Spring 2009

Audatex
Directions
News from Audatex North America, Inc. Vol 05
How will an influx of
Asian vehicles impact
insurers?
Vehicle Mix and Repair Costs
ALSO IN THIS ISSUE
> Shop View: Making the Journey to a Lean Shop (Part 2): I’M PIT ROW™ Waste Identification
> PCI Article: Protecting a Competitive Property Casualty Marketplace
> IAA Article: Factors and Influences of the Automotive Salvage Industry
> APU Solutions Article: Can Changing Alternative Parts Policies Impact Costs?
> Trends Data: RV Valuation Trends
> Much More
Audatex Directions is a quarterly
newsletter that provides in-depth trends
and industry analysis on the auto physical
damage market. It is published by Audatex
North America, Inc., a Solera Company.
Contributing Writers
Michael T. Anderson
Sr. Director of Data Analytics, Audatex
Fred Bersot
Sr. Product Manager, Audatex
Kelly Brady
Sr. Director of Corporate Sales, Audatex
John Euell
Sr. Business Analyst, APU Solutions
Audatex Directions
Contents
3
4
Managing Director’s Message
9
A Closer Look at Claims
Brian Grainger
Director, Product Services, Audatex
Diane Klund
Regulatory Compliance Manager, Audatex
Charles Lukens
CEO, APU Solutions
Krishna Masur
Lean Six Sigma Black Belt, Audatex
Jeanene O’Brien
Vice President, Provider Marketing,
Insurance Auto Auctions (IAA)
David Sampson
President and CEO, Property Casualty
Insurers Association of America (PCI)
Dave Trissel
Associate VP of Process Excellence,
Audatex
Feature Article
–Vehicle Mix and Repair Costs:
How will an influx of Asian vehicles
impact insurers?
–What Drives Supplements? Added Parts
–Are the Right Vehicles Being Totaled and
Repaired
12
14
On the Road
–Do HOV Stickers Impact Vehicle Values?
18
Insurance Issues
– Protecting a Competative Property
Casualty Marketplace
– Factors and Influences of the Automotive
Salvage Industry
– Can Changing Alternative Parts Policies
Impact Costs?
24
26
28
Regulatory Update
– Total Loss Updates
Shop View
– Making the Journey to a Lean Shop (Part 2):
I’M PIT ROW™ Waste Identification
–Reviewing Estimates within a Multi-Shop
Environment
Request Copies
To request a printed copy of this publication,
please email: [email protected]
To download the pdf, please visit our
Web site: http://audatex.us/thinktank.aspx
Local focus. Global knowledge.
Audatex is the leading global claims
solutions provider. As part of the Solera
group of companies, we draw on our broad
global claims market experience to identify
and implement the best-practice processes
that drive continuous improvement for our
local customers and their trading partners.
Solera companies serve the automotive
industry in more than 50 countries across
six continents.
© 2009 Audatex North America, Inc. All rights reserved.
Audatex, AudaInsight, Autosource, Audatex Estimating,
Audatex Win-EMR, PenPro and Shoplink are trademarks or
registered trademarks of Audatex. All other company
and/or product names may be trademarks or registered
trademarks of their respective owners in the United States
and other countries.
Trends Data
– RV Valuation Trends
Audatex News and Events
– Recent Press Releases
– Upcoming Events
Managing Director’s Message
Glass Half Full
Lately, it seems we can’t get through the day without a common theme hanging
overhead—the economy is faltering and U.S. automakers are among the hardest hit.
The topic is unavoidable. As GM and Chrysler are expected to close dealerships in
record numbers, what will this mean for the industry?
Some see a bittersweet silver lining, reasoning that drivers who previously turned to
dealers for repairs will now beat a path to national chains and independent repair shops
to keep their vehicles on the road for as long as possible.
While there is certainly opportunity amidst the uncertainly, we must not become
complacent. We must continue to engage the challenges we face. For example, if vehicle
owners turn to independent shops, what difficulties may arise in terms of warranty
coverage, service agreements, and vehicle-repair history records? This type of critical
questioning is essential to success. And, it’s exactly what Audatex Directions aims to
initiate in each issue.
This quarter’s cover story explores what the rise of Asian vehicles will mean for collision
repairers, insurers and consumers. Take a look and see why, for some, it could make a
significant impact. We then take a closer look at claims, analyzing what drives
supplements, whether the right vehicles are being totaled, and how HOV stickers can
impact vehicle values.
On the shop side, we continue to support our readers in their journey to a Lean shop by
examining waste identification techniques. We also examine methods through which
shops can ensure estimate quality and accuracy—even in a multi-shop environment.
Our insurance articles this quarter come courtesy of PCI, Insurance Auto Auctions and
APU Solutions. PCI discusses the importance of protecting a competitive property
casualty marketplace. Insurance Auto Auctions shares the factors and influences of the
automotive salvage industry, while APU Solutions delves into the question of whether
changing alternative parts policies can impact costs.
‘‘
’’
Our insurance
articles this quarter
come courtesy of
PCI, Insurance Auto
Auctions and
With summer fast approaching and vacations top of mind, we deemed this issue of
Audatex Directions the perfect time to dive into trends we’re seeing with RV valuations.
Finally, don’t miss the summary of the latest Audatex events and news, including an
exciting new deal we’ve forged with eBay that will benefit our Hollander customers, as
well as the millions of eBay customers who may be looking for quality recycled auto parts.
From all of us at Team Audatex, thank you for your business.
Regards,
APU Solutions.
John Kotsopoulos,
Managing Director
Audatex North America, Inc.
www.audatex.us
3
Feature Article
Vehicle Mix &
Repair Costs
How will an influx of Asian vehicles
i m p a c t i n s u re r s ?
By Michael T. Anderson
Growing up in Connecticut, I found there were
two subjects that would always cause a heated
debate among my childhood friends. Who’s a
better team—the Red Sox or the Yankees? And,
who built a better vehicle—Chevrolet, Mopar or
Ford?
While the baseball debate will continue for future
generations, I wonder if kids today still debate
the better vehicle maker with the fierce loyalty
seen in years past. And if so, does the debate
now include Honda and Toyota?
Asian Influx
In June 2008, Asian vehicle manufacturers
surpassed U.S. automakers in terms of light
vehicle unit sales. According to Autodata,
January 2009 sales suggest that Japanese and
South Korean automakers together represented
49.5 percent of light vehicle sales, while U.S.
automakers fell to a record low 42.5 percent.
This is a far cry from the 70 percent market
share enjoyed by the Big Three U.S. automakers
in 1995.
Attaining this milestone didn’t occur overnight
for the Asian vehicle manufacturers. As shown
in Figure 1, Asian market share has steadily
increased between 1999 and 2009, with more
than 10 percentage points gained between 2003
and 2008. In 2005, Japanese automakers Toyota
and Honda experienced huge increases in sales,
while smaller companies like South Korea’s
Hyundai made significant inroads as well.
According to a December 2006 study performed
by J.D. Power and Associates for The Detroit
News, the primary reasons consumers are
avoiding American-made vehicles are concerns
over reliability, quality and depreciation rates.
Figure 1: U.S. and Asian vehicle
market share notably shifted
from March 1999 through March
2009, with Asian vehicles gaining
more than 10 percentage points
between 2003 and 2008. General
Motors (blue), Ford (orange),
Chrysler LLC (maroon), Toyota
(green), and Honda (gray).
(Source: Wall Street Journal)
Total U.S. Market Share
for Top Five Manufacturers
(March 1999 to March 2009)
32%
32%
24
24
16
16
8
8
0
0
Mar. 1999
Mar. 2009
Continued next page
4
Audatex Directions
Vol 5
Feature Article
C o n t i n u e d f ro m p re v i o u s p a g e
The misfortune of the U.S. automakers continues
in 2009. In addition to consumers’ concerns over
the Big Three’s financials, the influential
Consumer Reports magazine named only one
U.S. vehicle (the Chevrolet Avalanche) to its top
10 picks for most reliable vehicles in the April
2009 issue.
According to Audatex data, in 2008:
• Asian vehicles comprised 39 percent of all
claims (up 2 percentage points from 2007)
• Domestic vehicles comprised 53 percent of
all claims
• European vehicles comprised 8 percent of
all claims
• The average model year across all claims was
2002.1
We further examined this 2008 claims data to
understand how changes in domestic and Asian
market share will impact the industry over the
next few years. When the 2008 claims data was
broken out by model year, the shift towards
Asian vehicles is clearly present, as shown in
Figure 2. By model year 2007, the percentage
of claims for Asian vehicles exceeded that for
domestic claims, and this trend was also seen
for the 2008 model year.
Implications on Vehicle Repairability
This change in vehicle mix will have an impact
on the industry—especially insurers—over the
next few years. Why? As shown in Figure 3
(next page) for model years 1985 through 2008,
Asian vehicles cost more to repair than domestic
vehicles. In 2008, Asian vehicles cost an
average of $75 more to repair than domestic
vehicles. On top of that, in 2008, Asian vehicles
also represented 39 percent of all claim volume.
And, so far in 2009, this has increased to 39.7
percent of claims, following exponential growth
between 2003 and 2008. As claim distribution
changes to reflect the current market share data,
the percent of Asian claims will increase even
more.
There any many factors that may cause
differences in repair costs. For example,
compared to their domestic counterparts,
Asian vehicles:
In 2008, Asian
vehicles cost an
average of $75
more to repair
than domestic
vehicles.
• Average one full model year newer
• Average 12,000 fewer miles when involved
in a loss
• Have higher actual cash values (ACVs)
• Are 22 percent less likely to be declared a
total loss
These attributes will increase
loss costs for “repairable”
Asian vehicles because a
greater amount of damage will
need to be incurred before an
Asian vehicle is deemed a
total loss.
Domestic and Asian Claim Distribution
by Model Year in 2008
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
Continued next page
2000 2001
2002
2003 2004
Asian Vehicles
2005
2006 2007
2008
Domestic Vehicles
Figure 2: The distribution of Asian (orange) and domestic (gray) claim
volume for calendar year 2008 illustrates a trends towards Asian vehicles
over time. By model year 2007, claims for Asian vehicles surpassed
claims for domestic vehicles. (Source: Audatex Insight™)
www.audatex.us
5
Feature Article
C o n t i n u e d f ro m p re v i o u s p a g e
Repair Estimate Variance by Model Year
for Asian versus Domestic Vehicles in 2008
$200
$180
$160
Figure 3: In 2008, the
weighted average
repair costs for
repairable Asian
vehicles exceeded
domestics by $75.
(Source: Audatex
Insight)
$140
$120
$100
8
19 9
90
19
91
19
92
19
9
19 3
94
19
95
19
96
19
9
19 7
88
19
99
20
00
20
01
20
02
20
0
20 3
04
20
05
20
0
20 6
07
20
08
88
19
87
19
86
19
19
19
85
$80
$60
$40
$20
$0
Types of Losses
Parts
As seen in Figure 4, Asian vehicles have a five
percent greater frequency of collision losses,
which tend to be higher severity. Conversely,
they experience significantly fewer
comprehensive losses, which tend to be less
costly (15 percent versus 22 percent). The
biggest difference in comprehensive loss claims
are seen in the upper midwest and southwest.
In fact, only in Massachusetts and Vermont do
Asian vehicles have more comprehensive losses
than domestics.
Asian and domestic vehicles share the same
repair versus replace ratio—a figure often used
to gauge performance. For both, an average of
24 percent of parts are repaired, while 76
percent are replaced. However, understanding
the parts per claim is also critical. Not surprising,
Asian vehicles—which are associated with more
collision losses—have more repair and
replacement parts per claim. As shown in Figure
5 on the next page, compared to domestic
vehicles, Asian vehicles consistently required 1.2
more replacement parts and 0.4 more repair
parts per claim, which obviously impacts
both part and labor costs. This trend is
observed across all vehicle classes,
including economy, mid-size, full-size,
trucks, sport utility vehicles, etc.
Losses by Claim Type for Asian
and Domestic Vehicles in 2008
55%
50%
45%
Continued next page
40%
35%
30%
25%
20%
15%
10%
Collision
Comprehensive
Asian Vehicles
Liability
Domestic Vehicles
Figure 4: Asian (orange) and domestic
(gray) vehicle losses by coverage type in
2008. (Source: Audatex Insight)
6
Audatex Directions
Vol 5
Feature Article
C o n t i n u e d f ro m p re v i o u s p a g e
Labor
Replacement Part Count by Claim
Type for Asian and Domestic Vehicles
14
12
10
The average labor rates for Asian and domestic
vehicles are very similar. However Asian
vehicles require an additional 1.8 labor hours.
The majority of the labor variance lies in
judgment times associated with repairing sheet
metal and refinish hours. However, the data did
reveal:
8
• 0.6 additional labor hours for sheet metal
repair hours (which can equate to an
additional $26 in costs)
6
4
Collision Comprehensive
Asian Vehicles
Liability
Domestic Vehicles
Figure 5: Replacement parts by coverage type
for Asian (orange) and domestic (gray) vehicles.
(Source: Audatex Insight)
In addition to containing a greater number of
parts to be repaired or replaced, Asian vehicle
claims average a 9.5 percent higher OEM-parts
percentage.
Despite Asian vehicles having more collision
losses, more parts per estimate and a greater
OEM-parts percentage, their average partdollars-per-estimate is identical to domestic
vehicles at $916. Why? Because many of the
most common parts cost less on a per part
basis, as shown in Figure 6.
Using current
data and the
$75-per-claim
cost difference,
• 0.5 additional hours of refinish work (which
can equate to an additional $21 in costs)
for every 50,000
• 0.2 additional hours for mechanical, electrical
and frame work (which together can equate
to an additional $10 in costs)
claims that shift
Much of the remaining variance-per-claimdollars for Asian vehicles versus domestic
vehicles are likely related to the additional labor
needed because of the greater number of
replacement parts on the estimate.
The Impact for Insurers
Based upon market share figures and Audatex
claim data, the industry may experience higher
repair costs over the upcoming years as a direct
result of the influx of Asian vehicles into the
overall vehicle mix. Considering what is known
from 2008
claims data and
what can be
Asian and Domestic Part Costs
projected from
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Asian
Domestic
Asian
Domestic
Asian
Domestic
the 2009 market
Part
OEM Cost OEM Cost
AM Cost
AM Cost
LKQ Cost LKQ Cost
share data, it is
$172
$253
$234
$254
$281
$400
Front Bumper Cover
safe to assume
$134
$118
$285
$247
$182
$170
Headlamp Assembly
$405
$183
$273
$168
$310
$286
Rear Bumper Cover
that Asian
$409
$491
$252
$293
$200
$224
Hood Panel
vehicles will
$249
$140
$157
$123
$136
$237
Left Front Fender
have a
$87
$154
$67
$96
$145
$260
Grille Assembly
significant
$124
$136
$248
$142
$158
$239
Right Front Fender
impact on repair
$84
$79
$68
$164
$124
$114
Tail Lamp Assembly
costs in the next
$195
$278
$158
$250
$91
$83
Front Bumper Cover
$84
$384
$356
$191
$187
$88
A/C Condenser
few years. The
severity of the
impact will greatly depend on an insurer’s book
Figure 6: Part costs for Asian vehicles are often
of business. Using current data and the $75lower than for domestic vehicles, thereby offsetting
per-claim cost difference, for every 50,000
the greater use of OEM parts and number of overall
required parts.
claims that shift from domestic to Asian insurers
from domestic
to Asian,
insurers may
expect an
additional
$3.75 million in
loss costs.
Continued next page
www.audatex.us
7
Feature Article
C o n t i n u e d f ro m p re v i o u s p a g e
may expect an additional $3.75 million in loss
costs.
There are several variables that are driving the
loss-cost variance for Asian vehicles versus
domestic vehicles. First, Asian vehicles have
higher ACVs and can incur higher damages
without being declared a total loss. As a result,
larger hits are included in the repairability metric.
Minimizing the costs associated with this greater
repair burden will depend heavily upon utilizing
alternative parts, making proper repair-versusreplace decisions and making subjective repair
and refinish times.
Successful managers will possess the tools
needed to:
• Recognize the trends associated with the
changing vehicle mix
• Understand how market dynamics influence
their specific results
• Identify where there is room for improvement
This requires having access to organizational,
vehicle, parts, labor and operational data at both
the highest and lowest possible levels, as well as
the ability to gauge performance over time and
examine data at a transactional level. Audatex
Insight is the only analytical tool on the market
today that empowers users to have all of this
data, instantly accessible at their fingertips. n
References:
1. “Hyundai Defies U.S. Slump as Asians Grab Record Share (Update 2),” Bloomberg.com.
Available at: http://www.bloomberg.com/apps/news?pid=20601087&sid=ajt4QNiM2RFo&refer=home.
Accessed May 13, 2009.
2. “2006 Detroit New Domestic Vehicle Avoider Study: Conducted by J.D. Power and Associates,” The Detroit News,
December 11, 2006.
3. “Best and Worst 2009 Cars: Most Reliable,” Consumer Reports, April 2009.
4. “What’s Moving: U.S. Auto Sales,” The Wall Street Journal Online.
Available at: http://online.wsj.com/mdc/public/page/2_3022-autosales.html.
Accessed May 13, 2009.
8
Audatex Directions
Vol 5
A Closer Look at Claims
What Drives Supplements? Added Parts
As insurers and repairers strive to increase efficiency,
Audatex unveils a new series of articles that takes a closer
look at what drives supplements.
By Michael T. Anderson
By definition, a supplement is an addendum
to an original repair estimate created by a
representative of an insurance company or repair
facility. Supplements may be needed for a
number of reasons, such as the identification of
hidden damage not visible during the original
estimate preparation, changes in the original
repair methods, part price changes, insurer
appraisal policies, or errors made by the original
appraisal resource. Regardless of the cause,
supplementing an estimate decreases the
efficiency of the claims process and adds
significant costs for both insurers and repairers.
Unfortunately, it is often quite difficult to quantify
a supplement’s contribution to unit cost.
A Collision Industry Council (CIC) study from
2007 to 2009 attempted to quantify the direct
expense to process a supplement. The study
included participation from insurers, repairers
and suppliers. It found that costs can be as high
as $737 per supplement, which represents $400
for insurers, $239 for repairers and $98 for
suppliers. Even if the CIC’s estimates differ from
the supplement costs you undertake, you can’t
ignore the fact that a certain percentage of
supplements are in fact avoidable. However, to
avoid supplements, you must first be aware of
the factors that drive supplements.
As part of a new series of Audatex Directions
articles called “What Drives Supplements?” we
will analyze various factors that contribute to
supplements in an effort to help you eliminate
waste, reduce expenses, and increase efficiency.
Supplements may be associated with a number
of factors that can drive up costs, such as
additional parts, labor, tax and non-financial
administrative changes. In this first article of the
new series, we take a closer look at the
frequency and financial impact of repaired parts
that are subsequently changed to replacement
parts on a supplement. We define these as
“added parts.”
Added Parts
Due to the lower costs associated with repairs,
insurers often emphasize repair versus replace.
However, during the repair process, it may be
determined that the damage is too extensive
and a replacement is warranted. In such cases,
it is often viewed positively that the estimator at
least considered repair as the first option and
the resulting supplement may be deemed a
“good supplement.” But, what if only 20 percent
of the total allotted repair time had passed
before that repair was changed to a costly
replacement? Does that still constitute a “good
supplement”? What if that supplement had a
much higher likelihood of utilizing OEM parts,
even when similar original estimates used nonOEM parts for the same part? Being able to
answer to these types of questions will help you
better gauge performance and reduce the costs
associated with supplements.
We examined added parts for some of the most
common sheet metal parts, including front
bumper covers, which are included in 30 percent
of all estimates. Despite being one of the most
common parts on estimates, front bumper
covers are changed from repair to replace just
5 percent of the time. Overall, this conversion
from repair to replace of sheet metal parts is
surprisingly low, with only about 3.6 percent of
repair decisions being changed to replacements
in supplements. This low percentage raises
another question—Can more parts be repaired
versus replaced?
But despite the low percentage of supplements,
the question still remains as to whether or not
the supplement was a “good supplement.”
When taking a closer look at the estimates that
contain added parts, there still seems to be
room for improvement in terms of reducing
supplement frequency and decreasing the costs
associated with these claims. For example, for
Continued next page
www.audatex.us
9
A Closer Look at Claims
C o n t i n u e d f ro m p re v i o u s p a g e
utilization is
much higher on
repair-to-replace
supplements
than on original
estimates.
% OEM Part Utilization
...OEM part
also much higher compared to original repair
those estimates where the front bumper cover
estimates, adding to the overall claim costs.
was changed from repair to replace, the original
Effective business intelligence and compliance
repair cost averaged $83, but the cost rocketed
tools with real-time data alerts can help Audatex
to $422 when the repair was changed to replace
clients better monitor and manage the use of
on the supplement. The original repair cost of
added parts.
$83 represents about 1.9 labor hours, which is
well below the maximum
repair-versus-replace time
OEM Sheet Metal Part Utilization: Original Estimates
versus Repair-to-Replace Supplements
threshold used for many parts.
In fact, 18 percent of all
90%
85%
bumper-cover repairs that
80%
change from repair to replace
75%
contain just one labor hour or
70%
less of repair time on the initial
65%
estimate. Moreover, 52 percent
60%
have two hours or less of
55%
repair time. These statistics
50%
45%
lead to two questions—Should
50%
the part in fact be replaced on
Left Qtr. Right Qtr.
Rear
Front
Hood
Front
Front
the supplement? And if so,
Panel
Panel
Bumper
Right
Panel
Left
Bumper
Cover
Fender
Fender
Cover
why did the estimator grossly
Supplements
Original Estimates
underestimate the damage on
the original estimate?
Analysis of the sheet metal data also shows that
OEM part utilization is much higher on repair-toreplace supplements than on original estimates.
When front bumper covers are changed to
replace on supplements, the utilization of OEM
parts jumps to 64 percent compared to
44 percent OEM part utilization seen with other
estimates (Figure 1). While the front bumper
cover is the primary example in this article, other
common sheet metal parts such as fenders,
quarter panels, hoods and rear bumper covers
showed very similar data in terms of repair-toreplace percentages, repair hours and increased
OEM part-utilization differences.
Figure 1: OEM part utilization percentages for
common sheet metal parts when they appear in
original estimates (gray) versus when they appear
in repair-to-replace supplements (orange).
Next in “What Drives Supplements?”
In the next volume of Audatex Directions, we will
analyze “missed parts,” or replaced parts that
appear for the first time on a supplement without
being in the original estimate as a either a repair
or an R&I. We’ll dig into the data around missed
parts and look at whether they’re a result of
hidden damage, or if they are just simply
missed. n
Opportunity for Improvement
Although added parts may not be the key driver
of supplement activity, they contribute to overall
supplement costs and frequency. There is
opportunity to improve the accuracy of original
repair-time estimates and examine why
decisions to replace are sometimes made before
a reasonable percentage of the repair-time
threshold is reached. When estimators change
parts from repair to replace during the
supplement process, OEM part utilization is
10
References:
“Supplement Reduction Best Practices,” 2007-2009 C.I.C.
Business Management Committee.
Accessible at: http://www.ciclink.com/business/2007-7Business.pdf.
Audatex Directions
Vol 5
A Closer Look at Claims
C o n t i n u e d f ro m p re v i o u s p a g e
Are the Right Vehicles Being Totaled and Repaired?
By Michael T. Anderson
“How do I know if we are totaling vehicles that
should be repaired and repairing vehicles that
should be totaled?” Sound familiar?
Considering the highly volatile vehicle values
seen in recent months, this million-dollar
question is increasingly important, and it’s one
that most executives will ask their auto physical
damage management teams.
Often, answers to this question can be found
through re-inspection and quality assurance
programs. However, in a recent client meeting,
a senior insurance executive looking for new
ways to approach this question petitioned the
Audatex team to provide a means for more
detailed analyses.
In response, we developed a statistical model
that isolates the attributes within claims data
that are most often indicative of a total loss, in
addition to the attributes most often linked to
repairs. We used these attributes, as well as
other “common-sense” rules, to develop a
complex algorithm that can flag illogical claim
situations, such as a total loss claim that has
attributes of repairability, or vice versa.
Results from the analyses can be provided in
three sets of detailed reports, each designed to
address different aspects of the total-versusrepair question. In this initial case, the list of
claims used within the analyses was also
www.audatex.us
provided so the client could validate the
accuracy of the algorithm and reference the
actual claim contents, such as the estimate,
photos, adjuster notes, payee information and
the valuation.
Of the claims tested for this client, the accuracy
rate was 90 percent. Data suggest that 3 percent
to 5 percent of decisions to total a vehicle may
be questionable. While this may not represent a
large percentage of overall claims, it can
translate into millions of dollars in loss costs.
Furthermore, the analyses have pointed to areas
where clients may look to improve their
workflow. This type of laser-focused reporting
provides re-inspection and quality assurance
teams with access to actionable information,
helping them better manage loss costs, improve
decision making and enhance customer
satisfaction.
Leveraging this method earlier in the claims
process could have a great impact on decisionmaking, helping drive significant value for
Audatex clients. Currently, Audatex is
investigating how these algorithms could
potentially be integrated into the suite of
Audatex compliance and business intelligence
solutions. With this new way of garnering insight
from claims data, Audatex is positioned to help
clients intelligently answer that million-dollar
question—repair or total? n
11
On the Road
Because vehicles with California Clean Air
Vehicle decals appear to have a higher value
than those without, should insurers consider
this factor when settling a total loss?
Do HOV Stickers Impact
Vehicle Values?
By Brian Grainger
In an effort to promote environmental initiatives,
some states have provided incentives to drivers
who choose hybrid vehicles. For example, in
earlier years, California used a “Clean Air
Vehicle” decal as motivation for car buyers to
choose hybrids. These yellow decals aren’t likely
to catch your eye while you’re stuck in traffic
because, thanks to their favorable emissions
output, vehicles with these decals have earned
the right to utilize California’s High Occupancy
Vehicle (HOV) lanes, regardless of how many
occupants are along for the ride. The perk is
valuable for commuters on California’s jammed
highways.
Despite their original cost of only $8, these
decals—and the hybrids to which they’re
affixed—are now a hot commodity because the
state has stopped issuing new ones. In fact, the
California Department of Motor Vehicles only
issued 85,000 original decals, which don’t expire
until January 1, 2011. Decals are associated with
their vehicles, not the owners. So, the only way
most drivers can get a decal is by purchasing a
used vehicle that already has one. For drivers
whose vehicles already have the decal, they can
only obtain new decals if their current vehicle is
totaled and they purchase another low-emission
model.
Paying a Premium for Convenience
California deserves credit for offering this
incentive in the earlier years of the green
initiative. However, did anyone at the time
consider how the stickers, and moreover their
limited availability, might impact both real and
perceived vehicle values?
Just ask Californians. Anecdotally, they’ll give
you an idea of how much they are willing to pay
to shave as much as 2 hours off their daily
commute. Therefore, it’s no surprise that those
in the used-vehicle market say they are willing to
Continued next page
12
Audatex Directions
Vol 5
On the Road
C o n t i n u e d f ro m p re v i o u s p a g e
pay a premium for vehicles with a Clean Air
Vehicle decal. But, does a Clean Air Vehicle
decal add real value—or is it just talk?
To answer this question, we performed a sideby-side vehicle comparison. We compared
vehicles within the same market that have similar
mileage, condition, packages and options. The
assumption was that such comparisons would
logically yield the most accurate results.
However, the analysis is complex. Unlike known
factory options, there is no data point to isolate
and systematically analyze for Clean Air Vehicle
decals. As such, when we performed a general
analysis, the results were inconclusive. In some
instances, the vehicles that were eligible for
Clean Air Vehicle decals sold for a premium
compared to nearly identical vehicles, but in
other instances there was little difference.
What’s it Really Worth?
Because vehicles with California Clean Air
Vehicle decals appear to have higher values than
those without, should insurers consider this
factor when settling a total loss? And if so, how
much is such a premium really worth? Each
insurer needs to determine how to handle these
claims, value the decal, and meet the obligations
of their policies. Another thing to consider is
that, beginning in 2009, an owner whose vehicle
is declared a total loss after an accident can
apply for a replacement sticker provided the
replacement vehicle also qualifies. Additionally,
the life span of these decals is limited: Their
benefits expire at the end of 2010. As such, any
value afforded to the decals will depreciate to $0
on January 1, 2011. n
So we took a closer look at the data from a
different angle. We specifically analyzed data for
the 2005 and 2006 Honda Civic hybrids and
their gasoline equivalents, which were released
during the years in which the California Clean Air
Vehicle decal was offered. For each model year
and vehicle type, we trended the average actual
cash values (ACVs) across multiple states. In
each state, with the exception of California, the
ACVs trend similarly for the hybrids and their
gasoline counterparts. However, in California, the
ACVs for the Honda Civic hybrids averaged
7 percent higher than in the other states, while
the ACVs for the gasoline counterparts trended
similarly with the other states. This translates
into a $1,203 premium for the 2005 model
Honda Civic hybrid and a $1,509 for the 2006
model.
www.audatex.us
13
Shop View
Making the Journey to a Lean Shop
Part 2: I’M PIT ROW™ Waste Identification
By Dave Trissel and Krishna Masur
Even the best-run shops can benefit from Lean
principles—an ongoing approach to running a
business that focuses on value, waste
elimination and increased speed. In volume 4 of
Audatex Directions, we explored why Lean is an
increasingly necessary element for success in
today’s collision repair industry. Here, we take a
closer look at how Lean can help you identify
value and eliminate waste, and why continuous
reassessment is a key to success.
The true beauty of Lean is that it’s simple and
straight-forward. The challenge, however, can be
that after you’ve implemented best practices for
running your business, you must continually
massage these principles over time in order to
adapt to inevitable changes in business
demands, technology, and the industry in
general.
“A lot of body shops think they’re Lean, but
they’re not,” says Rick Tuuri, associate vice
president of industry relations for Audatex. “Lean
can run the risk of being labeled a buzz word,
but when it’s applied correctly, it’s anything but
that. It isn’t a one-time or short-term effort that
you undertake and then you’re done with. It’s a
philosophy that you incorporate into your
business so that you’re always rethinking and
adjusting going forward.”
Finding Value in Lean and
Discarding the Waste
“Value” has a very specific meaning in Lean.
Value is defined by the customer. It is anything
for which the customer is willing to pay. It is any
activity, done correctly the first time, that
transforms raw materials and information into a
product or service individuals want enough to
spend their money on it. Anything you do that
doesn’t add value in the eyes of the customer is
a “non-value-added” activity, otherwise known
as waste. Anything you produce that the
customer is unwilling to pay for is waste.
Of course, there are a few required, non-valueadded things, such as regulatory requirements,
accounting practices and limited internal
reporting, that cannot be entirely eliminated,
although their costs can typically be reduced.
Waste is also a very specific concept in Lean. It
falls into eight distinct categories:
Continued next page
14
Audatex Directions
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Shop View
C o n t i n u e d f ro m p re v i o u s p a g e
• Intellect: Not fully utilizing the time and talents
of your people
• Motion: Any unnecessary movement of people
that does not add value
• Processing: Doing more than is necessary;
over-processing
• Inventory: Accumulation of excess finished
product, work-in-process, or raw materials
• Transportation: Any conveyance of the
product or information is waste
• Rework: Repair or correction of work; defects
• Overproduction: Producing too much or
too soon
• Waiting: Waiting on work or information
You can use the acronym I’M PIT ROW to
remember the eight types of waste. Use it to
remind yourself that you should strive to be as
fast and efficient as the pit crew on an auto
racing team. For a pit crew, every tiny detail
counts; there is not a wasted second, no wasted
motions or wasted transportation, no tolerance
for rework or doing more than is absolutely
necessary to get the car back on its way with
100-percent quality.
Value-Stream Mapping (or Seeing
How Well Your Business Actually
Works)
To find value and eliminate waste, you need to
fully understand your operational process. If your
organization operates in a haphazard way, or if
you started out with a process but made detours
to accommodate problems such as late part
deliveries, absent employees, broken tools or
the like, then you need to revisit your process
and address the issues that have knocked it off
course.
This means you must go to what is called the
‘gemba,’ or your actual workplace, and precisely
follow the flow of vehicles, materials, parts and
information that takes you through the entire
repair process. Map the process on paper,
noting the value-added activities, as well as the
non-value-added activities. This process is
called value-stream mapping. Take a stopwatch
and time each activity—even the wait time
between steps, the time to find a tool or order a
www.audatex.us
part. You might find yourself surprised at the
ratio of value-added to non-value-added
activities in a typical repair process.
In fact, you can take these numbers and create
an equation that provides you with a more
accurate understanding of your shop’s efficiency.
To do so, just take the total value-added time
divided by the total time. You’ll then have your
process-cycle efficiency. If you can achieve a
process-cycle efficiency of 20 percent, your
process is considered tops in the industry.
You’re not at 20 percent? How can you improve
your efficiency? For starters, going through this
mapping exercise and discovering what waste is
and where it exists in your shop is the first step.
In future articles within this Lean series, we’ll
explore some of the many techniques for
achieving higher efficiency. Fundamentally, Lean
all comes down to reducing or eliminating the
waste in your process without negatively
affecting quality. It could be something as simple
as moving the tools needed for a particular
repair to a permanent spot within the repair site
and then organizing them so technicians don’t
waste time searching for what they need. It
could be renegotiating with a supplier to get
what you need as you need it. Or, it could be
installing a better software tracking system. Only
you can determine this, but you need to perform
value-stream mapping to learn what
improvements are necessary.
Coming in Part 3
In the next edition of Audatex Directions, keep
an eye out for part 3 in this series of articles on
Lean collision repair. Part 3 will dig deeper into
the principles and concepts associated with
Lean, including 5S (a basic level of orderliness
and standardization) and kaizen (or change for
the good).
‘‘
’’
It isn’t a one-time
or short-term effort
...It’s a philosophy
that you
incorporate into
your business so
that you’re always
rethinking and
adjusting going
forward.
Rick Tuuri
Associate Vice President,
Industry Relations,
Audatex
In the meantime, remember, the only way to
have a truly Lean organization is to train all the
employees in your shop. Audatex provides an
online Lean Shop certification course that
doesn’t just cover the basics of Lean, it applies
the principles specifically to collision repair.
If you’d like more information about Audatex
Lean Six Sigma for Collision Repair, contact
Audatex at 1-888-776-5372 extension 1964. n
15
Shop View
C o n t i n u e d f ro m p re v i o u s p a g e
‘‘
’’
Audatex Estimate
Review™ enables
us to provide a
more accurate
Reviewing Estimates within a
Multi-Shop Environment
estimate to our
By Fred Bersot
insurance partners,
the first time
around.
Don Mikrut
CEO of CARS Collision
Quality and accuracy. These are two attributes
that are on every estimator’s mind. They greatly
impact the collaborative relationship among
vehicle owners, repairers and insurers. But they
also hinge upon the right decisions being made.
And anyone who has written an estimate knows
there are many decisions to make and methods
to consider when setting out to best restore a
vehicle to its pre-loss condition. The repair
process combines both art and science.
Answers are not black and white. Yet the
choices made affect the quality and accuracy
of the estimate produced.
Almost every part or operation added to an
estimate requires some decision. Repair or
replace? New parts or recycled parts? Paintless
dent repair or traditional repair? What are the
proper rates? What are the applicable taxes?
The decisions that can affect estimate quality
and accuracy are numerous. Add in the various
insurer guidelines and estimators face a
daunting task in trying to make the best
choices and manage expectations, without
impacting quality, accuracy, productivity and
service.
To help in the daunting decision-making
process, many organizations have made rulebased compliance tools an integral part of claim
operations. Since first gaining popularity in the
1990s, these tools have matured significantly.
They now allow for abundant business rules and
statistical probabilities, and they can identify
workflow bottlenecks that threaten an
organization’s ability to deliver consistent and
highly accurate service.
In years past, auditing and related re-work was
primarily initiated by insurers, who would often
consult with repairers via phone. The burden fell
upon insurers because even though most
repairers were equally concerned with accuracy,
quality and throughput, they were less equipped
to identify, address and eliminate inaccuracies
within estimates, which is an integral part of the
Continued next page
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Audatex Directions
Vol 5
Shop View
C o n t i n u e d f ro m p re v i o u s p a g e
claims process. But, with the help of new
estimate-review solutions, this paradigm is
beginning to evolve.
In the Canadian market, for example, many
Audatex clients are changing the traditional
roles of insurers and repairers by utilizing a
web-based rules engine that facilitates a more
collaborative, real-time estimate-review process.
The solution replicates the traditional review
process within the shop environment, an
ability that is increasingly important in today’s
environment of multi-shop facilities and multiinsurer relationships. With it, repairers can verify
estimate accuracy and check insurer-program
compliance prior to the final estimates being
electronically sent to an insurer.
In the U.S. market, Audatex Estimate Review,
which facilitates the electronic review process,
has been successfully leveraged in collaborative
efforts between CARS Collision in Indiana and
a top insurer. The results were overwhelmingly
positive for both parties, who experienced:
Audatex Estimate Review enables estimate
editing with red lining for easy reference to
changed items. It also provides real-time
changes and feedback to appraises for firsttime estimate accuracy and fewer
supplements.
• Reduction of supplements
• Decrease in overall cycle time
• Increase in throughput
• Improved customer satisfaction
Don Mikrut, CEO of CARS Collision, said,
“We’re always striving to increase efficiencies
and reduce waste from the process. Audatex
Estimate Review enables us to provide a more
accurate estimate to our insurance partners,
the first time around.”
In today’s challenging times, insurers and
repairers need technology and services that will
help directly influence profitability. Audatex’s
industry leading suite of compliance products
offers flexible solutions to insurers and repairers
alike, helping them achieve more streamlined,
automated, cost-effective processes that
improve estimate quality and accuracy. n
www.audatex.us
Enjoy flexible and personalized workflow
options in Audatex Estimate Review.
17
Insurance Issues
Protecting a
Competitive Property
Casualty Marketplace
Despite daily
headlines about
the slumping
economy,
consumer
reporting agencies
indicate that credit
scores are
remaining steady,
if not slightly
increasing, and
consumers are
continuing to
benefit greatly
from credit-based
insurance scoring.
By David A. Sampson,
President and CEO, Property
Casualty Insurers Association of
America (PCI)
Insurers are facing uphill battles on several fronts
this year, but the industry is working diligently to
combat misinformation and set the record
straight on a number of key issues. In fact, as
discussed below, the property casualty industry
has already scored notable wins in state
legislatures nationwide.
Credit-based Insurance Scoring
As expected, bills to ban or restrict credit-based
insurance scoring have emerged in a number of
states, and the PCI is working across the nation
to help elected officials, the news media and the
public understand the value of this tool and how
it benefits consumers.
PCI experts have testified at hearings in Iowa,
Nebraska, North Dakota, Minnesota,
Connecticut, Maryland, Montana and
New Hampshire to underscore the importance
of insurance scoring as an accurate predictor of
risk, and to explain that insurers consider credit
information in their underwriting and pricing
decisions for only one reason—to rate and price
business with a greater degree of accuracy and
certainty.
In addition, we are aggressively pushing two
other important messages.
The first key message is that in these tough
economic times, consumers are pulling back on
spending; they are saving more, and they are
paying off debt, which is improving both their
credit and insurance scores. Despite daily
headlines about the slumping economy,
consumer reporting agencies indicate that credit
scores are remaining steady, if not slightly
increasing, and consumers are continuing to
benefit greatly from credit-based insurance
scoring.
Secondly, we are pointing out that a primary
cause of our current economic crisis was the
failure by other segments of the financial
marketplace to accurately assess and price risk.
Property casualty insurers have been the
safeguard against systemic meltdown because
we gather extensive risk information from
consumers and adhere to traditional
underwriting principles. Restricting insurers’
ability to collect and analyze that information
would severely undermine their ability to
accurately price risk, ultimately hurting
consumers.
Thus far this year, not a single piece of proposed
legislation aimed at banning credit-based
insurance scoring has passed in any state.
Bad Faith
Insurers also face tough bad faith battles in
several states as trial lawyers attempt to take
advantage of political shifts to expand their
ability to bring lawsuits. PCI is countering trial
bar propaganda and providing information to
lawmakers about the true effects of a more
litigious environment on consumers and on
insurers’ ability to fight fraud.
PCI has been successful in combating bad
faith bills by explaining the costs involved
and illustrating the duplicative nature of the
Continued next page
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Audatex Directions
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Insurance Issues
C o n t i n u e d f ro m p re v i o u s p a g e
proposals. After an auto accident, a personal
injury lawsuit is common because injured
accident victims often seek to recover medical
payments, lost wages, damages to their vehicles
and attorney fees. But when personal injury
lawyers can also sue the defendant’s insurance
company for “bad faith,” nearly every personal
injury lawsuit then spawns a second, bad faith
lawsuit.
2009, the Florida Legislature passed a similar
ban. Similar legislation is already in effect in
Pennsylvania, Missouri, Indiana, Georgia, and
Tennessee. PCI is leading efforts to end the
accident tax in California and Alabama. For
more information on this issue, visit
http://www.accidenttax.com.
Thus far, bad faith bills have either been
defeated or withdrawn in Oregon, Iowa,
Montana and New Mexico.
Accident Tax
A number of local governments nationwide are
implementing ordinances that subject drivers
and insurers to fees imposed by police and fire
departments for simply responding to an
accident scene. Faced with tight budgets, many
municipalities are using these accident response
fees, also known as an “accident tax,” to
increase revenues without formally raising taxes.
But public safety is a core mission of local
government, and these fees take advantage of
consumers.
Private collection companies are behind the
trend, and they promise cash windfalls in
exchange for the ordinances. The vendors bill
the insurers on behalf of the local governments,
and if the insurers don’t pay, the vendors seek
payment from drivers.
Accident response fees amount to nothing
more than double taxation. Emergency response
services are already paid for by property taxes
and other local taxes, and the fees contradict
the idea of subsidizing basic local government
services with such taxes. By billing for police
and firefighting services, governments are
imposing hidden, redundant taxes on
consumers, which will ultimately raise insurance
costs for everyone.
PCI has been generating media coverage on this
issue and is urging lawmakers to pass bills that
prohibit local governments from imposing an
accident response service fee on any person or
insurance company. In early April, the Arkansas
Legislature delivered a major consumer victory
by banning the accident tax, and on May 1,
www.audatex.us
Engagement Drives Success
PCI activated grassroots campaigns on all of the
issues described here, and we will continue to
fight proposals that have negative consequences
for insurers and consumers.
Involvement is the most crucial element to our
success in countering hostile attacks and
fostering a healthy, competitive property casualty
marketplace. Now more than ever we need
insurance professionals to take action and voice
their positions on issues.
Get Involved
PCI invites you to join thousands of other
insurance professionals nationwide and become
a key contact in our Insurers for Action political
involvement program. Key contacts are
immediately notified of
relevant legislation and
industry-wide political
advocacy efforts through
Insurers for Action email
alerts, which provide the
information and tools necessary to contact
public officials on important industry issues.
For more information, visit
http://www.pcipoliticalaction.net. n
Accident
response fees
amount to
nothing more
than double
taxation.
19
Insurance Issues
C o n t i n u e d f ro m p re v i o u s p a g e
Factors and Influences of the
Automotive Salvage Industry
By Jeanene O’Brien, Vice President, Provider Marketing,
Insurance Auto Auctions (IAA)
In 2008, the automotive
salvage industry was
influenced by a number of factors. Here, we take
a closer look at how these factors impacted
vehicle values and salvage returns in 2008, and
what we might expect in 2009.
shows that the following six factors strongly
influenced the performance of all three
segments. But, as discussed, some factors
influenced particular segments more than
others during 2008.
2008 Overview
• Producer Price Index of Intermediate
Goods (PPIITM)
IAA divides the market into three segments
based on average vehicle sale price.
• Used Car Price Index (UCPI)
• Crushed Car Index (CCI)
• Low-grade vehicles: 20 percent of vehicle
stock with the lowest sale price
• Average Age of Vehicle Stock
• Exchange Rate Values
• Mid-grade vehicles: 60 percent of vehicle
stock with the middle sale price
• Buyer Make-Up
• High-grade vehicles: 20 percent of vehicle
stock with the highest sale price
Overall, since mid-year 2008, the salvage market
has experienced slight declines. Our analysis
The year 2008 started out strong for the salvage
market and remained so until the beginning of
the summer, at which time the UCPI began to
fall, causing returns to respond starting in June.
The three segments remained steady through
Scrap Price Index
$400
1
2
$350
4
$300
5
3
$250
$200
$150
$100
$50
$0
M ar-09
Feb-09
J an-09
Dec-08
Nov-08
O ct-08
S ep-08
Aug-08
J ul-08
J un-08
M ay-08
Apr-08
M ar-08
20
Feb-08
J an-08
Dec-07
Nov-07
O ct-07
S ep-07
Aug-07
J ul-07
J un-07
M ay-07
Apr-07
M ar-07
Feb-07
J an-07
Figure 1: The scrap price index from January 2007
to March 2009. (Source: AmericanRecycler.com)
Continued next page
Audatex Directions
Vol 5
Insurance Issues
C o n t i n u e d f ro m p re v i o u s p a g e
the end of August 2008, but then responded to
dramatic shifts in foreign buying power due to
the U.S. Dollar gaining strength, large decreases
in U.S. vehicle production, and decreases in
scrap prices.
Low-grade Segment Trends
In 2008, the majority of low-grade vehicles were
used for scrap metal and they were valued
based on the raw materials of which they are
comprised. The values of these materials are
measured by both the CCI and the PPIITM. Raw
materials behave much like a commodity and
their values fluctuate in a manner similar to oil or
gold. A significant driver in the commodity
market is the value of the U.S. Dollar. Because
most commodities are priced in U.S. Dollars,
when the dollar decreases in value, one unit of
the commodity therefore costs more U.S. Dollars
to purchase. When the U.S. Dollar value
declined sharply in the beginning of the year,
corresponding increases were seen in both the
CCI and PPIITM, which impacted the low-grade
segment. Conversely when the CCI and PPIITM
sharply dropped in the fourth quarter, the lowgrade segment reacted accordingly. Figure 1 on
the previous page illustrates the fluctuation in
the scrap price index from January 2007 to
March 2009.
Figure 2 shows the used car price index from
January 2008 to March 2009.
High-grade Segment Trends
Vehicles that are ready to be repaired and resold
make up the high-grade segment. The UCPI has
the single strongest influence on this segment.
As noted, the decline in the UCPI beginning in
April 2008 effected the salvage market, most
specifically the high-grade segment. As the
overall economy continued to slide through
2008, consumers shifted from purchasing new
cars to purchasing used cars, therefore giving a
positive lift to this segment towards the end of
the year.
What’s to Come in 2009?
The global economic environment has exerted
pressure on the selling prices of salvage
vehicles, driven principally by decreased
Used Car Price Index
$10,000
$10,000
$9,500
$9,000
$8,500
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
commodity prices for scrap, lower used-vehicle
selling prices, decreased demand for new cars
and the growing strength of the U.S. Dollar
against several foreign currencies. The
combination of these factors has affected some
segments of salvage more than others.
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
www.audatex.us
Apr-08
$7,500
Mar-08
The mid-grade segment makes up the largest
portion of IAA inventory and contains a range of
vehicle types, including those that can be used
for scrap and parts, as well as those that can be
rebuilt, sold and driven again. As a result of the
broad span of vehicles in this segment, both the
PPIITM and UCPI have the greatest impact on it.
Because the PPIITM has strong influence, when
the U.S. Dollar strengthened in July 2008,
causing the PPIITM to decline, a downward shift
in the mid-grade segment was seen. In addition,
the mid-grade segment also reacted to the
decline of the UCPI that started in April 2008,
as well as the slight recovery in November and
December of 2008. The modest recovery was
directly related to consumers beginning to
purchase more used than new vehicles, as well
as an increase in the demand for parts. Together,
these two factors drove an upswing in the
demand for parts vehicles.
Feb-08
$8,000
Jan-08
Mid-grade Segment Trends
Figure 2: The used car
price index from January
2008 to March 2009.
(Based on data from
ADESA, a provider of
auctions and related
services for the
automotive industry)
So far in 2009, IAA has seen early indications
that lead us to believe the market may
experience gradual recovery and returns will
continue to lift from their current levels. This
recovery may be strengthened by an increase in
the demand for used cars and used auto parts,
as vehicle owners keep their cars longer and
purchase new cars at a significantly slower
rate. n
21
Insurance Issues
C o n t i n u e d f ro m p re v i o u s p a g e
Can Changing Alternative Parts
Policies Impact Costs?
By Charles Lukens (CEO, APU Solutions) and
John Euell (Sr. Business Analyst, APU Solutions)
When it comes to searching for like, kind and
quality replacement parts, many companies
employ a same-model-year-or-newer (SMYON)
policy. More simply stated, they require that the
recycled parts used in the repair must come
from a vehicle that is at least the same model
year or newer. Given the interchangeability of
parts across several model years, could this
restrictive policy negatively impact recycled-part
utilization and associated costs?
Model
Year
Parts Allowed Under the SMYON Policy
2002
2006
2005
2004
2003
2003
2006
2005
2004
2003
2004
2006
2005
2004
2005
2006
2005
2006
2006
2002
Figure 1: In the example shown here, across the
2002 to 2006 model years, employing a SMYON
policy would mean only 60 percent of the
potentially interchangeable parts will be
considered. Forty percent of the potential parts
(shown in orange) are simply not considered due
to the SMYON policy.
For example, if you were preparing an estimate
on any 2002 to 2006 model-year vehicle that has
an interchange availability range of 2002 to
2006, the chance of finding a part using the
SMYON cut-off is naturally much lower than the
chance of finding a part using the entire
availability range of 2002 to 2006. This is simply
because you’d be considering a smaller pool of
parts using the SMYON approach. The only
exception would be the 2006 model year, for
which the chances would be the same. Why?
Because in either case, only the 2006 model
year would be considered. As illustrated in
Figure 1, when employing the SMYON policy
across the 2002 to 2006 model years,
companies would disregard up to 40 percent of
potentially interchangeable parts (i.e., 10 of the
25 total years would be disregarded).
Interestingly, as illustrated in Figure 2 (on next
page), if companies modified their SMYON
policies to also allow parts from vehicles that are
just one model year older than the repair model,
76 percent of the truly eligible parts would then
be allowable, meaning that under the new policy,
estimators could now consider 27 percent more
parts than they could under the more strict
SMYON policy.
Continued next page
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Audatex Directions
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Insurance Issues
C o n t i n u e d f ro m p re v i o u s p a g e
not discriminate part searches by
model year. These companies
Model
Parts Allowed Under the SMYON Policy
represent 20 percent of all part
Year
(Minus One Year)
searches performed on APU’s
2006
2005
2004
2002
2003
2002
systems. However, digging into
2006
2005
2004
2003
2003
2002
the raw data didn’t provide a
quantitative conclusion, so we
2006
2004
2005
2004
2003
went to the companies to ask
2006
2004
2005
2005
why, despite greater part
2006
2006
2005
availability, their alternative-part
utilization rates were consistent
with
other
companies
that had more restrictive
Figure 2: In the example shown here, across the
policies.
2002 to 2006 model years, employing a policy of
SMYON minus one year would enable estimators
to consider 76 percent of the potentially
interchangeable parts. With this more lenient
policy, only 24 percent of the potential parts
would not be considered (shown in orange).
These examples clearly show that expanding
search rules will afford greater opportunity for
parts to be located. However, to determine how
the SMYON policy may impact part utilization
and resulting costs, we performed a deep-dive
analysis that focused on the following four
metrics:
• Number of quotes where at least one
grade-A part is found
After conducting several interviews and
reviewing data with clients, we arrived at two
conclusions. The first conclusion, and most
prominent reason why there is only a nominal
difference between alternative-part utilization
rates in companies that follow a SMYON policy
and those that don’t, appears to be that some
companies continue to passively monitor
alternative-part utilization by their staff and
repairers. The second conclusion is a byproduct
of the first. We found that in many instances,
appraisers make their own SMYON decisions
despite company policy that may allow for
greater use of alternative parts.
Figure 3: Clear
differences were seen
on all key metrics
except the percentage
of parts recommended
versus parts eligible for
companies that follow
a SMYON policy and
those that don’t.
• Unique grade-A per part hit rate
• Percentage of parts recommended
versus parts available
• Percentage of parts recommended
versus parts eligible
SMYON
Quotes when at
least one grade-A
part is found
Unique
grade-A per
part hit rate
% of parts
recommended
vs. parts
available
% of parts
recommended
vs. parts
eligible
5.1
28%
57%
16%
As shown in Figure 3, companies
No
9.5
37%
47%
SMYON
that do not institute SMYON parts
policies had nearly twice as many
quotes with at least one grade-A part
found, and their unique grade-A per part hit rate
So, considering these finding, how can
increased by 11 percentage points, while their
expanding a SMYON parts policy impact loss
percentage of parts recommended versus parts
costs? It seems benefits will only be realized if
available increased by 10 percentage points.
the proper compliance tools and policies are in
However, there was only a one percentage
place. Companies must continuously ensure
point increase in terms of the percent of parts
best practices are being followed because
recommended by an estimator (and likely
without true compliance minimal gains will be
inserted on the estimate) versus parts eligible.
realized, even if more parts are available to
appraisers. n
To understand the dynamics behind parts
selection, we more closely examined each of the
top companies that have varying parts policies,
focusing specifically on those companies that do
www.audatex.us
17%
23
Regulatory Update
• The average of three written dealer quotations
Total Loss Updates
By Diane Klund
Total loss issues are of great interest to our clients and
industry partners. Here, we present the latest total loss
updates resulting from our continual review and monitoring
of bills and regulatory actions related to automobile
physical damage (as of the date of publication).
Arguably, one of the most active and
contested bills in the automobile total
loss arena is Connecticut House Bill
6450. This bill from the Joint
Committee on Insurance and Real
Estate, which is co-chaired by
Representative Steve Fontana, was
first introduced on the basis of a
complaint from a constituent. In the
past few months, it has been
significantly amended several times
as a result of meetings between
legislators, the Connecticut Insurance
Department, insurers, and Audatex
North America, Inc.
Connecticut House Bill 6450 started as a
measure to replace the current calculation
method used to obtain ACVs in total loss
settlements. The current method uses an
average value that is derived from values
obtained from the National Automobile Dealers
Association (NADA) used-car guide, as well as
an approved second source, such as the
Autosource® total loss valuation solution
provided by Audatex. The bill, as initially
introduced, would have required insurers to
use the higher of the two values, instead of an
average. It also would have required that the
settlement amount not be less than the retail
value of a comparable vehicle at a dealership.
After being reported favorably out of committee,
House Bill 6450 morphed into a menu of three
options, whereby an ACV could be derived
based on values from:
• Two comparable vehicles at a local dealership
• The retail value of the vehicle from a source
such as the NADA used-car guide or any other
source approved by the Insurance
Commissioner
The vehicle owner would provide the values, and
have the choice of which option to use in the
total loss settlement.
In its meetings with legislators, Audatex
presented details on the comprehensiveness
and accuracy of vehicle valuations calculated by
independent valuation service providers.
Audatex met with the following members of the
Joint Committee on Insurance and Real Estate:
• Representative Steve Fontana, co-chair
• Senator Joseph Crisco, co-chair
• Senator Sam Caligiuri, ranking member
• Representative Anthony D’Amelio,
ranking member
• Mike Christ, steering committee member
• Debra Korta, legislative program manager with
the Department of Insurance
The most recent amended version of House Bill
6450 would continue to allow insurers to pay the
average of Autosource and NADA. In lieu of
NADA, however, insurers will be able to use
“any other publicly available automobile
industry source that has been approved for
such use by the Insurance Commissioner.”
Also an additional requirement has been added
that the insurer shall provide to the claimant, not
later than the date of payment of the settlement,
a copy of the insurer’s calculation of the
settlement, or the valuation report provided to
the insurer by the approved industry source. In
addition, the insurer must provide written notice
to the claimant that if (s)he disagrees with the
evaluation, (s)he may contact the Consumer
Affairs Division at the Insurance Department, and
include the contact information for the Division.
Lastly, a minor change was made to Subdivision
(2) of subsection (b) of section 38a-9 of the
general statutes in which the interest rate on the
disputed amount, should the consumer prevail,
is increased from 10 percent to 15 percent per
year.
Continued next page
24
Audatex Directions
Vol 5
Regulatory Update
C o n t i n u e d f ro m p re v i o u s p a g e
You can view the amended bill at
http://www.cga.ct.gov/2009/lcoamd/2009LCO
07580-R00-AMD.htm
Total loss issues abound in other states as well.
In West Virginia, House Bill 2895 proposed to
add “nationally accepted” as a qualifier for usedcar guides approved by the Insurance
Commissioner for use in settling total losses. It
also sought to add a requirement for insurers to
inform vehicle owners which of the nationally
accepted used-car guides was used to settle the
claim. While the intent of this amendment to
Section 33-6-33 of the West Virginia Code was
not clear, the bill has died in committee.
In the previous issue of Audatex Directions, we
reported on Oregon House Bill 2190, the
Insurance Department’s total loss bill. The bill
has now been signed by the governor and it:
• Requires insurers to provide the vehicle owner
with written documentation to support the
valuation of the totaled motor vehicle, when
the vehicle is a declared total loss
• Requires insurers, after certain conditions are
met, to pay the amount not in dispute, when
there is a disagreement over the value of a
totaled motor vehicle
• Allows the owner of a totaled motor vehicle to
recover reasonable appraisal costs from the
www.audatex.us
insurer, if the final appraisal decision is
greater than the insurer’s final offer
The Oregon Insurance Department will be
drafting a written statement with information
about total losses, vehicle valuations and the
duties of the insurer. Insurers will be required to
provide the statement to vehicle owners.
Audatex will continue to monitor this process
and work with the Oregon Insurance Department
to assure that the statement includes an
accurate description of total loss methodology.
Also in Oregon, House Bill 2370 has died in
committee after being introduced for the third
consecutive legislative session. The bill had
sought to require the use of two independent
valuation services approved by the Insurance
Commissioner.
Lastly in the total loss arena are the pending
regulatory amendments to Washington state’s
Unfair Claims Practices Act, which were also
discussed in the previous issue of Audatex
Directions. At press time, the final adopted
amendments resulting from the administrative
hearing on March 2, 2009 have not been
released. Upon review of the final adopted
regulations, Audatex will post pertinent
information regarding any changes to
Autosource section of the Audatex Online
Training Center, www.training.audatex.us. n
25
Trends Data
Among the factors that should be considered
when calculating an RV settlement are:
RV Valuation Trends
By Kelly Brady
With summer nearly here, many recreational
vehicles (RVs) will be back on the roads.
Surprisingly, despite an economic recession and
the status of RVs as a “luxury” item for most,
many U.S. and Canadian dealerships are
reporting increased sales. In fact, Statistics
Canada recently reported that RV sales rose
42.1 percent between December 2008 and
January 2009. Another survey conducted by the
Recreation Vehicle Industry Association suggests
that 55 percent of respondents intended to use
their RVs more in spring and summer 2009 than
they did last year, and 45 percent are
considering another purchase. Currently, it is
estimated that 1 in 12 vehicle-owing homes in
the U.S. has at least one RV.
If the survey results and sales trends hold true,
more than 8 million RVs will take to the roads in
summer 2009. Unfortunately for some owners,
these experiences on the road will also result in
an accident.
While RVs typically represent the minority of an
insurer’s claim volume, a single RV loss can cost
as much as several hundred thousand dollars.
To effectively manage these losses and ensure a
fair and accurate settlement, insurance
companies and their representatives need indepth knowledge of the physical asset itself, as
well as the RV industry as a whole.
Figure 1: ACVs
by type of RV.
$35,000
$30,000
$25,000
Q1 - 2009
Q4 - 2008
Q3 - 2008
Q2 - 2008
5th Wheel/Travel Trailer
Q1 - 2008
Q4 - 2007
Q3 - 2007
Q2 - 2007
Q1 - 2007
Q4 - 2006
Q3 - 2006
Q2 - 2006
Q1 - 2006
Motor Homes
• Gas versus diesel – Diesel vehicles often cost
more than gasoline models, partly because of
their additional towing capacity and historical
differences in fuel and maintenance costs.
However, as fuel costs have shifted in the past
several months, this perceived benefit has
diminished, thereby lessening the price
variances between diesel and gasoline RVs.
• Mileage –Typical RV mileage ranges from
8,000 miles to 10,000 miles per year, but this
can vary and influence values, depending
upon the type of RV.
• Options - Options can have a material impact
on an RV’s value. It is not uncommon to see
interior items such as Corian® counters,
hardwood cabinets, and granite or tile floors.
Exteriors can include double-pane windows,
laminated fiberglass roofs and exterior walls,
along with outside entertainment centers.
Knowing how these options may (or may not)
influence values is extremely important in the
settlement process.
• Accessories – The value of optional
accessories, such as satellite dishes and
flat-panel TVs, often depreciate faster than
the RV itself, and in many instances these
accessories add little to the overall value.
• Condition – Proper care will keep an RV
looking new for years and enhance its overall
value. Poor condition can negatively impact an
RV’s value by as much as 30 percent when
compared to other RVs in better condition.
ACVs by RV Type
$20,000
$15,000
$10,000
$5,000
$-
• Age and manufacturer – The depreciation
rate among RVs can vary dramatically by
manufacturer, with prices for some RVs falling
significantly in just one year.
Camper Tent Trailer
Understanding how these various attributes
specifically contribute to the overall value of the
RV is imperative during the total-loss settlement
process, especially given the current market
trends. Similar to private passenger automobiles,
the ACVs for RVs have fluctuated over the past
18 months. However, while automobiles declined
sharply in the third quarter of 2008, RVs felt the
Continued next page
26
Audatex Directions
Vol 5
Trends Data
C o n t i n u e d f ro m p re v i o u s p a g e
impact in the second quarter, as gas prices
approached $4 per gallon. Figure 1 (on previous
page) reflects the ACVs of RVs by type from the
first quarter of 2006 to the first quarter of 2009.
The seemingly stable trend from the second
quarter of 2008 to the first quarter of 2009 may
be misleading. Take motor homes for example.
Since the second quarter of 2008, motor home
ACVs have held relatively constant. However, as
seen in Figure 2, an increase in average model
year has substantially outpaced calendar years.
For example, from quarter one 2007 to quarter
one 2009, the average model year increased
nearly four years in just those two calendar
years. Yet, even with the abundance of newer
model-year motor homes, the ACVs remained
constant, suggesting that these newer motor
homes are depreciating at faster pace than in
years past. Similarly, despite the average model
year increasing more than two model years from
quarter one 2008 to quarter one 2009, the ACVs
have declined by 23 percent. In fact, the
National Automobile Dealers Association
market filled with a wide array of products that
are targeted to nearly every demographic group.
As you look across the data for the different
types of RVs, you will find that each type has its
own trends. For example, fifth wheelers and
travel trailers show a different trend than motor
homes. From quarter one 2008 to quarter one
2009, they have had a two-tenths of a
percentage model-year increase along with
ACVs that were off by 11 percent; during that
same period, motors homes have seen a 1.1
percent model-year increase and 23 percent
ACV decrease. Campers and tent trailers have
their own unique trends as well. Unlike the other
two classes, when comparing quarter one 2008
to quarter one 2009, their ACVs have increased
by two percentage points and they have seen a
1.2 percent model-year increase.
Dealing with the Data
Reports suggest that sales of RVs are improving
in 2009. However, they may continue to pose
settlement challenges as the AVCs remain flat,
even while the
average
Motor Home Trends
model year
increases. As
$35,000
1993
the RV season
$30,000
1992
nears, insurers
$25,000
1991
will need to
determine fair
$20,000
1990
and accurate
$15,000
1989
values for
$10,000
1988
those RVs that
are total
$5,000
1987
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4Q1losses. It can
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
be quite
Average Model Year
Actual Values
difficult to
understand
how an RV’s features and unique attributes, as
Figure 2: Motor home ACVs compared to
average model year
well as the overall market conditions, impact its
financial worth during the total loss process. At
suggests that a new motor home is worth about
Audatex, our Autosource Specialty Department
60 percent of its original list price after just one
is uniquely qualified to provide you with fair,
year and its value declines to about 25 percent
accurate, market-driven information that will
of its original list price within 10 years.
enable your adjusters to confidently discuss the
The market for RVs isn’t limited to buyers
factors used in the settlement of an RV total
looking for high-end motor homes; rather, it is a
loss. n
www.audatex.us
27
Audatex News and Events
eBay® Motors and Hollander to Unlock Used Parks Inventory with Exclusive Online Deal
SAN JOSE, CA (May 19, 2009) - eBay Motors (www.ebaymotors.com) (Nasdaq: EBAY), the #1 online automotive
marketplace worldwide, announced an exclusive agreement with Hollander, a Solera company (NYSE: SLH) and the
leading provider of auto recycling and parts yard management solutions in the U.S. and Canada, to provide access to
over $2.7 billion in retail value of used parts inventory on eBay Motors.
SafeAuto® Adopts New Business Analytics Solution from Audatex North America, Inc.,
Signs Multi-Year Agreement
SAN DIEGO, CA (May 11, 2009) - Audatex North America, Inc., a leading provider of software and services for the
automotive claims processing industry, today announced that it has signed a multi-year renewal with SafeAuto Insurance
Company. Based in Columbus, Ohio, SafeAuto serves policy holders in 14 states across the Midwest, Arizona and Texas.
Hollander and Progi-Pac Settle Copyright Infringement Case, Enter Into Multi-Year Licensing
Agreement
SAN DIEGO, CA (May 5, 2009) - Hollander North America, Inc., a leading supplier of business solutions for automotive
recyclers, has reached a settlement in its copyright infringement dispute with Progi-Pac, a Canadian supplier of Frenchlanguage management and parts-interchange software for automotive recyclers. Along with the settlement, the
companies have also entered into a multi-year licensing agreement.
Independent Automotive Damage Appraisers Association (IADA) Signs National Agreement
with Audatex North America, Inc.
SAN DIEGO, CA (April 27, 2009) - Audatex North America, Inc., a leading provider of software and services for the
automotive claims processing industry, today announced that it has signed a five-year agreement with the Independent
Automotive Damage Appraisers Association (IADA). The IADA has more than 600 service locations serving the U.S.
market and more than 400 automobile insurance providers.
Audatex’s New 6.0 Workflow Solution Sets Stage for “Intelligent” Graphics
SAN DIEGO, CA (April 22, 2009) - Audatex North America, Inc., a leading provider of software and services for the
automotive claims processing industry, today announced the availability of Audatex Estimating™, Version 6.0.
RSA Canada Selects Audatex as Exclusive Provider of Automotive Appraisal Services
SAN DIEGO, CA (April 20, 2009) - Audatex North America, Inc., a leading provider of software and services for the
automotive claims processing industry, today announced that leading home, car and business insurer RSA has signed an
exclusive, multi-year agreement to implement Audatex solutions for estimating, compliance, total loss and reporting.
RSA Canada is part of the international RSA Group plc (LSE: RSA), which does business in 130 countries worldwide and
has net written premiums of £6.5 billion, or $11.6 billion.
To read the full versions of these Audatex press releases, please visit www.audatex.us/news.aspx
Continued next page
28
Audatex Directions
Vol 5
Audatex News and Events
C o n t i n u e d f ro m p re v i o u s p a g e
Catch Audatex at the next industry event or trade show.
July 28
July 28-31
Sept 22-24
Audatex Technical Advisory Council - By Invitation Only
Washington, D.C.
Collision Industry Council (CIC) Meeting in conjunction with
I-CAR 30th Annual Industry Conference
Washington, D.C.
Audatex Strategic Advisory Council - By Invitation Only
San Diego, CA
Audatex Online Training
Center: Ongoing Live
Courses
Audatex continues to offer award-winning
accredited online training classes for free. Live,
virtual classes make it easier than ever to put
Audatex Solutions to work for you.
For the latest Audatex training information
and to see what classes are coming up, visit
www.training.audatex.us.
www.audatex.us
29
15030 Avenue of Science, Suite 100, San Diego, CA 92128
Tel: (800) 237-4968 Fax: (858) 946-1073
www.audatex.us www.solerainc.com
© 2009 Audatex North America, Inc. All rights reserved.
All other registered trademarks are the property of their respective owners.
eBay Motors and Hollander to Unlock
Used Auto Parts Inventory with Exclusive
Online Deal
SAN JOSE, CA (May 19, 2009) - eBay Motors
(www.ebaymotors.com) (Nasdaq: EBAY), the #1
online automotive marketplace worldwide,
announced an exclusive agreement with
Hollander, a Solera company (NYSE: SLH) and
the leading provider of auto recycling and parts
yard management solutions in the U.S. and
Canada, to provide access to over $2.7 billion
in retail value of used parts inventory on eBay
Motors.
Hollander’s inventory represents nearly 60
percent of the available used parts market and
this deal marks the first time their more than
3,000 auto recyclers, rebuilders and collectors
will have the ability to list items online—reaching
nearly 12 million unique monthly visitors on the
eBay Motors site. Hollander’s enterprise
resource tool will power the listings which will
then feed directly on to eBay Motors. The launch
is expected to take place by the end of 2009.
“Our goal is to connect buyers and sellers in a
global marketplace with the largest selection of
great deals,” said Rob Chesney, vice president,
eBay Motors, Marketplaces. “Working with
Hollander essentially doubles the eBay Motors
selection—already the largest parts inventory
on the web—and reinforces our position as a
leading automotive destination online with
access to the best inventory in the used,
refurbished and liquidation automotive parts
and accessories space.”
“Hollander has been helping auto recyclers sell
parts effectively and efficiently for more than 70
years,” said Tony Aquila, founder, chairman and
chief executive officer of Solera. “With eBay
Motors we are unlocking an unprecedented
number of recycled parts new to ecommerce
and creating a cost-effective and value-driven
solution for both auto recyclers and eBay Motors
users.”
By exposing millions of what are often described
as used or recycled parts and accessories for
the first time on the eBay Motors’ automotive
marketplace, buyers have even broader access
to an extensive selection of great deals on a
national scale. This includes many hard to find,
used original equipment manufacturer (OEM) or
oftentimes refurbished items previously only
available through catalogs or recycling yards. n
Proceed with Intelligence.
Customers look to you for more than an insurance policy. They want safety and peace of mind. You ask no
less of your information provider. You want a partner who will be there as your business needs change. You
demand stability, vision, and intelligence. Audatex North America builds automotive claims solutions that provide
insurers with smart information. We develop software that runs on the world’s most comprehensive vehicle database so you can delight policyholders. We’re constantly driving improvement. From a new dispatch solution that
can power your appraiser teams to higher performance to new business analytics that deliver unparalleled
insight, Audatex builds intelligence into every product. Audatex associates stand ready to help get you through
any obstacles ahead. For more than 40 years, we’ve done business this way. And we have no plans to change.
You can count on it.
800.237.4968 | www.audatex.us
© Audatex North America, Inc. All Rights Reserved.
Intelligence. Built In.