The tale that will unfold is all about the point where pure commerce leaves reality, where everything – and everyone – has a price. The result is that whilst the UK motor insurance industry is already facing oblivion due to the huge wave of technology revolution, they have even managed to mess up parts of the process that should have remained intact.
What is that? What happens to a vehicle if it becomes a “write-off”.
For more than a decade the UK motor insurance sector, which is not only the biggest collective purchaser of automotive parts but also the biggest source of economically unviable repairable vehicle wrecks, has worried. Two decades ago write-offs used to account for around 5% or less of all collisions, whereas now that proportion is running at close to 40%.
The argument is simple
Motor insurers become commodity traders, where the act of repairing a vehicle is more expensive than simply selling the vehicle onto a recycling business and claiming that they did so in good faith. That was enough to discharge any corporate responsibility for what happened next. Thanks to the Internet and specifically YouTube, we can find in a few minutes examples of vehicles being repaired in ‘unique ways’ in blissful ignorance of the consequences. For example, heating up high strength and ultra high strength steel alloys to reform the panel, disregarding that the material strength is significantly degraded in the process.
Law, law, law
All insurers shudder at the thought of regulation. As primarily financial institutions they have an extraordinary amount of law to comply with, most of which is recognisably full blown politically correct and corporate. Whilst that is onerous, compliance with the law is integral to operating in any given type of business.
What happens when there is no law? In the UK, the Association of British Insurers (ABI, representing less than 80% of all insurers) and the Lloyds Market Association formed a salvage code to classify what should happen to vehicles for various types of damage, ranging from minor collision through to total destruction of the vehicle. This code was introduced voluntarily, to help get some consensus across the UK motor insurers about how they deal with claims. That’s important because in most claims there is one vehicle which is directly insured by the company and another which is either going to pay for the repair, or they will have to pay out on the repair.
The code (think ‘Pirates of the Caribbean’) rubbed along from around 2001 via a revision in 2007, and another is 2015. The issue? It was a voluntary code.
The vehicle salvage was defined as:
l Category A: Scrap, no parts stripped.
l Category B: Scrap, but undamaged parts can be stripped.
l Category C: Repairable, but the cost of repair exceeds the pre-accident vehicle value (PAV).
l Category D: All other repairable vehicles.
The tricky issues….
Not all insurers view the cost of repair the same way. For example, most will only consider the number of hours required and then use the parts list price as a moderator in the event of a border-line write-off. Then we have insurers applying different standard percentages of vehicle value. It is possible a vehicle is worth R100 000 at the point of the claim, but an insurer may automatically apply a limit of between 30% to 60% of that ‘value’ as the effective point a write-off could occur. The public remain bemused by all of this – it is not the perception of those who have never faced the loss of their vehicle as a result of an insurance claim.
Inside the insurers we can see two tracks. One way is the client and their vehicle was hit by another vehicle, and nothing is too much trouble because the whole cost is going to be paid by the other insurer. Then there’s the other path. The client and their vehicle caused the collision, and that means every single penny needs to be chased down as well as justified. Call it ‘service to the very letter of contract’.
Finally comes the wild card. The code. Because it is voluntary, it is open to generous interpretation. Specifically in the case of major repairs where costs are deemed to be too high (remember this can be as little as 30% of the vehicle value at the time of the incident) ‘smart economics’ comes into play. Why not route the wreck through salvage yards and just take the cash?
The self-proclaimed motor insurance ‘industry’ has done a poor job in this respect, as company after company yielded to the fast cash return system of putting repairable vehicles into Category C. Worse has followed. Because the motor insurers have not flowed new technologies properly into their policy pricing units, claims are left with all too frequent cases of ‘gosh, that thing costs how much?’ This simply feeds the write-off situation.
When a vehicle is written off, the motor insurer and the registered owner should complete forms to ensure the Government have that associated with the vehicle registration. This should prevent a vehicle which has been selected for total destruction from appearing on the road ever again. The number plate could be sold again, via either the owner (if they buy the salvage) or the Government.
However, until very recently this was not automated. Even now the process for Category C is not automated.
The result? Vehicles are sold to salvage agents who then place the wrecks on auction sites for anyone to purchase. The volume of business for the salvage agents is so great they claim it is not always possible to get the paperwork completed. Let’s translate that. From the time a vehicle is deemed to be on the way to salvage to the completion of sale by a third party takes from a few hours to a few days – whilst the paperwork system takes typically two weeks.
From that point onwards a vehicle can cease to exist until, thanks to the lack of co-operation across Europe, a vehicle is repaired in another EU member country, shipped to yet another and can then re-enter the UK – or be exported to places such as South Africa – free from any record that it was severely damaged. Nice.
There’s more. In the UK we have a system that ensures a vehicle repair business operates to an auditable standard, which is BSi 10125. For collision repair this applies to most – but not all – repairs performed in the UK. The moment a vehicle is on the salvage path, it is open to anyone to purchase. That’s a pretty big hole in the system.
Further, a vehicle can be categorised by a simple mark on un-damaged glass or a panel with a paint pen. Because there is no formal link to the registration number or VIN, this can be altered very easily. Got a category A vehicle? It’s worth it’s weight in scrap metal. Category B? Better. Category C? Ker-ching!!!!! Just rub out the letter and put a new one on.
Naturally there is simply huge resistance to altering the code, even though the insurance assessor engineers and many reputable salvage companies want to correct a scarily wrong system. The technologists inside insurers and the salvage companies know the future is in more repair rather than throwing away vehicles. Yet the over-riding commerce principally from motor insurance companies is ‘steady as she goes’.
The issue has directly caused all motor insurance premiums to rise. Whilst the ABI would dispute the effect they – on behalf of nearly 80% of all UK motor insurers – instead want to point to the general public for making too many fraudulent claims. That is highly insulting to most of their clients, since industrial scale fraud is committed by a very small group of people. Yet the ABI carry on like some sort of machine…. Nothing will go wrong…. Nothing will go wrong….. Nothing will go wrong. Meanwhile public confidence in insurance companies is falling through the floor.
Industry or public issue?
Thankfully most people don’t have a major accident, and so don’t come across the write-off system very often if at all. However, because of ‘smart economics’ hiding behind a worthy but all-too-open salvage code, more and more of the public are coming across the system.
UK motor insurers still have quite high internal operational costs, and part of the natural process to reduce those costs has been to cut staff. Unfortunately those cuts have fallen pretty heavily on the vehicle damage assessors, with the operational effect that collision repair businesses effectively provide the repair cost data directly to insurers. There is a conflict. Some (brighter) insurers recognise this and trust repairers, whilst others continue to a try and run bodyshops. That tussle has been rolling for decades. The real concern is an increasing amount of business simply disappears out of the UK to lower labour cost markets, where repair has little or no regulation, only to re-appear back in the UK.
The irony? The insurers who washed their hands of corporate responsibility for a quick high return have ended up later on re-insuring these oddly repaired vehicles in their second life, thanks to a system that ensures all record of the initial accident is not flagged when a member of the public tries to buy motor insurance. I would suggest that’s a pretty major public issue.
Auto Industry Consulting is an independent provider of technical information to the global collision repair industry. Products include EziMethods, our online collision repair methods system and Auto Industry Insider, our collision repair industry technical information website. For more information please visit the websites: www.ezimethods.com and www.autoindustryinsider.com or contact firstname.lastname@example.org