Insurers in the Spotlight

By John Yoswick

It’s easy as a shop owner to get so caught up in day-to-day operations that it can be a challenge to follow just the news directly affecting collision repairers. But there is also plenty of “insurance-related” news that shops also should know about, because it can help them educate their customers, market their business, and maybe even alter how they vote or shop for insurance themselves.

Here are some recent auto insurance industry news items and trends and what they could mean for collision repairers.

Patent bill sponsors retiring

Insurers are among the largest financial supporters of an organization lobbying for federal legislation that would slash the time that automakers can use design patents to prevent other companies from producing non-OEM replacement crash parts from 14 years to just 30 months. That group, the Quality Parts Coalition, got some tough news in January, with the announced retirements of not just one but two of the primary sponsors of the legislation in Congress.

First, Sen. Orrin Hatch (R.-Utah), the chief sponsor of the “Promoting Automotive Repair, Trade and Sales (PARTS) Act,” in the Senate, announced he is retiring at the end of this year. Thirteen months into the current Congress, the Senate bill still had only one other co-sponsor, Sen. Sheldon Whitehouse (D.-R.I.).

Less than two weeks later, Rep. Darrell Issa (R.-Calif.), the bill’s chief sponsor in the House, announced his retirement as well. Himself a patent owner (related to the car alarm company he founded), Issa has been among the most active House members related to patent law. But as of earlier this year, the House bill had picked up only five other co-sponsors.

Asked almost a year ago about the then-rumored retirements of Issa and Hatch, lobbyist Will Nordwind of the Quality Parts Coalition acknowledged that it increased the pressure to get the bill moving before this Congress ends late this year.

“It’s an added element that our sponsors may not be with us in the next Congress,” Nordwind said last April. “We’re moving as if we have no more time left. This is our Congress. We’re motivated, for sure.”

At the time, Nordwind said he expected at least one hearing on the bill during this Congress, but as of early this year none had been held.

Progressive ending service center program

Progressive this year will cease having its 68 service centers around the country serve as drop-off and pick-up locations for customers’ vehicles. Shops that repaired the vehicles from those service centers will be invited to join the company’s network of more than 2,000 approved repair facilities.

Progressive made headlines when it launched the program because participating shops generally had little or no contact with the vehicle owners whose cars were being repaired. Those customers dropped off and picked up their vehicle without knowing where the work was done.

“I’m proud of our service center history and the millions of customers we served through that process,” Mike Sieger, president of claims for Progressive, said in announcing the change in January. “We’ve evolved our service center model over the years to make sure we’re doing the best job we can to meet our customers’ needs, and that evolution continues with this most recent change. We’ll have an even broader network of shops in more locations for customers to choose from, and we’ll continue to provide high-quality customer service and claims handling experiences.”

Service center employees will be offered other claims jobs, Progressive said, and many of the service centers will remain regional claims offices.

Providing road risk info to drivers

Allstate is looking to use its claims and telematics data in new services — potentially sold even to other insurance companies — offered by its Arity subsidiary that could have an impact on claims frequency. Using Arity’s “Risk Data Stream,” for example, navigation software can receive a risk score for a specific road, route or point on a map based on historical accident statistics as well as live traffic and weather conditions.

That information in turn can be used through Arity’s “Drive Shield Alerts” to inform drivers when they are approaching high-risk areas where accidents are likely to occur. A third program, “Drive Shield Routing,” offers drivers a safer alternative route.

Automaker bundles insurance with car

Volvo has teamed up with Liberty Mutual to provide “Care by Volvo,” a one-price subscription package (initially available only for Volvo’s XC40 compact SUV, which launched recently) that includes insurance and all maintenance on the vehicle.

The single subscription price will help make the program attractive to younger people or those in cities who pay higher insurance prices, the automaker believes.

“‘Care By Volvo’ is independent of who you are or where you live; all you pay for is fuel,” Volvo’s CEO Hakan Samuelsson said at the LA Auto Show. “Customers just want the total package. They don’t care who services, finances, insures the car.”

Insurer requires procedure print-outs

Last year’s $42 million judgment against a Texas shop related to its failure to follow OEM procedures — and the subsequent still-pending lawsuit against the insurer involved in that repair — has some insurers seeking new documentation from shops.

Some USAA direct repair shops this past fall, for example, received an email from the insurer mandating documentation in the claims file that OEM procedures were researched.

“Every structural repair needs a procedure printed out from ALLDATA, I-CAR, the manufacturer or CCC,” the email stated. “You need to be checking multiple sites to make sure you are doing things the correct way.”

The email said that when a USAA inspector is in the shop, “you will be asked to show us the repair procedure you are using. Any shop found to be doing repairs without a print-out in the vehicle will be turned off from assignments immediately.”

The email reminds the shops that as I-CAR “Gold Class Professionals,” they have access to a variety of OEM information and the “Ask I-CAR” service.

“You have paid out a lot of money to be Gold Class; please use I-CAR for everything they can help you with,” the email concluded.

State updates two-tiered labor rates

Insurers in Rhode Island are now paying different labor rates to shops in that state based on whether the shop has been designed by the state as “Class A.”

“Class A” shops are receiving body labor rates as high as $53 per hour, according to documentation from the Rhode Island Department of Business Regulation. That’s as much as $8 per hour more than the other (“Class B”) shops in the state are being paid by some insurers.

Legislation passed in the state in 2015 established a two-tier shop classification based on equipment and training, and requires insurers to conduct labor rate surveys to determine “separate and distinct” prevailing labor rates for the two.

The state’s documentation shows some significant variations among the labor rates established by each insurer. The three insurers with the highest market share reported no change in their prevailing body/paint labor rates: Progressive will continue to pay both Class A and Class B shops $47 per hour, Allstate will pay $50 for Class A shops and $48 for Class B shops, and Geico will continue to pay the lowest rate in the state, $45 per hour, to both Class A and Class B shops.

Geico, in fact, reported a drop in prevailing mechanical labor rates, down from $54 last year to just $50 this year; by comparison, Allstate pays $59 per hour for mechanical labor, Progressive pays $60 per hour, Ohio Mutual pays $69 per hour (down from $77 last year), and Selective Insurance pays $80 per hour for mechanical labor (up from $60 last year).

Some insurers did report higher body labor rates than last year. National Indemnity reported a prevailing labor rate of $47 per hour (up $2 from last year) for both Class A and Class B shops. Liberty Mutual, Mapfre and Ohio Mutual also list body labor rates that are $1 to $2 higher than last year.

USAA (at $52 per hour) and Travelers (at $53 per hour, up $1 from last year) continue to report the highest Class A rates, $2-$3 more per hour than they are paying Class B shops.

The requirements for “Class A” status include being aluminum-certified by at least one automaker. The state found aluminum rates of between $50 and $101.

Insurers’ loss ratio worsening

After about eight years in which the total amount of premiums collected by auto insurers was largely unchanged, top line revenue has risen the last five years. Unfortunately for insurers, claims costs also are rising, so the industry’s loss ratio — the portion of premium paid out for claims — has increased as well. And as loss ratios rise, insurers tend to try to raise rates (if they think they can without losing market share) and clamp down on claims costs as well.

The loss ratio for the industry was below 65 percent in the years leading up to 2010, then in the high 60s during 2011-2015. But it jumped to 72 percent in 2016.

Loss ratios for the industry varied state-to-state, according to Auto Insurance Report. Flooding in Louisiana in 2016 led to a loss ratio of 110 percent there. Conversely, insurers enjoyed a loss ratio of just 53.6 percent in Vermont. In between were Texas (84.7 percent), Arkansas (75.9 percent), Florida and South Carolina (each at 70.4 percent), Virginia (68.5 percent), Missouri and Kentucky (each at 68.4 percent) Georgia (65.2 percent), Alabama (64.8 percent), North Carolina (64.7 percent), Tennessee (64.4 percent) and Mississippi (63.6 percent).

Those loss ratios vary widely by insurer as well. Allstate, American Family and Travelers held their loss ratios to about 65 percent in 2016 (though that still was a particularly big jump for Travelers, which had enjoyed a 56.5 percent loss ratio the previous year).

At the other end of the spectrum, Nationwide, Geico and State Farm had 2016 loss ratios above 74 percent. USAA, whose business model differs from most of the other major insurers, regularly has the highest loss ratio, a whopping 86.3 percent in 2016, up from about 83 percent the previous year.

Insurer’s growth tends to be centralized

If you’re tying your company’s business growth to Geico’s, it’s probably good to understand where that insurer is growing. Geico has continued to rely on its largest markets for much of its growth. According to Auto Insurance Report, more than two-thirds (68.6 percent) of Geico’s total premiums come from its top 10 states, up from 67.7 percent in 2014. By comparison, Allstate gets 62.4 percent of its total premiums from its top 10 states; State Farm is even more dispersed geographically, with just 54.7 percent of its premiums coming from its top 10 states.

Geico’s Florida, Texas and California markets, already Top 4 states for the insurer, each had total premium growth rates above 15.3 percent (Texas’ spike was 20.2 percent). Georgia and Arizona had premium totals jump 12.2 percent. (The company’s other Top 10 states include New York, New Jersey, Maryland, Virginia and Pennsylvania.)

Conversely, out of Geico’s 28 smallest state markets, all but three (Utah, Idaho and Nebraska) saw premiums grow at slower rates than the company’s national average. In two of those 28 (Michigan and North Dakota), Geico saw total premiums decline.

That said, with Geico’s overall national growth rate of 12 percent, even many states with growth rates lower than this average didn’t fare too badly for the country’s second-largest auto insurer.  

John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.