
The last thing to talk about is control of severity and a fair and equitable pricing model for all stake holders. With all the issues around severity, p-pages, materials, paint caps and additional paint charges the battle of severity and included and non-included charges becomes a constant battle. What can we do together to control severity?
A “Capitation,” model is a great alternative, what would this look like?
- Pre-negotiated severity.
- Drivable model, with severity range for one price. An example would be 1-$3750 all cars repaired for $1825.
- Set severity based on historical severity. Review market severity and guarantee severity at for example $125 less than market average.
- An insurance group of 3-4, not Geico, would guarantee a certain number of vehicles per week for guaranteed severity.
- Guaranteed Cycle 3 days or less, guaranteed quality, kept informed, would refer insurer.
- All cars must be drivable any cars above preset threshold would be billed at actual repair cost.
- For example, if drivable vehicle came in for estimate and it was a $4,850 repair, it would be charged at that price.
- Negotiated scan and pre-scan and simple calibration charges.
- Quarterly evaluation and settlement. If insurers fall short on volume, they must make it up. Penalties for short fall on metrics. Average cycle of 3 days or less Express 6 days or less heavy hit or penalty inflicted. (Example)
To book an appointment please call Patrick O’Neill at (520) 808-9118, or email: email@example.com, or complete this short form.