It’s time for a paradigm shift. It’s time to do away with the average cost of repair (ACR) as the “gold standard” for managing repairer performance. It’s time for insurers to have an accurate and not average look at their business by adopting a normalized cost of repair methodology to benchmark their repairers and save costs.
Today, the vast majority of insurers will take the total cost in a period for each repairer and divide the cost by the number of repairers in that period to produce their ACR. Some insurers attempt to adjust for high and low estimates by eliminating outliers (those that are really high or low) for additional accuracy.
While many factors (from class of the vehicle, deciding whether to repair or replace parts, what kind of replacement parts to use, to how long repairs will take, etc) impact the cost of the repair, the average insurer is currently blind to the underlying data that would allow them to select the most appropriate shop for the repair.
Our decision sciences expert, Alastair White, explains why insurers should not be relying on ACR for allocating the repair. “First of all, there is an inherent bias against repairers who work on high severity crashes with expensive cars. A large claim on a new Mercedes will always be more expensive than a small accident on a Ford. Secondly, it disadvantages repairers whose work mix changes over time. This may lead to reduced volume allocations meaning that the repairer is disadvantaged by the change in work mix even though they might be the most cost-effective.”
The remedy to this is to normalize the cost of repair (NCR). Normalizing the cost of repair is the first step to understanding what the expected cost of a repair should be. Only then can decisions be made regarding repairer effectiveness.
What does it mean to normalize my repair costs?
The concept of ‘normalizing’ repair costs uses a predictive model to calculate the predicted cost of the repair from the repairer’s estimates. In simple terms, the costs are compared with other similar repairs rather than the absolute cost of the repair.
Using normalized cost of repair (NRC), you achieve an “apples to apples” comparison of repair cost performance by collision repair shop, regardless of the mix of the vehicles or the severity of damage that the shops service.
By comparing predicted costs to actual costs incurred by the shop, you can determine if a shop is repairing vehicles in the most cost effective manner.
In situations where predicted cost is less than actual cost, the NCR is greater than 100% (a bad thing). Conversely, when predicted cost is higher than actual cost, the NCR is less than 100% (a good thing). Having this information at your fingertips, future repairs can be routed optimally to the repairer with the NCR that best fits the claim. This translates to bottom line savings.
You’re now only one click away from issuing the right repair to the right shop. You are now routing each repair to the body shop that has statistically proven to be the most effective at that type of job while realizing additional savings against your annual repair spend.
AudaTarget is an intelligent solution that normalizes repair costs within Audatex Estimating. It’s now available in Canada. This innovative technology is made possible by being part of the number one global provider of software to the automobile claims processing industry!
Interested in AudaTarget?
Contact our sales team at 1-844-AUDATEX or [email protected]