We’ve seen a high level of aggregation in the car insurance sector in recent years, and Insurance Group Australia (IAG) now dominate the car insurance market in NZ, particularly the commercial fleet market including their interestingly named Crash Management Fleet Fit product. If you can remember the NZI advertisements of the 90’s you’ll recall the slogan “bloody Aussies, always stealing your stuff” – rather ironic now in light of IAG’s ownership of NZI, State, Lumley, AMI and many others. It’s estimated that IAG now controls as much as 60% of the NZ car insurance market, and edging closer to monopoly status year by year. This has led to significant changes in relationships and behavior towards their service provider market – the collision repair industry.
There are continuous reports in the media including industry magazine PanelTalk about the effect of this David & Goliath dynamic and the impacts on the predominantly small owner-operator businesses at the coal-face of car insurance claims. Just this month Motor Industry Association CEO David Crawford heavily criticised the recent IAG mandate that damaged vehicles older than 2 years be repaired using SECOND-HAND/RECYCLED parts in NZ. This policy leads to implications for car insurance claims including structural integrity, and is in direct contrast to IAG’s own policy for Australian-based repair guidelines that mandate NEW parts for new vehicles. It’s all starting to look a bit Aussie Versus New Zealand, not unlike recent onerous Australian government legislation changes that strongly disadvantage Kiwi’s living and paying tax in Australia, compared to NZ’s generous treatment of Aussie’s here. David Crawford urges IAG to “rethink their policy in NZ”.
New Zealand collision repair facilities are now forced to work in an increasingly hostile car insurance claims market, many players in the the car insurance company sector dictate low hourly rates that are almost half the average Dealership mechanical charge out. Some tightly control parts procurement & margins, and pay only a token allowance for co-ordinating any outsourced ancillary work. Repairers are expected to fund these expenses from their own cash flow that can run into thousands of dollars, all for a maximum of $100 handling fee, despite what can involve multiple hours of management.
As business operators, we have no issue at all with optimising business processes and practices, however the collision repair sector as a whole is now expressing extreme distress with the current environment – BUT, it’s about to get much worse!
We suspect the only viable response to this type of monopolistic behaviour would be based on sound economics theory – ie the only way to combat an increasingly aggregated tightly held buyer market would be for the supplier market (ie collision repair sector) to follow suit and aggregate.
Again, those “bloody Aussies” lead the way. In other hostile markets internationally, large scale owned or franchised collision repair facility groups dominate insurance company service contracts for car insurance claim repairs. The concept has gained traction in Australia over the past decade. These multi-branch repair organisations benefit from corporate level management, funding & efficiencies of scale. The phenomenon has contributed to the decimation of small owner-operated panel shops who simply cannot compete of cost. They often still excel at service and customer satisfaction, but that’s of less interest to some BIG BRAND insurers.
One well known collision repair sector aggregater is Gemini Group and they’ve recently made a move into the NZ market so the writing appears to be on the wall – beware the “green sheds” coming to a neighbourhood near you. Like our well known “red shed” dominator that has managed to destroy so many small businesses in many small towns and suburbs – the end is neigh!
Personalised service levels for car insurance claims will fall and customer choice/control will disappear in the BIG BRAND car insurance company space. All the more reason for consumers to think with their feet. The rate of conversion to a niche kiwi-owned car insurance company (there are a few left!) would be the logical outcome – a trade-off that may still be deemed financially justifiable to the Australian owned car insurance companies that dominate the NZ market.