“Insurance companies are really focused on building their brand,” he said. “So when the moment of truth occurs, the auto accident, and the consumer through a direct repair program ends up at a collision center, the insurance company wants to do everything they possibly can to hug that customer during the repair process so the customer will have a higher propensity to renew his or her insurance policy. So they’re not spending these (advertising) dollars and just letting their customers go off to any shop they choose. If they can direct them to a high-quality, professional, high-integrity repairer, they prefer to do that.”

•The financial performance cycle. Ohrnstein said there’s a cycle in the insurance market that repairers should understand – and be aware of where in that cycle we are. Every six to nine years, he said, auto insurers go through a period of prosperity, where they are making good money (last year set a new record), thanks to rising premiums, improved underwriting (“insurers have become really good at putting the right price to the right risk, the right policy”), low combined ratios (losses and administrative costs compared to premiums), and (at least in the case of the current strong performance) lower frequency (fewer claims) and improved claims processes.

But Ohrnstein said he believes the industry has reached that top of this cycle and what generally follows is a rush by insurers to gain market share through advertising and lowered premiums, both of which are beginning to happen.

In order to work to remain profitable during this part of the cycle, Ohrnstein said, insurers generally try to reduce loss adjustment expenses. By driving more business to fewer shops, for example, and using more data to manage those claims, they can try to reduce the number of people they need to oversee claims. Ohrnstein said in his view the increased data that insurers today can collect and use to manage claims can be positive for repairers because it allows repairers to be “scored and rewarded for performance based on objective data versus the old way, which was based on who you know, sort of the good ol’ boy network.”

And, he adds, insurers during this part of the cycle may “tolerate a little creep upwards in severity in exchange” for the lower loss adjusting costs.

There can be other upsides for repairers during this portion of the cycle, Ohrnstein said. Lower premiums may result in more people carrying insurance, he said, and can reduce the likelihood the insured will raise their deductible to save money, two trends that can lead to more damaged vehicles actually getting repaired.

Other predictions

Two other unrelated trends bode well for collision repairers as well, according to Ohrnstein. Leasing of new automobiles, which virtually died as automakers offered rebates and zero-percent financing, has rebounded somewhat; leased vehicles tend to get repaired. Also used car prices have firmed up somewhat, which could help stem the rising tide of total losses. Ohrnstein cautions, however, that both these trends could be short-lived.

In terms of other predictions, Ohrnstein foresees a continued rebound in aftermarket parts usage since its 2000-2002 low following the State Farm lawsuit. According to CCC Information Services, non-OEM parts hit a high of 13.3 percent of all parts used in 1998, and sunk to 9.2 percent early in this decade. But it is back hovering around 12 percent, and Ohrnstein predicts the parts could account for 20 percent of those being used within five or seven years.

Incidentally, the CCC data shows that recycled parts use has held steady at between 12 and 13 percent throughout the past decade, whereas OEM parts usage has hit a record low of 70 percent, down from 77 percent in 2000.

In short, Ohrnstein says that everyone involved in the collision industry needs to be prepared to change in order not to be left behind. He likes to quote General Eric Shinseki, the chief of staff of the U.S. Army.

“If you don't like change,” Shinseki once said, “you are going to like irrelevance even less.”

John Yoswick is a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988. He can be contacted by email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it