Thursday, 21 February 2013 22:13

Consolidation Allows Insurers to ‘Dance with the Devil They Know’

Written by Insurance Insider

The industry has been inundated with news about consolidators buying new locations and expanding into markets where they have not traditionally had a presence. To be honest, it’s happening at such a rapid pace that most of us in the insurance industry were caught off guard. In an economy that has struggled, the last thing we expected was capital investment firms plunking down large sums of money to purchase consolidators and then provide capital for aggressive growth. Existing large consolidators investing their own money to buy additional locations was even more surprising to insurers.

Why is it a surprise? Well, there’s the fact that most shops regularly complain that they can’t make any money in this industry because of the sinister insurance industry. Perhaps the all-too-common refrain about the lack of profitability in the collision repair industry has no substance. If people who have far more money and are significantly smarter than me are throwing down millions of dollars to buy body shops, maybe we’re not clearly understanding “lack of profitability.”

I’m not averse to shops making a profit, of course, but I am averse to shops saying the sky is falling when in fact it’s raining money.

So what does all this consolidation mean to the insurance industry? Are we happy, sad or indifferent? The best answer I can give is a quote from one of my all-time favorite movies: “Frankly my dear, I don’t give a damn.”

If you don’t know the movie, I am not going to tell you because you’re probably not old enough to appreciate it anyway. But I will say this: It doesn’t make a difference to insurers what direction the industry is headed regarding consolidation. We have no ability to control it, and have no desire to influence it. It’s something that will happen organically without our input—one of the few times in the history of the collision industry when we as the insurance companies are not forcing change. Honestly, it’s a little refreshing that we don’t have to be the ones to help facilitate change. It gets tiring dragging body shops to the dance to help improve their business, operational efficiency and customer service.

There, I said it. We are tired of having to make shops do a better job.

Speaking of dances, I remember the days of the “sock hop.” I realize I’m really going back in time, but this was the thing to do and the place to be on Friday nights. I fondly remember shoes being piled up and everyone in the school dancing. Kids today don’t have any idea what they missed out on.

As surprising as this may seem, I remember times where I had a decision to make about whom to dance with. That’s similar to the decisions we as insurers are faced with as consolidators become larger and their footprint in the U.S. becomes wider. It was such a nerve-racking decision back then. Do I dance with Suzie, who I always seem to bump into at these high school mixers, or do I take a risk and try to dance with Betsy? I don’t know too much about Betsy and she may say ‘no.’ I typically chose the safe route, as Suzie was a sure thing.

Ergo the cliché, “Dance with the devil you know, or dance with the devil you don’t?”

(If Suzie’s mom ever heard me refer to her sweet daughter as a devil, my mom would have been called and I would be skipping supper that evening.)

We as insurers view consolidators and independents in a similar manner. We know the consolidators because they’re at every dance, just like Suzie. They’re going to be available, and more often than not are a willing and able-bodied partner. The independents may dance as well but may never have a chance to show it. I guess Betsy and many independents will be standing up against the wall wondering what it would be like to dance the night away.

I suppose that could be our loss, but dealing with the devil you know sure makes doing business easier. And quite frankly, Suzie looks a lot cuter and has more to offer. Please don’t send any e-mail about misogyny.

I’m not degrading women or any individual woman. I am trying to indicate that, much like the large consolidators, some bring far more to the dance. They have more assets, as it were.

Although we don’t take a position on consolidation, it can make it easier for us to do business. Most consolidators have a single point of contact for a small market of locations. Managing 10 shops becomes easier when we can make one phone call to share performance results and identify areas where improvement is needed.

Furthermore, consolidators typically have a training regimen to ensure that the revolving door of estimators and customer service representatives are adequately trained so that their service level doesn’t deteriorate.

They also provide a level of additional services that the majority of independents can’t compete with.

The reality is that Suzie is not only here, she wants to dance, and she is the prettiest girl at the sock hop. Sorry, Betsy.

“The Insider” wishes to remain anonymous as he offers an unvarnished look at various issues impacting the collision industry. This column reflects an individual’s opinion only.