Fall 2008

Special
NACE Issue
See the Audatex
calendar of
NACE events
on back
cover
Audatex
Directions
News from Audatex North America, Inc. Vol 03
Shrinking
Talent Pool
and Vehicle
Complexity
Fuel Estimatics
Innovation
New 3D vehicle graphics
a n d a n i m a t i o n s p ro v i d e
built-in intelligence
Audatex Directions
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.
Editor
Kate Los
Corporate Communications Manager
Contributing Writers
Michael T. Anderson
Sr. Director of Data Analytics, Audatex
Contents
3
4
Managing Director’s Message
Feature Article
– Shrinking Talent Pool and Vehicle
Complexity Fuel Estimatics Innovation
Diane Klund
Regulatory Compliance Manager, Audatex
Avi Pelc
Sr. Product Manager, Hollander
Patrick Rice
VP, Database Development, Audatex
7
A Look Into Future Costs
– The Cost of High-Tech Safety Features
Rick Tuuri
Associate VP of Industry Relations, Audatex
Request Copies
To request a printed copy of this publication,
please email:
Kate Los
Corporate Communications Manager
[email protected]
10
Insurance Update
12
Recycler Update
– Pay-as-You-Drive Insurance
– Expense Management
through Quality Management
To download the pdf, please visit our
website: www.audatex.us/audatexdirections
Local focus. Global knowledge.
14
Regulatory Highlights
– Paint and Materials:
Included or Not Included?
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.
16
– Voice of the Customer: Audatex Holds
Second Strategic Advisory Council
Meeting and Forms New Technical
Advisory Council
18
© 2008 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.
Industry Collaboration
Audatex News and Events
– Audatex Receives IACET®
2008 Exemplar Award
– In Memoriam: A Tribute to Julie Verran
– Upcoming Industry Events
Managing Director’s Message
Meeting Industry Demands with Intelligent Innovation:
Special NACE Edition
In an increasingly demanding marketplace, an event like NACE provides a much needed
venue for discussing industry issues, exploring new innovation and collaborating with
others. In this special NACE edition of Audatex Directions, we aim to supplement your
NACE experience by providing you with data on the latest industry trends and exploring
how your input has guided the creation of solutions that help you keep pace in an everchanging marketplace. Be sure to review the back cover of this newsletter to see special
Audatex events we’re holding at NACE.
In our feature article, “Shrinking Talent Pool and Vehicle Complexity Fuel Estimatics
Innovation,” we explore market factors that are driving a demand for new technology
that both supplements workforce knowledge and improves overall claims performance.
We examine how new 3D vehicle graphics and animations in the 2009 release of
Audatex Estimating™ will provide built-in intelligence that will help you maintain a
competitive edge despite new market challenges. Many of the features in this upcoming
Audatex Estimating release were greatly influenced by user feedback. On this note, we
talk more about the ways in which we’re gathering such input in the article, “Voice of the
Customer: Audatex Holds Second Strategic Advisory Council Meeting and Forms New
Technical Advisory Council.”
On the insurance front, we take a closer look at “The Cost of High-Tech Safety Features”
and “Pay-as-You-Drive Insurance,” and we explore why data analysis is key to making
informed pricing decisions and forecasts.
Best practices are at the heart of the article, “Expense Management though Quality
Management,” which looks at processes recyclers can implement to ensure part quality,
reduce cycle times and improve customer satisfaction.
‘‘
’’
...your input has
guided the creation
of solutions that
help you keep pace
Our regulatory updates in this issue are focused around paint and materials, specifically
legislation that is designed to ensure fair practices are in place even without the availability
of any purely “surface” or “area-based” methods in North America today.
Finally, on an Audatex news front, this issue is marked by mixed emotions. We are excited
to report that our efforts to help customers make the most of their investments through
continuing education and training have been recognized in our winning the IACET® 2008
Exemplar Award. But on a more somber note, this summer we lost our dear friend and
colleague Julie Verran, the acting manager of our Milwaukie, Oregon, site who dedicated
over 30 years of her life to the insurance industry. Please take a moment to learn more
about the contributions Julie made by reading the tribute article in this issue.
I hope to see you during the NACE conference or at another industry event.
Regards,
in an ever-changing
marketplace.
John Kotsopoulos,
Managing Director
Audatex North America, Inc.
www.audatex.com
3
Feature Article
Shrinking Talent
Pool and Vehicle
Complexity
Fuel Estimatics
Innovation
By Michael T. Anderson and Patrick Rice
The U.S. Bureau of Labor Statistics forecasts
that the demand for auto repair cost estimators
within body shops will increase 26.1% in the
next 8 years. Similar forecasts from the Bureau
reflect an increasing demand for insurance auto
damage appraisers (7.6%) and insurance
adjusters (31.5%) during the same timeframe.
With the aging U.S. population retiring and the
retirement rate forecasted to double this year,
the industry is likely to face new challenges due
to a diminishing availability of experienced
technicians, appraisers, adjusters and frontline
material damage managers.
Compounding the situation is the everincreasing number and complexity of vehicle
makes and models that are introduced to the
North American market each year. For example,
in 2000, appraisers were required to have
proficiency in approximately 1,206 vehicle
models. Since 2000, that number has risen
49% to 1,794.
Dramatic changes have also been seen in the
number of countries producing vehicles, the
degree of design complexity, the variety of
repair processes, and the array of parts and
materials used in vehicle production. On top
of this, the situation facing today’s market is
further complicated by new developments
such as advanced electronics, increasingly
varied metals, a range of fuel systems, refined
structural engineering and sophisticated refinish
technologies. As a result of these factors, the
next generation of technicians and adjusters
will need to be proficient in a much broader
spectrum of technology over a shorter period
of time.
Driven to ensure their appraisers maintain a
competitive edge despite today’s challenging
marketplace, some insurance companies have
invested millions of dollars in state-of-the-art
research and training facilities. However, this
approach may not work for all organizations.
Sam Mercanti, President and CEO of CARSTAR,
Canada comments, “While multi-million dollar
training facilities are beneficial to those
companies that are willing and able to make
such an investment, many organizations will
continue to look to the estimating platform
companies to help manage these challenges.
Continued next page
4
Audatex Directions
Vol 3
Figure 1: In this preview of new 3D imaging
technology within Audatex Estimating, front
bumper assembly can be moved in any
direction, allowing the user to select parts
dynamically from any view.
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
Audatex studies show that enhanced
multi-dimensional visual depiction of
vehicle assemblies and parts
improves original estimate accuracy
by an average of 8%. Clear
identification of parts that may be
missed in the original estimate, as
well as identification of increasingly
complex substrate materials (see
figure 2), drives accurate estimate
preparation and repair processes.
Estimating providers will need to stay ahead of
the curve and provide users with new products
that address the challenges presented by
anticipated changes in the workforce, increased
vehicle complexity, and the proliferation in the
number of vehicle makes and models.”
To address these market challenges and
enable clients to stay ahead of the training
curve, Audatex will be introducing intelligent
graphics featuring 3D vehicle depictions and
animations in the upcoming release of Audatex
Estimating (see figure 1). Multi-dimensional
depiction of vehicle parts and data makes
the information more accessible to both
novice and experienced users alike.
Figure 2: Clear identification of substrate materials
during the estimate preparation process is
imperative to an accurate estimate and proper
repair methods.
www.audatex.com
To insurers and repairers, an 8%
improvement in first-time accuracy
represents significant financial
benefits and process improvements.
In the past 12 months, the costs for
insurers to re-inspect a vehicle and
process a supplement have risen dramatically,
while improved cycle-time continues to have a
direct correlation to costs, as well as to customer
satisfaction and retention.
How Do Intelligent Graphics Work?
Multi-dimensional technology has long been
available in other industries where time, costs and
even lives are at risk. Industries such as aviation,
emergency medical response, fire and rescue, and
surgical and medical technology have all taken
advantage of this technology. Multi-dimensional
3D technology facilitates training and enables
knowledge retention in shorter timeframes and
in a more cost-effective manner.
The Audatex Estimating multi-dimensional 3D
technology shows complete views of vehicle parts
in relation to their assemblies. Damaged parts are
selected from the enhanced part views and can be
quickly rotated/positioned by the user to provide
optimal views of the parts data. Furthermore, the
technology provides 3D animations of the removal
and replacement of parts and assemblies, a
feature that was specifically designed to
demonstrate new and unfamiliar procedures (see
figure 3 on next page). These new intelligent
graphics provide a more complete understanding
of what needs to be included in the estimate. For
technicians, appraisers and adjusters who have
limited experience with a particular vehicle or
procedure, the intelligent graphics greatly improve
decision making.
‘‘
Estimating providers
will need to stay
ahead of the curve
and provide users
with new products
that address
the challenges
presented by
anticipated changes
in the workforce,
increased vehicle
complexity, and the
proliferation in the
number of vehicle
’’
makes and models.
Sam Mercanti, President and
CEO of CARSTAR, Canada
Continued next page
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
Figure 3: 3D animations of the removal and replacement of parts and assemblies in Audatex Estimating
will aid users in new and unfamiliar procedures. Illustrated here is an exploded brake assembly view
showing the caliper removal procedure.
In addition to improving accuracy, cycle time
and repair costs, this technology helps the
appraiser or repairer educate their customers
on the repair process. This can be of vital
importance because understanding the claim
and repair processes has been identified by
some insurers as the number-one concern
regarding their relationships with customers.
Conclusion
Repairers and insurers require innovative,
cost-effective tools to compete in today’s
rapidly changing marketplace. Forecasts by
2009 Models – New
Audi Q5
BMW X6
Chevrolet Traverse
Dodge Journey
Ford Flex
Hummer H3T
Hyundai Genesis
Jaguar XF
Kia Borrego
Lincoln MKS
6
Mercedes-Benz GLK
Nissan GT-R
Pontiac G8
Suzuki Equator
Toyota Venza
Volkswagen Passat CC
Volkswagen Routan
Volkswagen Tiguan
Volvo XC60
the U.S. Bureau of Labor Statistics suggest
that an increased demand for skilled appraisers
and estimators across the entire market is
likely. This is compounded by a dramatic
increase in the number and complexity of
vehicles that estimators are encountering.
When used during the estimating process,
intelligent graphics featuring 3D vehicle
depiction and animations will provide
Audatex clients with a competitive advantage
by supplementing workforce knowledge and
improving estimate accuracy—both which
improve overall claims performance. n
2009 Models – Redesigned
Acura TL
Acura TSX
Audi A4
Dodge Ram
Ford F-150
Honda Fit
Honda Pilot
Infiniti FX
Mazda6
Nissan Maxima
Nissan Murano
Pontiac Vibe
Subaru Forester
Toyota Corolla
Toyota Matrix
Audatex Directions
Vol 3
A Look Into Future Costs
The Cost of High-Tech
Safety Features
By Michael T. Anderson
With many 2009 model year vehicles arriving at
car dealerships, claims organizations and
repairers are getting their first glimpse of newly
introduced and redesigned models. Fuel
economy and increased safety technology are
just some of the new features found on the
2009 models. Over the past several years,
vehicle manufacturers have made significant
strides in advanced safety options that protect
vehicle occupants during crashes and quite
possibly help drivers avoid accidents altogether.
In the last edition of Audatex Directions, we
focused on high-intensity discharge xenon
headlamps and how those parts relate to
accident frequency and paid losses. Here,
we take a similar look at the cost of high-tech
safety features.
As the 2007, 2008 and 2009 model years
begin to represent an increasing percentage
of estimates written, it is important for
claims, underwriting and actuarial experts
to understand how technological advances
introduced during those years may impact
frequency, loss costs and symbol ratings
used by insurers in the rate making process.
For example, when considering costs,
Audatex data shows that replacement costs
for high-tech safety parts can be significant,
as illustrated in figure 1.
At the forefront of safety innovation are highly
sophisticated accident-avoidance systems.
Adaptive Cruise Control (ACC) systems were
first introduced by Toyota in May 1998 in its
Progrés luxury sedan, sold exclusively in Japan.
Nissan soon followed with its own system in the
Cima 41LV-2, also sold exclusively in Japan.
In the United States, collision avoidance
systems can now be found in over 140 models
from virtually every vehicle manufacturer.
Accident avoidance systems can be standard or
optional equipment. Drivers who have such
systems can benefit from them in terms of
accident avoidance, but alongside that, these
systems can also significantly increase repair
costs. For example, if an ACC distance sensor
www.audatex.com
High-Tech Parts – Average Replacement Costs
$1,800
$1,600
in a luxury European
$1,400
vehicle requires
$1,200
replacement, part costs
$1,000
can increase by as much
$800
$600
as $3,760, excluding
$400
labor. In addition, proper
$200
replacement is critical to
$0
the system’s
Distance Rear Bumper Curtain Front Bumper
performance because
Sensors
Cameras
Airbags
Sensors
sensors require a very
accurate alignment to be
Source: Audatex Insight
Figure 1: Replacement
effective. Some manufacturers suggest that as
costs for high-tech safety
little as a one-degree horizontal misalignment
parts can significantly
will result in a degradation of performance.
impact repair costs.
Therefore, the realignment process is complex,
often requiring the use of special OE tools and
detailed procedure manuals.
Similarly, deployed curtain airbags, while
significantly reducing head-related bodily
injury claims, can add $400 in airbag part
costs (not including other damaged parts).
The following table highlights some
increasingly common high-tech safety
technologies whose safety benefits and
associated costs should be carefully
juxtaposed when considering
pricing adjustments.
Continued next page
7
A Look Into Future Costs
C o n t i n u e d f ro m p re v i o u s p a g e
Adaptive Cruise Control
Cruise control has been an option in most vehicles for many years. ACC systems available today can differ from each other in that
they may utilize either radar or lidar (light detecting and ranging) technology to monitor the distance between a vehicle and the one
in front of it. Often mounted behind the windshield or within either the grill or bumper, ACC technology systematically notifies a
driver that a safe distance is no longer being maintained and that the vehicle requires a change in speed. In some models, the
vehicle systematically adjusts speed to re-establish a safe following distance.
Advanced Collision Warning Systems
Advanced collision warning systems include lane departure warning systems, proximity detection systems, and blind spot
monitoring systems.
Lane departure warning systems consist of cameras and/or infrared sensors located inside the vehicle, the front bumper or the
grill. These systems develop a predictive model of where the road is going and correlate the lane markings on the road to vehicle
turn signals. If a lane departure begins to occur without a corresponding turn signal, the driver is systematically alerted. Some
advanced systems monitor driving performance and if they sense inattentive or sleepy driving patters, they will vibrate the steering
wheel and seat.
Proximity detection systems equipped in vehicles with ACC warn drivers if they are too close to another vehicle, suggesting an
accident may be imminent. In some models, the vehicle may systematically apply the brakes to avoid the collision, or it may detect
when brakes are applied at a rapid rate and as a result systematically apply maximum braking pressure.
Every year, approximately 826,000 accidents are related to drivers’ inability to see their blind spots. Blind spot monitoring systems
use externally mounted cameras, radar-based systems, dash-mounted displays and even thermal imaging to alert the driver if
another vehicle has approached a blind spot. These technologies, in addition to the use of back-up cameras often located in the
rear bumper or window, are becoming increasingly common in newer vehicles.
Collision Detection Systems
Typically found in high-end European vehicles, collision detection systems consist of proximity sensors that identity when a vehicle
is about to be involved in a collision. If a collision is anticipated, the system takes proactive measures to minimize the damage to
the vehicle and its occupants. Such measures may include systematic application of the brakes and/or adjustments to the seat
belt restraints.
Curtain Airbags
Installed above the side windows, curtain airbags are designed to protect occupants from ejection and debris. Some
manufacturers offer an advanced canopy-designed system that detects instances of a rollover and deploys the curtain airbags.
According to data from 2005 to 2008, the frequency of airbag deployment has risen by 144%. The Insurance Institute for Highway
Safety estimates this has reduced the frequency of head-related deaths by nearly 37%.
Electronic Stability Control
Electronic Stability Control (ESC) has been heralded by many as the single most important improvement in automotive safety since
anti-lock brakes. The Insurance Highway Institute for Safety believes ESC has the potential to save as many as 10,000 lives per
year. ESC systems apply brakes at different rates and intervals when they sense a vehicle is about to enter, or has already entered
into, a skid. By applying complex braking patterns and pressure, ESC systems assist in keeping the vehicle on its original course
of travel.
Continued next page
8
Audatex Directions
Vol 3
A Look Into Future Costs
C o n t i n u e d f ro m p re v i o u s p a g e
Summary
Independent studies show that not all
high-tech, high-cost safety features yield
their anticipated benefits. For example, a
2008 study performed by Consumer Reports
found that some blind spot monitoring systems
“are often set off by retaining walls, road
barriers, or hedges even when there is no
vehicle present. Occasionally they also miss
an actual car in the blind spot.” Additionally,
lane departure systems are reported to work
well on freeways, but not as well on rural
single lane roads or complex intersections.
Recognizing how this new technology
impacts accident frequency, knowing the
percentage of vehicles within your policies
in force that have these optional technologies,
www.audatex.com
and understanding related claims costs are
imperative to substantiating not only safety
related discounts, but possibly increased
premiums due to repair costs.
Mainstream vehicles will invariably adopt
some of this technology in years to come.
With the Audatex Insight™ Parts Analytics
module, Audatex clients will have the ability
to identify which vehicles contain these
features, where the associated equipment is
physically located on the vehicle, and how
these features impact claim frequency and
repair costs. As a result, organizations can
use this powerful claims data in partnership
with their underwriting and actuarial partners
to make better informed pricing decisions
and forecasts. n
9
Insurance Update
Pay-as-You-Drive Insurance
Insurers, regulators and vehicle owners team up in
attempts to reduce premiums and emissions.
By Michael T. Anderson
In August, California became the latest state
to propose legislation that would enable insurers
to install devices that monitor actual vehicle
miles traveled (VMT) as a basis for insurance
premiums. Currently, 34 U.S. states, Canada,
many European countries and Japan offer
“Pay-as-You-Drive” (PAYD) insurance, and
such programs are increasing in popularity.
By allowing vehicle owners to pay for insurance
in proportion to VMT, these programs may
encourage drivers to reduce time on the road,
which in turn may help reduce the emission
of greenhouse gasses. As a result PAYD
programs have gained the support of insurance
departments, legislatures, environmentalists,
insurers and consumers alike.
Insurers offering PAYD programs either provide
transponders (costs starting at $50) to their
policyholders or require routine mileage or
odometer verification. The use of transponders
provides the most accurate and timely
information to insurers, but it also raises privacy
concerns. To address these concerns, some
U.S. states (but not all) limit the use of electronic
monitoring to total VMT and restrict the tracking
of how or where someone drives. For example,
drivers in Progressive Insurance’s “MyRate”
PAYD program agree to install in their vehicle a
small wireless device that transmits data back to
Progressive on total VMT. In some states,
attributes such as speed, acceleration and
braking patterns are also captured. GMAC
Insurance Group, whose PAYD program utilizes
General Motors On-Star® System to gather miles
traveled, reports a reduction of customer
premiums of 13% to 54%.
According to some California estimates, if a third
of all licensed drivers were to opt into a PAYD
program, the result would be equivalent to
removing 10 million vehicles from the road,
saving California drivers $40 billion in car-related
expenses over the next 11 years. In a recent
study, “Pay-as-You-Drive Auto Insurance: A
Simple Way to Reduce Driving-Related Harms
and Increase Equity,” the Brookings Institution
estimates that if widely adopted in the U.S.,
PAYD insurance could reduce VMT by
approximately 8%. Their research also suggests
that if PAYD programs are adopted, two-thirds
of the nation’s drivers may experience premium
reductions averaging $276 per vehicle. In
particular, the biggest benefit would be realized
by lower-income motorists who tend to drive
their vehicles less.
Continued next page
10
Audatex Directions
Vol 3
Insurance Update
C o n t i n u e d f ro m p re v i o u s p a g e
Some reasons cited by the Brookings
Institution for this apparent discrepancy
are as follows:
• Higher-mileage drivers typically are more
skilled than lower-mileage drivers.
• Newer (thus, mechanically safer) vehicles
tend to be driven more.
• Urban drivers usually have higher crash
rates and lower annual mileage.
• Higher-mileage drivers tend to do
a greater share of driving on safer,
grade-separated highways.
While not a proportionate relationship, few
experts disagree that once VMT materially
declines, it will have an impact on claims
frequency. Economist Aaron Edlin in “Per Mile
Premiums for Auto Insurance” states that the
point of elasticity of accidents with respect
to VMT is approximately 1.7. Simply stated,
a reduction in VMT by 10% would result
in a 17% reduction in claims frequency.
www.audatex.com
The current pricing structure utilized by
most auto insurance companies, which pools
drivers similar in age, gender, location and driving
safety record regardless if they drive 10,000 or
50,000 miles annually, may be changing. As auto
insurers seek to gain competitive advantages,
many are looking towards new ways to attract
and retain customers, while also maintaining
underwriting profitability.
Actuaries have always known that mileage is an
important risk factor, and as such, annual VMT is
increasingly being used as a consideration factor
when placing an insured in his or her respective
use class. However, until recently, insurance
Figure 1: A high-mileage
motorist may be only twice
as likely to have an accident
as a low-mileage motorist
who drives one-fourth as
much. Shown here is collision
claims by annual mileage.
A similar trend is seen for
property-damage liability.
Claims by Annual Mileage - Collision
0.09
0.08
35,000
30,000
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
25,000
20,000
15,000
10,000
5,000
0
Collision Annual Miles Driven
Claim Frequency
According to the Brookings Institution report,
the relationship between claims frequency
and VMT is not always proportionate. In fact,
motorists who drive more tend to have fewer
accidents per mile. For example, as illustrated
by collision claims per annual mileage (figure
1), data suggests a high-mileage motorist
may be only twice as likely to have an
accident as a low-mileage motorist who
drives one-forth as much. A similar trend is
seen for property-damage liability.
Conclusion
Miles
Todd Litman of the Victoria Policy Institute
in Victoria, British Columbia, Canada,
indicates that the greatest risk to insurers
would occur if program participants
significantly reduced annual mileage, and
therefore premium payments, without
providing proportionate reductions in crashes
and claim costs. For example, if participants
reduced annual VMT to 15,000 miles or
kilometers and paid 25% less in premiums,
but their crash rate only declined 10%,
insurers would be financially worse off.
However, Litman projects that “this problem
can be addressed by adjusting rates as
needed to accurately reflect actual per-mile
or kilometer insurance costs.”
Collision Claims Per Year
companies have been reluctant to require
motorists to provide verified mileage readings of
their annual mileage. When not verified, most
motorists significantly underestimate their annual
mileage and therefore the results are often
inaccurate and of limited use for pricing purposes.
Due to its many benefits, interest in PAYD
pricing is growing among insurance companies,
insurance departments, motorists and the
general public. Insurance companies are
increasing the number of PAYD programs offered,
which provides evidence that some have found
it technically feasible, desired by consumers,
and financially attractive. If PAYD programs
are implemented in greater numbers, some
research suggests that insurers will likely see a
positive impact on claim frequency; the majority
of consumers will incur lower premiums, and the
environment may consequently be improved when
drivers are encouraged to travel fewer miles. n
References:
Bordoff, Jason E. and Nowel,
Pascal J. “Pay-as-You-Drive Auto
Insurance: A Simple Way to Reduce
Driving-Related Harms and Increase
Equity,” Discussion Paper 2008-09,
The Hamilton Project, Washington, DC.
Edlin, Aaron S. “Per Mile Premiums
for Auto Insurance,” in Economics
for an Imperfect World: Essays In
Honor of Joseph Stiglitz, edited by
Richard Arnott, Bruce Greenwald,
Ravi Kanbur, and Barry Nalebuff,
Cambridge: MIT Press, 2003.
Litman, Todd. “Pay-as-You-Drive In
British Columbia,” October 6, 2007,
Victoria Transport Policy Institute.
Lifsher, Marc. “State Considers
Pay-as-You-Drive Auto Insurance,”
July 15, 2008, Los Angeles Times.
11
Recycler Update
Expense Management through Quality Management
By Avi Pelc
It is estimated that each year quality-related
returns negate approximately 3% to 5% of
automotive recycler sales, costing the
industry nearly $30 million. Facing increased
operating costs and accountability, recyclers
are re-examining their operating models and,
in some cases, are implementing detailed
processes to improve part quality, as well
as accuracy in ordering and fulfillment.
While significant improvements have been
made recently, leading automotive recyclers
and the Automotive Recyclers Association
(ARA) continue to look towards new technology,
processes and training programs that may
further improve results. Many have
implemented the five-step Recycled Parts
Quality Assurance Process that is described in
figure 1. This method aims to improve quality
assurance by adhering to ARA part-grading
standards and focusing on key considerations
that must be made in each step of the
recycling process, including purchase,
inventory, dismantling, order and shipping.
Some industry leaders have enhanced the
benefits of this five-step method by employing
staff with appropriate levels of expertise,
adopting technology that aids accuracy, and
implementing supplemental processes. Such
additional measures can significantly impact
the success of a quality management program.
For example, because the skill of those
responsible for inspecting and evaluating
incoming parts is critical, many recyclers
are hiring former shop technicians, estimators
and insurance adjusters to examine parts
Continued next page
Recycled Parts Quality
Vehicle is washed to
disclose all possible
damage. Detailed notes
on part condition and
damage are entered into
the computer system.
Damage is described
using up to five different
methods. Photos taken.
At Purchase or Arrival
Make note of acceptable
and not acceptable parts.
Focus on buying fewer,
but high-quality, vehicles.
2
3
When Inventorying the Vehicle
During Disman
Compare part c
to inventory des
looking for varia
including hidden
not visible previ
Inventory record
corrected as ne
Figure 1: Many recyclers have implemented a five-step process to
improve quality assurance and manage undue expenses.
12
Audatex Directions
Vol 3
C o n t i n u e d f ro m p re v i o u s p a g e
from a customer viewpoint and ensure
proper representation.
On the technology front, some recyclers are
utilizing strictly controlled conditions, such as
fluorescent lighting systems similar to those
used by OEMs, to identify part imperfections
and grade them accordingly. Others have
implemented the use of electrometers to gauge
paint depth and determine if a part has
experienced prior damage.
Participation in certification programs, such as
the ARA Certified Automotive Recycler (CAR)
and Gold Seal, is also on the rise. Aimed at
driving consistency and quality throughout the
recycling industry, the ARA program uses
performance-based management and customersatisfaction metrics to measure part quality,
fulfillment accuracy, and a recycler’s overall
ability to resolve customer issues. Over the past
three years, the ARA has seen its members
show a steady rise in all key performance
indicators, with all scores exceeding 90%.
Part quality impacts the overall auto-repair
process, particularly repair costs and related
cycle times. To promote the use of recycled
parts, many recyclers have taken significant
steps to ensure that parts are properly
represented and quality is assured. Faced with
demanding economic conditions and an
increasingly competitive environment, all
recyclers must strive to implement new methods
for quality assurance and customer satisfaction.
have taken
For more information on the ARA,
visit www.a-r-a.org. n
quality is assured.
Corroborate current
condition to description.
Bring to sales person’s
attention if not as
described so sales person
can advise customer.
When Retrieving/Removing
the Part for an Order
condition
scription
ance,
n damage
iously.
d is
eeded.
of recycled parts,
many recyclers
Conclusion
Assurance Process
ntling
To promote the use
5
When Loading the Part
or Upon Delivery
Corroborate current condition
to description prior to
packaging or loading. Bring
to sales person’s attention
if not as described so sales
person can advise customer.
Most parts are wrapped to
protect them in transit.
Part is inspected with the
customer upon delivery.
significant steps
to ensure that
parts are properly
represented and
Acceptance
3
Recycler Update
Our special thanks to the following leading recyclers who contributed data for this article: Mark Hortman
of John’s Auto Parts in Blaine, MN; Marty Hollingshead of Northlake Auto Recyclers in Hammond, IN;
Roger Fugere of LeCavalier Auto Parts in Sainte-Sophie, Quebec; Eric Schultz of AAA Auto Salvage in
Rosemount, MN; Shannon Nordstrom of Nordstrom’s Automotive in Garretson, SD; and Don Partin of
Stricker Auto Parts in Batavia, OH. In addition, our special thanks to Ginny Whelan of the ARA Educational
Foundation’s ARA University and Jennifer Johnson of the ARA.
www.audatex.com
13
Regulatory Highlights
Paint and Materials: Included or Not Included?
By Diane Klund and Rick Tuuri
Anyone who has seen a collision industry
publication in the past 12 months has likely read
articles surrounding the use of, and
compensation for, paint and materials. While the
cost for paint and materials represents
approximately 7.2% of the average estimate, it
has become a high priority to some. Over the
past year, legislation has been passed in several
U.S. states to address two key issues related to
paint and materials—accepted calculation
methodologies and the use of thresholds (also
known as “capping”). In this article, we highlight
some of these legislative trends and discuss
what these changes may mean to you.
Currently, most North American information
providers’ estimating systems employ a
generally-accepted paint-and-materials formula
that calculates cost by multiplying a userassigned materials dollar value by estimated
refinish hours. This methodology was
established by the collision industry decades
ago and adopted by most providers because of
its universal acceptance. Although other
calculators are available today, this traditional
“dollars multiplied by refinish hours” method
remains the only universally-accepted and most
widely-used approach. Even with the recent
legislative changes, this methodology is still
widely accepted throughout North America,
including every U.S. state and every Canadian
province. In fact, even systems with alternative
paint-and-materials formulas rely on refinish time
as part of their calculation, meaning there is still
no purely “surface” or “area-based” method
available in North America today.
constitutes an acceptable paint-and-materials
calculation program, as long as the insurer can
document that the materials rate is sufficient.
Driving the New Jersey bulletin is not the calculation
methodology itself, but rather the overall monetary
compensation amount for paint and materials within
an estimate.
California
In California, Senate Bill 1371 defines the state’s
recognized paint-and-materials calculation methods,
including the most commonly-accepted method
of multiplying a dollar rate by labor units (hours).
This bill prohibits the capping of paint-and-materials
dollar compensation, which is defined as “offering or
paying an amount that is unrelated to a methodology
used in determining paint and materials charges
that is accepted by automobile repair shops and
insurers.” On September 30, 2008, the bill was
signed into law by Gov. Arnold Schwarzenegger
for an effective date of January 1, 2009.
Similar to New Jersey bulletin, California Senate
Bill 1371 is focused on the acceptable dollar value
for paint and materials and not on the methodology
of calculation.
Continued next page
New Jersey
Due to issues regarding paint and materials
brought forward by some repairers, the New
Jersey Department of Banking and Insurance
(NJDOBI) recently issued Bulletin Number 07-20
concerning repair allowances for paint and
materials stating that, in some cases, the
traditional paint-and-materials formula may be
“inadequate or recessive.” Since issuing the
bulletin, the NJDOBI has clarified that the
standard “dollars multiplied by refinish hours”
14
Audatex Directions
Vol 3
Regulatory Highlights
C o n t i n u e d f ro m p re v i o u s p a g e
Virginia
Recent legislation that deals with capping has
also been passed in Virginia. Senate Bill 697,
which was signed into law on March 2, 2008,
prohibits capping, which the law defines as
setting “arbitrary and unreasonable limits on what
an insurer will allow as reimbursement for paint
and materials.”
New York and Maryland
Legislation has also been forwarded in other
states, including New York and Maryland, to
address capping. Almost all the bills forwarded
contain verbiage similar to the bills previously
described, and most provide guidance whereby
any “threshold” or “cap” that is set may be
negated if a repairer can provide back-up
documentation that validates higher paint and
material costs. Such documentation requirements
are commonplace in many business situations,
such as when an employer requires receipts to
verify an employee’s expense report. While it may
be more difficult to provide this type of
documentation in the paint-and-materials realm,
it is possible and, as a result, it may eventually
become a requirement.
Once again, in the legislation addressed in
these states, the methodology is not at issue.
General Conclusion
The paint-and-materials formula in the
Audatex system is acceptable in any state,
provided the values determined can be
documented as reasonable and sufficient.
Audatex Estimating calculates reimbursement
by multiplying the net refinish hours by a userassigned dollar value. This method of
calculation was developed and adopted by the
North American collision industry and it
remains the most widely-accepted calculation
methodology in use today.
It is important to note that the Audatex system
does not include or define paint and materials.
Instead, the value is user-assigned and the
materials are user-defined. This provides the
flexibility that is needed to ensure a proper
estimate. Audatex, however, does provide
the refinish labor value. This includes the
time needed to perform most standard
operations related to refinish, such as time
to “cover the car” for protection (whether
bagging, masking, applying foam or any
combination thereof) and time for flex additive
(when required). (A complete list of included
and not included operations can be found in
the Audatex Database reference manual.)
Even with the availability of these labor values,
it is up to the estimate preparer to determine
the costs associated with required materials.
While some estimators include these costs
directly in the paint-and-material calculation,
most often they are represented as line items.
This ensures that the costs for required
materials is properly accounted for and is
clearly defined in the estimate. Many believe
that this is the best way to present these
costs because it explicitly lists both the
nature of the item and a finite dollar value.
...even systems
with alternative
paint-and-materials
formulas rely on
refinish time as part
of their calculation,
meaning there is
still no purely
“surface” or “areabased” method
available in North
America today.
Ultimately, it is important for the repairer and
insurer to work together to communicate,
negotiate, understand and agree upon costs
and how to reflect them in the estimate. n
www.audatex.com
15
Industry Collaboration
Voice of the Customer: Audatex Holds
Second Strategic Advisory Council Meeting
and Forms New Technical Advisory Council
For the second time this year, Audatex hosted
an inter-industry forum that brought together
clients and industry leaders as part of its
Strategic Advisory Council. The meeting was
held in Chicago from September 16-18, 2008
and included insurers and repairers from both
the United States and Canada.
Rick Tuuri, VP of Industry Relations for Audatex,
describes the aim of the Strategic Advisory
Council, saying, “Audatex is committed to
hearing and responding to the voice of our
customers and the industry. Building upon our
outstanding inaugural meeting in March, this
Chicago event was another opportunity to keep
the lines of communication open.”
Tuuri continues, “Getting both repairers and
insurers together in the room helps us ensure
that their mutual needs are met. Their input and
direction helps guide us on both a strategic and
technical level. Along these lines, we are building
upon the Strategic Advisory Council model to
form an inter-industry Technical Advisory Council
that will kickoff at NACE 2008. This new
Technical Advisory Council will help us ensure
that both our strategic direction and our product
offerings continue to meet industry needs in the
best possible manner.”
Agenda Highlights
The agenda for the Chicago Strategic Advisory
Council meeting was diverse, ranging from
global trends to local key performance
indicators. Audatex’s global presence in over
50 countries served as the foundation behind
the kickoff session, which was presented by
John Kotsopoulos, Managing Director of
Audatex North America. Kotsopoulos shared an
update on global trends in automotive design
and their impact on the North American repair
community. Worldwide, Audatex has over 35,000
repair customers, works with over 900 insurers
and processes approximately 25 million claims
annually, giving Kotsopoulos a rich base of data
to share with the Council.
During his kickoff talk, Kotsopoulos explained,
“With strong ties to 85 OEMs around the world,
Audatex is working closely with vehicle
manufacturers, along with expert repair and
research centers around the globe, to stay
ahead of technology.” He went on to say, “We
are committed to providing you with the
information you need to be competitive in your
respective markets, including everything from
identification of exotic substrates to OEM
procedures in the estimating system.”
Continued next page
16
Audatex Directions
Vol 3
Industry Collaboration
C o n t i n u e d f ro m p re v i o u s p a g e
Following the kickoff presentation, the Audatex
senior management team presented updates on
key business areas.
Eli Rosner, VP, Chief Delivery Officer, Business
Delivery, Americas, highlighted specific product
roadmap developments that have been made
based on the Council’s recommendations from
the inaugural meeting. For example, he
demonstrated new user interface enhancements
for Audatex Estimating that address key user
requests. Additionally, he previewed new user
interface functionality, explaining to attendees,
“You told us that you wanted to see bigger and
better graphics, so we delivered. The new
interface uses 80% of the screen to show you
parts, and you can switch that to virtually 100%
with the click of a button. You can even select
parts with a single-click and add photos any
time you want.”
Zulfiqar Rashid, Chief Information and Database
Officer for Audatex, outlined the Audatex global
development strategy, describing how the
company will leverage its six global development
centers to improve time to delivery, efficiency
and accuracy within its database. “Leveraging
what we are learning around the globe, we are
able to provide users right here in the U.S. and
Canada with intelligent 3D graphics and
animations, as well as best practice OEM repair
procedures,” said Rashid. “These enhancements
will be phased into our global database starting
in 2009 and will provide our repair and insurance
customers with a distinct advantage both
visually and technically.”
Michael Anderson, Sr. Director of Data Analytics
for Audatex, reviewed technical trends and cited
the impact of vehicle miles traveled (VMT) on
accidents and claims frequency. He explained,
“Although VMT has declined by 2.7% in 2008
alone, accident and claims frequency may not
trend consistently with VMT. This is because
high-mileage drivers have fewer accidents per
miles driven, while urban drivers who have lower
annual mileage actually have a higher crash
frequency.” Anderson also shared trends on
increasing part prices and the projected increase
in total losses today and in the future. “Based on
industry analytics, we were able to project the
current state of total losses and share these
projections with our Strategic Advisory Council
www.audatex.com
members, as well as with the industry at large.
That is the value and power of analytics—not just
seeing what happened, but understanding why,
and using that knowledge to intelligently predict
the future.”
Council Guidance
The presentations by the Audatex Senior
Management team served as a launching point for
discussion by the Council. Tuuri explains, “The
Council is designed to be interactive, so even
though Audatex provides the group with an
abundance of information, it is really the insight
gained from the ensuing discussion that helps
guide our future efforts in a manner that will best
meet customer needs.”
The Council recommended nine key initiatives
they would like Audatex to focus on in future
development. These include intelligent
3D graphics and animations, inclusion of
OEM procedures, and more effective ways to
ensure 100% complete and accurate vehicle
identification, going beyond VIN decode.
Tuuri elaborated upon this last point, explaining,
“In Europe, Audatex has a product called
AudaVIN, which links the VIN to the specific
vehicle ‘build data.’ Using this enhanced decoding
system, every option on the vehicle being
estimated is automatically identified and included
in the estimate. By eliminating any user-error in
the option identification process, this system
ensures that part numbers, prices and labor times
are precise. As a result, users attain a more
accurate estimate and a better valuation for total
losses, which is good for everyone.”
‘‘
’’
This meeting is just
one step in the
process of folding
the voice of our
customers into our
strategic direction
and product set.
John Kotsopoulos,
Managing Director,
Audatex North America, Inc.
Future Efforts
While Council members unanimously proclaimed
that the meeting was a tremendous success,
continuing to build upon this momentum is
imperative. Kotsopoulos reiterates this point,
saying, “This meeting is just one step in the
process of folding the voice of our customers into
our strategic direction and product set. At the end
of the day, Audatex doesn’t develop solutions for
insurers or repairers; we develop solutions for
insurers and repairers. Getting them in the same
room, upstream of our design and development
process, is good for them, good for us and good
for the industry.” n
17
Audatex News and Events
Audatex Associate
Appointed IACET
Commissioner
Debra Sawin, Senior
Instructional Designer on
Audatex’s Education and
Web Services team and
administrator of their
accreditation program,
has been appointed to a
three-year term as an
IACET Commissioner.
In this role, she will work
with other commissioners
to review IACET
Authorized Provider
applications, make
application
recommendations,
conduct applicant site
visits and report findings
to the IACET
Commission.
Audatex Receives IACET®
2008 Exemplar Award
After just eight months as an approved
Authorized Provider by the International
Association for Continuing Education and
Training (IACET), Audatex has won the
association’s 2008 Exemplar Award. This annual
award recognizes outstanding results-oriented
programs that demonstrate cost-effective,
significant and relevant impact to the field of
continuing education and training and on the
populations served.
As an IACET Authorized Provider, Audatex, as
directed by Solera, Inc. offers IACET CEUs for
certain designated programs that qualify under
the ANSI/IACET 1-2007 Standard for Continuing
Education and Training. The ANSI/IACET
Standard measures all aspects of an education
provider’s program development. As the
recipient of the 2008 IACET Exemplar Award,
Audatex demonstrated principles of good
practice for its program adoption by customers
and its active partnerships with numerous
industry-specific organizations such as
ASE/CASE®, I-CAR® and AMI®. The program’s
success has been marked by a 31.4% increase
in participation and an 88.2% CEU success rate.
Another noted benefit of the program is the variety
of venues through which training is available.
By offering self-paced computer-based training,
classroom-based instruction and virtual instructorbased training, the Audatex Accreditation Program
makes it easy for customers to reduce training
costs and maximize return on investment.
Michael Kerrigan, Property Damage Claims Manager
for Safeway Insurance Company, says that his
appraisal team appreciates the convenience of virtual
training courses that let them earn accreditation
points and gain a deeper understanding of the
technology. He explains that this opportunity directly
helps his team in their work. “When a repair shop’s
staff asks questions of our appraisers in the field,
they now feel more confident in answering those
questions. It is incumbent upon us to understand how
a vehicle should be repaired, especially with all the
new vehicle models, different metals and varying
paint/material chemicals constantly changing in the
marketplace. Our staff needs to know what can be
safely repaired and what can’t. The last thing anyone
wants is to have an improperly repaired vehicle
approved for delivery to a client.”
For more information on the organizations
described, please contact:
Audatex Accreditation Program
(www.training.audatex.us),
IACET (www.iacet.org), I-CAR (www.i-car.com),
AMI (www.amionline.org). n
A Tribute to Julie Verran:
Saying Goodbye to Our Friend and Colleague
On August 15, 2008, Audatex lost a friend and
colleague in Julie Verran. Her untimely death left
us profoundly saddened, and we’d like to take
this time to pay tribute to her.
Born in Germany, Julie moved to the U.S. and
grew up on an eastern Washington farm, where
she fostered an early love for nature that
extended most recently into family camping trips
with her husband Norm and young son Dylan.
Julie Verran
April 6, 1958 August 15, 2008
18
After graduating from Central Washington
University, Julie moved to Seattle and spent
ten years at PEMCO insurance, the first step
in an insurance industry career unparalleled in
its commitment to company excellence and
customer satisfaction. Julie joined the Audatex
team in 1987 and during her time with us she
held a number of roles, including Marketing
Director, Account Representative, Valuation Services
Manager, Data Services Operations Director, Senior
Client Services Director, and most recently Acting
Manager of the Milwaukie, Oregon, Autosource office
for Audatex.
No matter what role she was in, Julie received many
accolades for her outstanding performance. She had
a keen ability to develop good rapport with colleagues
and customers alike. A true team player, Julie is
remembered by her colleagues as a “generous and
sincere mentor.” Her team commitment even
extended outside of the office when she joined a
colleague’s 200-mile relay running team as a support
volunteer and driver.
As simply stated by her friend and colleague
Don Clark, “Julie was a once-in-a-lifetime person.”
We will miss her.
n
Audatex Directions
Vol 3
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.
2008
Nov 4
Nov 6-8
Collision Industry Conference (CIC) Meeting
Las Vegas, Nevada
Mandalay Bay, 8:00 a.m.- 5:00 p.m.
NACE (National Autobody Congress Expo)
Las Vegas, Nevada, Booth N3553
See Back Cover for Full Schedule of NACE Events!
2009
Jan 14-16
Jan 24
Feb 24-26
Mar 22-25
Apr 6-7
CIC Planning Session
Scottsdale, Arizona
Canadian Collision Industry Forum (CCIF) Meeting
Toronto, Ontario
Strategic Advisory Council - By Invitation Only
Miami, Florida
PLRB/LIRB Claims Conference
Seattle, Washington
Insurance Data Management Association’s Annual Seminar,
“Insurance Business Intelligence– How Smart Are You?”
Philadelphia, PA
Apr 18
Apr 19-23
CCIF Meeting
Edmonton, Alberta
Apr 22-23
Apr 26-28
CIC Meeting
Hartford, Connecticut
Jul 29-30
www.audatex.com
Risk and Insurance Management Society (RIMS)
2009 Annual Conference and Exhibition
Orlando, Florida
The Brian Sullivan 2009 Auto Insurance Report
National Conference
Naples, Florida
CIC Meeting in conjunction with I-CAR Annual Meeting
Washington D.C
NACE Booth
N3553
Audatex Calendar of NACE Events
Technical Advisory Council By Invitation Only
Wednesday, November 5
8:00 a.m. to 3:00 p.m.
7 Tips to Increase
Estimating Efficiency
Friday, November 7
8:30 a.m. to 10:00 a.m.
Location: Palm B, Level 3,
Mandalay Convention Center
Audatex Hosted Reception for
Collision Repair Professionals
Friday, November 7
4:00 p.m. to 5:00 p.m.
Location: Booth N3553
© 2008 Audatex North America, Inc. All rights reserved.
All other registered trademarks are the property of their respective owners.