News and trends related to insurance industry often have impact on repairers
By John Yoswick
While the interaction between collision repairers and auto insurers could at best be described as a love-hate relationship, it’s an unavoidable aspect of life in the collision repair industry. When vehicle and OEM requirements lead shops to start scanning most vehicles, for example, almost overnight that became a new added claims cost for insurers. Conversely, when insurers close their claims offices and handle most estimating and supplement approval remotely, using photos and apps, that creates significant shifts for shops.
That’s why there’s value for repairers keeping up on what they might otherwise view as only “insurance-related” news. It can help shops educate their customers, make marketing or other business decisions, 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.
The shift from in-person appraisals
Those photo-based and remotely-settled estimates and supplement processes have been much in the news over the past year.
Mitchell International last fall, for example, shared data supporting what shops have been saying for some time about photo-based estimating: It produces very incomplete appraisals of damage. Mitchell’s research found photo-based estimating replaced about 15 percent of field inspections by insurers in 2017, up from just over 2 percent in 2016, and up from less than 1 percent as recently as 2014. Mitchell found that supplements for estimates prepared in-person by insurers typically average 30 to 35 percent of the initial estimate. But supplements on photo-based estimates are averaging much more: about 53 percent of the initial photo-based estimates prepared by third-party companies for insurers, and about 63 percent of initial photo-based estimates prepared in-house by insurers.
That may be why collision repairers aren’t overly impressed with remotely-handled claims. A survey in early 2018 found that of nearly 300 shops that had experience using Allstate’s “Virtual Assist” mobile app to have live video-chat with an adjuster to handle supplements, about one in three said it was difficult to justify and negotiate charges without the adjuster seeing the vehicle in-person. Overall, they gave Virtual Assist a rating of 6.4 (on a scale of 1 to 10) in terms of their satisfaction with its impact on processing those jobs.
Shops are even less charitable in their reviews of the initial estimating process some insurers are moving toward based on smartphone photos taken by car owners. A “Who Pays for What?” survey of more than 400 shops last fall found that more than 60 percent of shops are “dissatisfied” or “very dissatisfied” with the two largest of these systems, Snapsheet and Alltstate’s QuikFoto Claim system. Fewer than one in six repairers said they are satisfied with the impact QuickFoto has on their processing of the jobs received through the Allstate system. With under 12 percent of repairers saying they are satisfied with Snapsheet, that company has even fewer fans among shops.
Mitchell contends that photo estimating will improve, and that in the meantime that consumers like the convenience and insurer estimators can handle 15-20 photo-based estimates per day (with no travel expense) rather than just three or four field appraisals per day.
Mike Anderson, of Collision Advice, who conducts the “Who Pays?” surveys with CRASH Network, foresees photo-based claims handling growing substantially over the coming years.
“From what I’m reading and hearing, I believe that by 2020, about 70 percent of claims will be handled through virtual inspections and reinspections,” Anderson said. “So shops should consider whether they have good lighting and a strong Wi-Fi signal — that supports an adequate number of users — throughout their shop. Shops should also decide whether to require employees to use their own personal mobile devices for these processes or if the shop will supply the necessary tablets or phones.”
But speaking at a two-day insurance industry event last spring, one former state insurance commissioner offered a note of caution for insurers. Anne Melissa Dowling, now a senior adviser with Weiss Multi-Strategy Advisers, previously spent about six years leading the insurance regulatory agencies in Connecticut and Illinois. She said just as regulators want to make sure insurers are not using certain types of personal information about drivers to unfairly price individual policies, initial settlement payments calculated using photo estimating shouldn’t be based inappropriately on things such as the policyholder’s zip code.
“You have to be really careful that there isn’t any kind of overriding where you low-ball somebody because they’re vulnerable,” Dowling said. “That’s what [consumer] advocates are worried about and regulators are worried about, [that this will] be used as a way to low-ball those who will take any amount of money just to get their car functioning rather than fully repaired.”
Insurers increase advertising, see improved numbers
When insurance industry lobbyists work to convince state lawmakers that repairer-supported legislation will unduly raise claims costs and ultimately the premiums paid by consumers, it can be helpful for repairers to point to some other data that may paint a different view of how well insurers are doing.
Insurance company spending on advertising, for example, rose 2 percent to a record-high in 2017, according to a report from Dowling and Partners Securities. Insurer ad budgets have soared from $961 million in 1997 (the equivalent of $1.52 billion in today’s dollars) to $6.6 billion in 2017.
Geico remained the biggest spender on advertising, increasing its ad budget 4 percent to $1.55 billion. State Farm reports $860 million in advertising spending, but also $1.11 billion in “allowances to managers and agents,” which likely consists primarily of co-op advertising. Liberty Mutual also reports such allowances, bringing its 2017 total ad spend to about $724 million, just ahead of Allstate’s $718 million. Progressive made the biggest jump in advertising in 2017 to $911 million, up a whopping 32 percent from the preceding year.
Meanwhile, personal auto insurers as a whole had a loss ratio of 66 percent for U.S. physical auto damage markets, according to the most recent data available (for 2017) from SNL Financial. That was an improvement from 68.4 percent the year prior. (Loss ratios equal the cost of claims as a percentage of premiums, so an insurer with a 67 percent loss ratio paid out $67 in claims for every $100 it received in auto physical damage premiums.)
Admittedly, loss ratios vary broadly on a state-by-state basis. Storms raised loss ratios in 2017 in Texas (88 percent loss ratio) and Colorado (94.3 percent) in 2017. At the other end of the spectrum, insurers in Vermont and North Carolina enjoyed loss ratios under 55 percent that year. Insurers in eight other states (Connecticut, Maine, New Hampshire, New Jersey, North Dakota, Ohio, Oklahoma and West Virginia) benefited from 2017 loss ratios under 58 percent. After taking a beating because of flooding in Louisiana in 2016 (with a loss ratio of 110 percent), auto insurers there saw auto physical damage loss ratios improve to 61.1 percent the next year.
And a recent report by Fitch Ratings, Inc., shows the good news for insurers likely continued last year.
“Successful rounds of meaningful rate increases by insurers led to strong improvement in underwriting performance,” the report states about preliminary analysis of 2018 financial performance.
Understand the meaning behind the grades
Which states do the best job of regulating the property and casualty insurance industry? The seventh edition of R Street Institute’s “Insurance Regulation Report Card” gives a grade of “A-” or better to Arizona, Indiana, Idaho, Kentucky, Maine, Nevada, Wisconsin, Utah, Virginia and Vermont, but a “D” or worse to Alaska, California, Hawaii, Mississippi, Montana, New York, North Dakota, North Carolina, Massachusetts and Louisiana.
But evaluating those grades requires understanding R Street’s mission and how it measures regulatory effectiveness. R Street is a conservative, free-market think tank based in Washington, D.C., that, in general, gives higher grades to states with a more hands-off approach to insurers.
“We believe an open-and-free insurance market maximizes the effectiveness of competition and best serves consumers,” the company’s report has stated in the past.
The Institute says its grades are based on how free consumers are to choose the insurance products they want, how free insurers are to offer those products, and how effective states are at monitoring insurance solvency, policing fraud and fostering a competitive insurance market. So while collision repairers often say elected (rather than appointed) insurance commissioners tend to be more open to addressing industry concerns, for example, R Street deducts five points from the final scores of the eleven states with elected insurance commissioners, saying that such elections contribute to the “politicization” of insurance regulation.
Taking into account only the auto insurance portion of the ratings (just 10 percent of the overall score), California, Connecticut, and Utah scored the highest, and Louisiana, Michigan and Alaska the lowest. But that portion of the grade is based only on such factors as insurer loss ratios (R Street views insurer loss ratios that are either too low or too high as a sign of an unhealthy market) and how concentrated the auto insurance market in a state is in a few companies (which R Street believes can limit policyholder choice and be a sign of unnecessarily high barriers to entry).
In the past, the Institute’s overall grades factored in how well states are staffed to address consumer complaints by comparing the number of complaints received versus the number of staff the state has to respond to them; but this consumer-oriented portion of the score was previously given very little weight in the overall score, and for the second year in a row, it wasn’t even factored in to states’ grades.
Adjusters can be liable
Perhaps one of the most interesting headlines related to insurers in the past year was a somewhat obscure Washington state appeals court ruling last spring. That count found that insurance claims adjusters can be found individually liable for bad faith or violations of the state’s Consumer Protection Act.
“The duty of good faith applies equally to individuals and corporations acting as insurance adjusters,” the court ruled. •
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.
