In a continuing climate of wrong moves by major insurance houses comes another profit motivated procurement offer to reduce actual margins on repairs completed. The pointy-headed actuaries are now seeking to reduce replacement part mark-ups that have been a traditional industry standard and reduce margins by an average of approximately 15% on insurance quotes for these parts.
It is easy from a repair perspective to understand the motivation in some ways; insured vehicle volumes are decreasing on a yearly basis so the revenue stream is not getting any bigger annually. This, plus there are simply too many body shop repairers chasing the declining work flow. This means in business terms we’re all dealing in distressed merchandise with all the competition that exists in collision repair in South Africa.
As insurers strive to increase their hold with a sort of micro-management philosophy of any claim or repair, it is often clearly evident that they tend to ignore the repair quality delivered by their chosen supply chain members despite saying that overall they are committed to long term sustainability and a win-win business supposed offer. For key body shops this looks like yet another act of bad faith in the combined relationship between insurers and repair concerns involved.
The relevant insurers in the new deal are trying to deliver a radical drop in replacement part mark-ups, this coupled to the existing simply unsustainable low labour charge out rate which is already seeing returns of lower than 5-6% in everyone’s balance sheets right now. It is not a subject of happiness, and in my opinion it is just another unjustified interference in the common free enterprise principle belief that you conduct repairs to make a decent level of profit after generally investing millions to be able to do so. So as the business heads in many directions at once with enterprise development and procurement criteria, support of interim measures to previously disadvantaged businesses, these new protocols are going to demand different responses and reactions.
Invitations to be an approved repairer in all this seems to be delivering a rather mirky and unclear future for the backbone of this trade, the “Ma and Pa” owned and managed concerns. Insurers saying one thing in public and continuing to increase their side of the repair profits on crashed vehicles on the other. It is high time to caution some of these membership body shops to sit down and think it all out very carefully as everyone goes on a chase for work to fill their shop floors which are devoid of workflow in winter conditions. It’s time for us to do the maths for 100% of nothing actually is nothing and negative profits will utlimately produce an irate banker knocking on your door asking for you to return his overdraft forthwith.
The CRA will hold regional meetings to deliver a national strategy response to these latest business offers from our insurance partners to develop more meaningful dialogue. As it stands right now this move makes poor commercial sense for any repairer to accept.
Notification – Saxum Insurance
The directive issued to withhold repaired vehicles until payment is received has been retracted. We have recently built good relations with stakeholders at Saxum and resolution is being obtained in securing settlement of long outstanding claims. They have experienced challenges in processing protocols changes and the backlog of outstanding settlements is definitely gaining momentum to ensure an amicable resolution.