Canadian Repair Trends

Every quarter when I compile the data for Mitchell’s Industry Trends Report, the Canadian data results are particularly intriguing. Canada’s unique mix of government and public insurers, as well as its dramatically varied geography, lays the framework for dynamic results. For example, after several quarters of very stable new OEM parts use last year (compared to 2009 Q3 levels), our 2010 Q1 data shows a dip of three full points in OEM parts use across all repairable vehicles. (Please see Figure 1 on Page 22).

Which part category was the beneficiary of the drop? Beneficiaries of the drop are almost equally used and aftermarket parts, which rose 1.2 and 1.1 points respectively during the same period.

What’s remarkable about this change is that it occurred so rapidly, while used and aftermarket parts procurement and delivery infrastructure remained almost unchanged. The availability and delivery of alternate parts in Canada has always been a challenge, as less populated provinces and territories traditionally use fewer alternative parts than more urban provinces (See Figure 1).

This shift in parts use also appears to be affecting the bottom line of repairable estimates, with the overall average severity for these vehicles decreasing in Canada — particularly with regard to the typical claim cost for all loss lines, which averaged $25 less than the same time last year.

REPAIR COSTS DATA

Direct repair program collision shops also influence the high percentage of appraisals that are supplemented, as Canadian provinces have traditionally shown supplement rates in the 50% range — meaning that around half of all appraisals written in Canada are supplemented one or more times. In 2009, a supplement accompanied 52.4% of all estimates, with 74.2% of those estimates increasing in overall severity. Diving into the details of 2009 estimate data illustrates that Canadian supplement totals added and an average of 14.4% (or $438.86) to the final appraisal total, with the majority of that sum allocated for parts. In fact, there was not a single supplemented estimate in which a part was not added to the initial estimate.

Our recent data also shows labour operations are on the rise, with 58.7% of estimates increasing in the category. This indicates that parts missed upon the first inspection, many of which are not part of an assembly (where labour would be included), are causing this spike. Bumper reinforcements are a great example of parts that would be included in the labour involved in a bumper overhaul operation.

We’ve also found some interesting trends in percentages and appearance allowance dollar amounts, especially since their use can also sway claims costs. Appearance allowances are one way for carriers to help control costs, no doubt benefitting their insured. Taking appearance allowances for minor imperfections on expensive parts is truly a win for the vehicle owner and the insurance company, especially in light of today’s increasing deductibles trend. By avoiding the replacement of expensive items, like costly head-lamps — on which a minor scuff can mean an $800 replacement — improving the bottom line is well within reach. Of course, the appraiser and insured need to agree the vehicle owner can live with the minor imperfection; if so, this exchange for a reduced deductible is a win-win situation.

In Canada, the average appearance allowance hovers around $200, which is definitely a nice chunk of change. But the frequency of appearance allowance has dwindled recently to around 4% of estimates written. There should be increased opportunity to suggest appearance allowances given the prices of trim, wheel/tires and lamps in today’s market.

I keep my finger on the pulse of Canadian data because it varies so much from the other markets where Mitchell provides estimating data. It can change at the drop of a hat — or perhaps more accurately, at the drop of exchange rates or hail stones.

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Direct Repair Program collision shops influence the high percentage of appraisals that are supplemented. In 2009, a supplement accompanied 52.4% of all estimates.