‘No magic bullet’ for repair supply chain problems | Latest news
Amid widespread and prolonged supply chain disruption, the insurance industry must work hard to “control the controllable factors,” a panel of claims thought leaders warned.
Speaking at a webinar hosted by the Managing General Agents’ Association (MGAA) on March 10, 2022, James Gatti, commercial director of the technology platform innovation group, explained that supply chain shocks are causing an “unprecedented” level of disruption for auto insurers would have created.
He said: “At this point, the cost of replacement cars has more than doubled and the availability of replacement cars or new leased vehicles is at an all-time low.
“We’re almost in a position where we have to say to customers, ‘I’m sorry, but it’s likely that it’s going to take three to five weeks for your parts to arrive and you could be in line for someone come return a rental car’.”
Kate Goodwin, Director of Networks and Engineering at Innovation Group, added: “It’s not as easy anymore to call Audi and ask for a hood and two clips – that’s out the window.”
A “perfect storm”
For MGAA webinar panelists, a number of major events have contributed to the current supply chain delays.
Gatti said: “We’ve had three shocks in the market pretty quickly in a row. We would probably still be talking about a difficult time if we were only talking about Brexit, but we have Covid and an impending commercial shock from the conflict in Ukraine.
“This has all worked together to create a situation that is completely unprecedented, especially in the repair market.”
The automotive repair industry, which relies on unique auto parts manufactured around the world, depends on long, highly complex supply chains – and is therefore particularly vulnerable to supply chain disruptions.
“Not only do we have resource constraints, we also have significant capacity constraints caused by parts delivery issues, general supply chain issues, parts inflation, wage inflation and paint cost inflation,” noted Gatti.
Catherine Hulme, Operations Director at Innovation Group, added: “What we’ve seen over the past few years is a perfect storm with several things happening that will challenge the market.”
As an example, Goodwin explained that 30% of all steel used throughout Europe across Europe was previously exported from Ukraine. In addition, Russia represented 1.8% of the global supply chain for new car production, which has now been wiped out.
“The impact [on the supply chain] was huge after 11 days of conflict,” Goodwin said. Furthermore, these effects could increase exponentially as the war progressed, she added.
What should I do?
With such severe global shocks impacting the repairs market, Goodwin warned that “we must be clear that the market is not coming back.”
“The other thing we have to accept is that there is no silver bullet to fix that,” Hulme added.
Because auto repair is so dependent on forces outside the control of the insurance sector, any solutions must adopt a mindset of “controlling the things that can be controlled,” according to Gary De Groot, director of business development at Innovation Group.
Flexibility, consistent communication and setting expectations for customers and other companies in the value chain were all recommended as examples of what could be done to weather this disrupted market.
Goodwin explained, “We can’t apply the same service levels as we would have because, quite simply, no one can work with them. There are setbacks from workshops because they’re all full, they’re all creaking, and they’re all looking to see who they want to work with.
“The key to keeping the network running and not turning it into a parking garage is to ensure we are doing the right thing and allow flexibility, allowing workshops to develop their own methods of managing their work in progress, and trust have our supply chain. ”
Flexibility in working with garages must also be balanced with considering customers and their expectations, Goodwin added.
“It’s very easy to forget that in all of this you have a customer who has an insurance policy that entitles them to a rental car and in many cases we are not able to fulfill that in the way they would expect us to, or us would love to do it,” she noted.
“Communication that really explains what is happening is crucial and those expectations should be managed from day one by everyone who touches the claim. The complaints we see are about customer expectations not being met, and they’re not being met because they haven’t been set.”
Gatti believes that as long as the communication is “honest” and “realistic,” customers will understand the difficulties of the repair market.
With so many other sectors also struggling under the effects of supply chain disruption, Gatti noted that it should come as no surprise to most customers that an industry dependent on long international supply chains is feeling the impact of global events.
However, he added that current market conditions present an opportunity to return to simpler, streamlined agreements with repairers.
He explained, “Now is probably the time to start thinking about reducing complexity and making yourself more attractive to your supply chain by being simple and easy to use.”