Total Loss at a Smarter Cost
Salvage integration is critical to improving efficiencies in the auto claims process.
By Pat Walsh
At the halfway point of 2015, the P&C insurance industry found itself at a crossroad. Although the U.S. automotive industry is operating at levels not seen since 2008, new successes also bring new challenges. Increased use of high-tech components in the manufacturing of new vehicles, combined with an older overall vehicle population left in the wake of the latest economic recession, have impacted the P&C industry. The total loss claims process has become an increasingly important success factor for all property and casualty carriers, as well as a primary influencer of customer satisfaction and retention.
In today’s competitive P&C insurance industry, salvage integration is critical to improving efficiencies in the claims process. There are several factors that P&C insurers consistently focus on when looking for a partner with automotive industry experience: financial benefits, cost management, customer satisfaction, and employee engagement.
Earning Smarter Returns
The complexity of determining salvage value—and ultimately P&C returns—is revealed through a myriad of interconnected factors such as the global economy, vehicle sales prices, driver behavior, and weather. With today’s expensive vehicle features and high repair estimates, it is critical to thoroughly understand the value in every total loss vehicle. P&C carriers increasingly are turning to salvage industry experts to navigate the global web of economic factors and auto industry trends driving market valuation (see Figure 1).
To provide a framework for analyzing the market for salvage vehicles, let’s focus on six indicators of salvage industry health:
- Crushed Car Price Index (CCPI)
- Metal Prices
- Vehicle Parts and Equipment Prices
- Used Car Price Index (UCPI)
- U.S. Dollar Index
- Index of Foreign Buyers
With all indicators and the economy considered, salvage experts can provide fair, market-driven values for loss vehicles to P&C carriers. With that in mind, what do these indicators mean for salvage valuation so far in 2015?
Characterizing the first six months of 2015 as a difficult stretch for crushed-car prices would be an understatement. From a year-over-year perspective, the crushed-car price index saw double-digit decreases each month, resulting in a 43 percent decrease compared with the first half of 2014.
Scrap metal also finds itself leaning into significant headwinds, particularly from a strong dollar, which carried over to other key members of the metals market and applied downward pressure on prices. The three metals most closely tracked by the salvage industry due to their prevalence in salvage vehicles (aluminum, platinum, and palladium) saw a decline in month-to-month results over the first half of the year.
The typical spring surge saw used car prices hit a high point in April 2015 before declining to close out the first half of the year at approximately where they started in January 2015. Despite the relatively static situation in the overall used vehicle market for the first half of the year, used vehicle prices have been falling in recent months. Moving into August 2015, prices had declined four consecutive months. Supply growth continues to put downward pressure on prices despite strong demand that is being driven by relatively high levels of retail used vehicle sales, especially for certified preowned vehicles. Though demand has been strong, average new car incentives have been climbing, which helped to lead to the first year-over-year dip for the used vehicle market since August 2014, as prices fell 0.2 percent.
A Winning Combination for Total Loss
As the auto insurance industry has become more competitive on a macro level, every aspect of the claims workflow has come under further scrutiny. Claims management decision-makers are looking to existing or potential relationships with the salvage industry for integration that will create efficiencies and manage costs during the total loss claims process.
Two major factors that insurers are looking to improve with increasingly efficient workflow are customer satisfaction and cost management. To understand how the interrelationship between customer satisfaction and cost management components can be improved, let’s talk about the total loss claims process itself. Although the process varies by insurance carrier, an average industry process will help us understand where the workflow synergies between salvage and claims actually lie (see Figure 2).
The inevitable first step for a collision claim is the occurrence of an accident, which causes the vehicle to be towed to a designated location. This is the point in the process where the first notice of loss is communicated. A claims representative is then deployed to inspect the vehicle. If it is determined that the vehicle is a total loss, it is assigned and towed to a salvage auction.
This process creates multiple opportunities for creating a more efficient workflow to reduce costs and save time. For example, an auto auction industry partner might provide direct towing to the auction yard, eliminating the expense of sending an appraiser to inspect the vehicle and the added time that typically results. Technology also allows insurers to use a virtual inspection process right at the salvage yard—or to be done from virtually anywhere. This process can provide the insurance carrier with high-resolution imagery, a pre-loss vehicle condition and option report, and an expert vehicle appraisal—all of which results in reduced claims costs, lessened staff costs, and faster cycle times that also make it possible to settle the claim more quickly, which ultimately improves customer satisfaction and retention.
Procuring a New Solution
As many claims managers know all too well, the title procurement process is a major influencer of customer satisfaction and employee engagement. This often tedious process can take a huge toll on the claims department workforce. Additionally, with human capital representing the most important investment a P&C company can make, integrating with an auto auction industry partner can significantly transform employee engagement by shifting largely administrative tasks to an outsource partner.
“Integrating the process allows the highly skilled employees within insurance companies to be deployed to value-added activities rather than chasing paper,” says Fausto Martin, vice president and chief claims officer, Auto Club Group. “We’re seeing more engaged employees doing work that both they and their companies value, which, in today’s marketplace, directly appeals to the millennial population.”
According to a case study done by Insurance Auto Auctions (IAA) of over 100,000 salvage vehicles, the power of attorney (POA) paperwork for 10-20 percent of claims is submitted incorrectly. This causes the carrier to return the POA forms and ask the claimant to resubmit, adding to costs and cycle time. Once the POA is secured, the carrier then waits for the title from the lien holder, a process that can take weeks and may require multiple follow-up calls from the carrier. Outsourcing this process to a salvage partner with title procurement expertise and proprietary systems focused on reducing the time required to accomplish the same task can save an insurance company’s claims department time, frustration, and money, and it can have a significant impact on customer satisfaction.
After the title is acquired, the P&C carrier typically sets and monitors minimum bids, monitors vehicles on call, and manages the cost of keeping files open. These all are nonvalue-added activities that can be outsourced to an experienced auto auction industry partner, again allowing the carrier to redeploy human capital toward customer value-added activities and employee-engaging work. The carrier should feel in good hands, and who better to set minimum bids and monitor vehicles on call than experts who have their fingers on the pulse of salvage valuation trends? Integrating workflow from the initial accident to the salvage vehicle being sold at auction benefits industry partners and customers alike.
A Vehicle for Success
To overcome the often unpredictable economic situation, P&C carriers must closely manage every aspect of the total loss claims process. Moving towards integration through all aspects of the process could mean significant benefits. Not only are the financial benefits immediately seen and costs more consistently managed, but also the time saved presents an opportunity to redeploy human capital toward customer value-added activities while improving employee engagement.
Given the importance of customer retention, allowing employees to focus on efforts that positively influence customer satisfaction is a wise decision that could pay tremendous dividends. As innovation and technology continue to drive the salvage industry, potential benefits experienced by P&C carriers could be extremely substantial with the right industry partner and appropriate integration.