AAMI Submission to Productivity Commission Inquiry into Motor Vehicle Insurance and Crash Repairs October 2004 © AAMI Ltd 2004 CONTENTS Executive Summary ....................................................................................................................i Chapter 1 Introduction ...................................................................................................... 1 Chapter 2 Historical and Competitive Context ............................................................... 3 2.1 Setting the scene – 1930s-1970s ................................................................................ 3 2.2 1960s to early 1990s................................................................................................... 4 2.2.1 Smash repairers develop an unusual business model......................................... 6 2.2.2 Illegal and illegitimate practices ........................................................................ 8 2.2.3 AAMI Introduces Competition .......................................................................... 9 2.2.4 The Repair Sector Response ............................................................................ 10 2.3 Early 1990s to today................................................................................................. 13 2.3.1 Insurers take repairs seriously interest in ......................................................... 14 2.3.2 The Repair Industry Response – Part Two....................................................... 15 2.4 The situation today – excess repairer capacity exposed........................................... 19 2.4.1 Factors exacerbating repairer oversupply ........................................................ 20 2.4.2 Structural change and rationalisation ............................................................... 22 2.5 Concluding comments.............................................................................................. 23 Chapter 3 AAMI’s approach to motor insurance ......................................................... 25 3.1 The Sales Process..................................................................................................... 25 3.2 The Claims Process .................................................................................................. 26 3.3 The Assessment and Repair ..................................................................................... 27 3.4 Repair Standards and Code ...................................................................................... 28 3.5 Rationale and Benefits ............................................................................................. 29 3.5.1 A competitive premium.................................................................................... 29 3.5.2 An exceptional claims and repair service......................................................... 31 3.5.3 Transparency & consistency for staff............................................................... 34 3.5.4 A professional relationship with repairers ....................................................... 34 3.5.5 Profitable growth for shareholders................................................................... 35 3.5.6 Community benefits ......................................................................................... 36 3.6 Dispute Resolution for Customers ........................................................................... 36 3.6.1 IDR Process...................................................................................................... 36 3.6.2 EDR Process..................................................................................................... 37 3.6.3 Other Dispute Resolution Mechanisms............................................................ 37 3.7 Criticisms of AAMI’s approach............................................................................... 37 3.7.1 Choice............................................................................................................... 38 3.7.2 Repair Quality .................................................................................................. 39 3.7.3 Hourly rates...................................................................................................... 40 3.7.4 Payment Terms................................................................................................. 40 3.7.5 Access to repairs............................................................................................... 40 3.7.6 The two-quote system ...................................................................................... 41 3.8 Conclusion................................................................................................................ 42 Chapter 4 Motor insurance and repairs – a broader perspective................................ 44 4.1 Consumer Choice ..................................................................................................... 44 4.1.1 The insurance choice........................................................................................ 44 © AAMI Ltd 2004 CONTENTS 4.1.2 Exercising choice during the claims process.................................................... 46 4.1.3 Exercising choice during the contract period or at renewal............................. 47 4.1.4 Freedom of Choice – The Real Issue ............................................................... 47 4.1.5 Summary .......................................................................................................... 48 4.2 Repair Quality and Safety ........................................................................................ 49 4.2.1 Consumer protections....................................................................................... 49 4.2.2 Consumer complaints and accident statistics................................................... 50 4.2.3 What Constitutes a Quality Repair?................................................................. 51 4.2.4 Summary .......................................................................................................... 51 4.3 Profitability............................................................................................................... 52 4.3.1 Summary .......................................................................................................... 54 4.4 Hourly rates.............................................................................................................. 54 4.4.1 ‘Funny money, funny times’ ............................................................................ 55 4.4.3 Can a universal time and rate manual be developed? ...................................... 56 4.4.4 Summary .......................................................................................................... 57 Chapter 5 Structural change and consumer choice ...................................................... 59 5.1 Structural change...................................................................................................... 59 5.1.1 Policy considerations........................................................................................ 60 5.2 Consumer choice...................................................................................................... 61 5.2.1 Excluding or limiting insurer involvement in repairs ..................................... 62 5.2.2 Policy considerations........................................................................................ 65 Chapter 6 Relationships between repairers and insurers............................................. 67 6.1 Preferred supplier arrangements............................................................................... 67 6.1.1 Rationale for preferred repairer arrangements ................................................. 67 6.1.2 Directing repairs to the network....................................................................... 68 6.1.3 Obtaining or losing preferred repairers status.................................................. 69 6.1.4 Policy considerations........................................................................................ 70 6.2 The role of codes...................................................................................................... 72 6.2.1 General considerations ..................................................................................... 73 6.2.2 Existing corporate codes .................................................................................. 74 6.2.3 Proposed voluntary or mandatory codes .......................................................... 75 6.2.4 The Automotive Body Repair Industry code ................................................... 76 6.2.5 Policy considerations........................................................................................ 77 Appendix A1: Motor Vehicle Registration and Road Safety Provisions .......................... 79 Appendix A2: Factors Involved in Fatal Accidents ............................................................ 82 © AAMI Ltd 2004 CONTENTS List of Appendices Appendix 1 – State Registration Procedures Appendix 2 – Fatal accident information List of Attachments Attachment 1 – External documents A 1.1 A Current Affair – Tow Trucks (Chap 2.2.1)* A 1.2 Four Corners – Australian Public Health System (Chap 2.2.1)* A 1.3 ICA Submission to NCP Review of South Australian Towing Legislation (Chap 2.2.1) A 1.4 VACC Campaign – anti tow out (Chap 2.2.4)