Insurers looking to rethink the claims process are often working with MSOs

March 18, 2016
When insurers are looking for claims processing innovation – or have a new concept they want to try out – they have increasingly turned to MSOs. 

When insurers are looking for claims processing innovation – or have a new concept they want to try out – they have increasingly turned to MSOs. As George Avery, who retires this year as a top claims executive for State Farm, said back in 2012, MSOs present an “interesting platform” in which to experiment with a change on a large but not national scale.

“You hear people talk about how the model is broken,” Avery had said. “There are components (of change) that could be perhaps introduced into an MSO that you couldn’t quite introduce company-wide…That is a place where you could possibly go and say, ‘Look, we’d like to try something different.’”

Confidentiality agreements – and a desire to protect any potential competitive advantage ­– tend to keep MSOs pretty tight-lipped about any out-of-the-ordinary claims processing agreements they may have with insurers. But insurers themselves sometimes talk about innovations they are pursuing; proposed regulatory changes can sometimes offer clues; and industry vendors sometime share details about processes they are enabling – or hope to – for insurers.

Estimate via photo?

In about 1 in 5 states, for example, claims processing is required by law to begin with an appraisal based on a physical inspection of the vehicle. But companies like Snapsheet, which offer estimates based primarily on uploaded photographs of damaged vehicles, are among those supporting regulatory changes in the states that currently require physical inspection.

In 2014, for example, the Massachusetts Auto Damage Appraiser Licensing Board (ADALB) issued an advisory stating that photographs of vehicle damage could be used by an appraiser in lieu of a personal inspection of the vehicle. But just 14 months later, the board rescinded that advisory.

Rick Starbard

Massachusetts shop owner Rick Starbard, who was appointed to the ADALB last year, said he felt the 2014 change was wrong, in part because he feels it was “rushed out as an advisory ruling” rather than a formal change to the regulation, which would have required hearings and testimony. He said after the initial change was made, he heard of many instances in which original appraisals, based in some cases on “consumer’s iPhone photos,” included only a fraction of total cost of repair.

In one such instance, an insurance appraiser told Starbard, a shop asked the appraiser to take a quick look at a car and just guess the total repair costs. The appraiser guessed $4,000, and the shop showed him the shop’s estimate for about $4,200.

“But the shop then showed him the original appraisal he’d received, which was written based on cell phone photos,” Starbard said. “It was for just $450.”

Starbard said he’s concerned that consumers getting such appraisals for about the same amount as their deductible may decide the damage is not worth fixing, yet might be unaware of possible suspension damage, a kinked exhaust system or other potentially dangerous conditions.

One insurer representative on the ADALB said he understands that concern but that an appraiser using photos can certainly note whether a vehicle could have additional damage and should be taken to a shop.

“That’s in a perfect world, where people are doing what they should be doing,” Starbard said. “We all know that just doesn’t happen.”

But legislation introduced this year in several states, including Virginia and Pennsylvania, would allow an initial appraisal of vehicle damage to be made based on photos or video rather than a personal inspection, potentially changing the claims process in those states.

“For five years, Snapsheet has been enabling a new choice for customers through virtual estimating technology,” Brad Weisberg, Snapsheet founder and CEO, said after the Pennsylvania Senate passed the bill in that state. “The [legislation] is a huge step forward for consumers who prefer to opt-in for a self-service or virtual inspection.”

New role for telematics

Clint Marlow

An Allstate executive hinted last year at potential changes to claims handling in the works at the second-largest auto insurer in the country. Clint Marlow, one of two auto claims directors at Allstate, said that information about an accident gleaned from a vehicle’s own systems, coupled with historic claims data, could potentially reduce the need for the traditional estimating process.

Marlow’s comments fit with widely-discussed speculation that automakers may use vehicle telematics and their collision shop networks to take an increased role in helping the consumer, even at the scene of the accident, arrange for the towing and collision repair work they need.“How many Ford F-150s hit in the left front with a certain velocity do we need to fix before we can get to a decent confidence level to predict that loss cost up front, and allow you guys to do what you do best: fix the car,” Marlow said. “It’s not going to be for every car. But we think the industry is primed to move in that direction.”

Do insureds want to be "steered"?

Speaking at NACE last year, one insurer acknowledged his company hopes as part of its claims processing to do more to educate consumers about their shop choice, particularly as vehicle repair becomes more specialized by make and model.

“So we’re not going to go as far as saying, ‘You need to take your car to [a particular shop],’ but we are going to have a discussion around the uniqueness of their vehicle, some special repair techniques that may apply, and some questions that we feel strongly they need to ask their repair facility,” Clint Marlow of Allstate said during a panel discussion.

Whether such activity occurs for shop qualification or more financial reasons, many shops believe they have had customers “steered away” from their shop by an insurance company; the insurance industry portrays such “shop referrals” during the claims process very differently – and tout survey findings that they say backs up their view.

The Insurance Information Institute’s 2015 survey of 1,015 adults, for example, reportedly found that 79 percent said they want their insurer to recommend a repair shop. What’s more, the survey results state, if choosing between a repair shop of their own choice or an insurer-recommended shop, 72 percent said they would be more likely to use the recommended shop.

The full survey report (including a list of the questions asked) is available at the Institute’s website (www.iii.org). Of course, while at the website, it’s worth checking out the list of the companies that the association represents: primarily insurers doing business in North America.

A recently-released infographic (download it at: http://tinyurl.com/gto8rve) about the possible future of insurance claims processing tries to point out some of the benefits of such use of telematics.

According to the infographic, insurers normally only receive 10 to 15 percent of first notice of loss information on the first day after a claim. With access to vehicle telematics information, however, the customer really doesn’t have to “file” a claim; the process can begin automatically and immediately, and the information about the accident – including severity – can be more detailed and accurate. The insurer, for example, can promptly dispatch any needed towing or emergency medical providers. If the customer has pre-selected third-party providers – including a collision repairer – they too can be notified, and if necessary, the car can be immediately towed there.

Without referencing this type of scenario specifically, Allstate’s Marlow suggested – perhaps as the insurer’s way to either augment or compete against this OEM influence – that consumers may begin to make some decisions about claims before the traumatic experience of an accident takes place.

“We’re starting to think about it as a ‘living will’ for your car,” Marlow said, comparing it to the “advance directives” people can create to spell out what type of medical treatment they may or may not want if others are making those decisions for them. “While you are in your state of mind, let’s have a conversation about what do you want if something happens to your vehicle. Where do you want to get it fixed? Who do you want to tow your car? Will you need alternate transportation? You start thinking about how different that claims experience could look.

Will new insurance model also bring new claims processing?

Although “Lemonade” is touting more of an innovative model for selling and structuring insurance than talking about any new ways of processing claims, the company does seem intent on disrupting the tried-and-true insurance business models.

Lemonade is a start-up looking to return auto insurance to its “peer-to-peer” roots, where a relatively small group of connected people join together to help each other out when a claim occurs. They all throw some money into a pool that grows until there’s a loss. If need be, the members are accessed to rebuild the pool after a loss.

The advantages of such a model: Because the participants are close or related in some way, there’s pressure not to stress the pool unnecessarily, which can reduce claims (or claims severity). The group also is likely to accept only responsible people into the pool.

The potential downside, however: If the participants all live in the same geographic area, a storm or other natural disaster could result in losses that far exceed the size of the pool. Most insurers solve this problem by more broadly spreading the risk among more people and a larger geographic area. But this results in less of the “peer-pressure” that suppresses claims and fraud.

Lemonade founder Daniel Schreiber has said the fraud and distrust fostered by modern insurance “undermines the concept of a community looking out for one another.” With the peer-to-peer model, he said, no one will begrudge you the repair of your damaged car, but try to overcharge the pool to repair old damage, and your peers will know.

But Lemonade could have a tough time gaining traction. As Auto Insurance Report points out, it’s taken billions of dollars in advertising over years to convince consumers they can buy insurance over the phone (even fewer are doing so online) rather than through an agent, so how will Lemonade educate them on a whole new insurance concept? And are friends really going to engage other friends to all buy insurance together?

It’s unclear whether the company will be innovative with claims processing as well. But if Lemonade makes a shop referral and an insured has a bad experience, it’s almost guaranteed that everyone else in that customer’s insurance pool will hear about it.

“Lemonade will have to build a best-in-class claims operation, and gain access to capacity at the best body shops,” Auto Insurance Report points out. “Ask any low-volume insurer how it feels to [try to] get the attention of a body shop when State Farm, Geico and Allstate are their biggest customers.”

Cycle time projections under review

One aspect of claims processing that can impact all shops in either DRP or non-DRP situations are the cycle time expectations of consumers and insurers. Shops often complain that formulas insurers use to forecast “length of rental” often give consumers an unrealistic view of how quickly they will get their car back. If the insurer’s goal is to push DRP shops to perform, that’s understandable, some shop owners say; but when such formulas establish unrealistic expectations for the consumer, and requires multiple adjustments to completion date information by the shop and rental car company, that impacts efficiency and customer satisfaction.

Pat O'Neill

As ABRN reported earlier this year, Allstate and perhaps other insurers are reviewing such formulas to determine if there’s room for improvement. A Collision Industry Conference (CIC) subcommittee is participating in the effort, designed to culminate this fall in one or more proposals that could be tried by some insurers. But the committee has cautioned that repairer input doesn’t ensure that whatever insurers establish will be seen as an improvement.

“This doesn’t mean that the result that might come up at the end would be something that CIC would completely condone, but I think it behooves us to at least be involved in what might be something that we’re going to have to deal with,” Pat O’Neill of the CIC committee involved in the project said.

It’s a minor potential change in future claims processing that could have a big impact on everyone involved.

Sponsored Recommendations

ZEUS+: The Cutting-Edge Diagnostic Solution for Smart, Fast, and Efficient Auto Repairs

The new ZEUS+ simplifies your diagnostic process and guides you through the right repair, avoiding unnecessary steps along the way. It gives you the software coverage, processing...

Diagnostic Pre- and Post-scan Reports are Solid Gold for Profitability

The following article highlights the significance of pre-scans and post-scans, particularly with Snap-on scan tools, showcasing their efficiency in diagnosing issues and preventing...

Unlock Precision and Certainty: TRITON-D10 Webinar Training for Advanced Vehicle Diagnostics

The TRITON-D10 lets you dig deep into the systems of a vehicle and evaluate performance with comparative data, systematically eliminating the unnecessary to provide you with only...

APOLLO-D9: Trustworthy Diagnostics for Precision Repairs

The APOLLO-D9 provides the diagnostic information and resources you need to get the job done. No more hunting through forums or endlessly searching to find the right answers. ...

Voice Your Opinion!

To join the conversation, and become an exclusive member of Vehicle Service Pros, create an account today!