TACKLING THE CHALLENGE OF A SUPPLIER INDUSTRY IN REFORM

The situation

IAG's largest supplier - the smash repair industry - is an industry in reform.

New technology, increasing customer choice and industry market forces are changing the way many smash repair businesses operate, and indeed how we work with them.

Released in August 2005, the Federal Government's independent Productivity Commission report into the economics of the industry makes it clear that current rationalisation will continue due to one simple fact: there are too many repairers in Australia and not enough cars to repair.

The average number of vehicles per repair shop in Australia is about 1,900, compared to almost 2,500 in the United States and nearly 5,000 in the United Kingdom. (Source: Productivity Commission Inquiry Report - Smash repair and insurance No.34)

The incidence and severity of car accidents has also declined due to factors such as improvements in vehicle safety, better roads, more stringent policing of road safety and benign weather conditions.

It is important for us in this context to constantly look for ways to improve the experience of our customers and find greater efficiencies in our claims process.

One way we are doing this across Australia and, most recently in New South Wales, is by introducing a new system called Care & Repair. This system is designed to make the post-accident repair process as easy and hassle-free as possible for the customer by establishing Care & Repair centres where they can leave their car rather than having to visit multiple repair shops.

Through this system, our network of quality repairers access a series of images and a detailed technical 'scope of works' or damage report is then placed on a secure website for tender. The work is then allocated to a repairer in our network, usually within 24 hours.

The introduction of this system, which has been operating in Queensland, South Australia and Western Australia for some years, requires a change in the way our repairer network does business with us. This has led to some uncertainty and debate, often public, with a number of repairers and their representatives.

Considerations

Our new system is essentially competition based. Repairers compete against each other for our business and we use technology to make their interactions with us more efficient. Ultimately, competition benefits the best repairers, lifts industry standards and performance and keeps premiums affordable for the customer.

When making decisions about the way we work, we take deep consideration of the extent to which these decisions affect our customers, our people, our shareholders and the broader communities in which we operate.

The decision to introduce this new system was taken for the long-term benefit of our customers. In states where this system has been operating for some years, we have experienced improved customer satisfaction and repairers have also benefited from the greater efficiency and the ability to specialise in particular types of repair work.

The way forward

We are in ongoing discussions with repairer groups to tackle the key issues facing the repair industry in Australia today. We have a three-tiered consultation approach discussing issues with relevant repairer groups at national, state and regional levels.

We also remain committed to our existing network of preferred smash repairers - an arrangement that reassures our customers that only quality repairers are fixing their vehicles.

The recent Productivity Commission report stated, "Preferred smash repairer (PSR) arrangements benefit insurers, consumers and many repairers."

The sustainability of the smash repair industry is essential to our business. One way this can be achieved is through a more customer-focused, professional and sophisticated approach. We have taken steps to help the industry along this road by investing $10 million over four years in apprenticeships, traineeships, business management training and succession planning courses.

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