Any look at the future of the industry certainly would be incomplete without considering how collision repairers and auto insurers will interact with one another five years and 10 years from now. Many in the industry believe the changes in vehicle and information technology will be challenging. Generally speaking, however, training and systems are in place to help meet those types of challenges. It’s more often the uncertainty about potential shifts in shop-insurer business relationships that tops the list of future industry concerns.

Will more insurers, for example, follow the lead of moving toward ownership of collision repair facilities? Brian Sullivan doesn’t think so. Sullivan, the editor of the weekly Auto Insurance Report, said he believes there are benefits to this model, but not for the reasons many shops assume.

“It costs the same to fix a car as anyone else,” Sullivan said. “You can’t buy fenders for less or pay less for labor than other shops. The difference is there are zero ‘friction costs’. The shop just fixes the car. When I talk to senior execs working within this model, they say that taking the friction out of the process is the single greatest benefit to an insurer owning its own shops.”

That said, Sullivan sees no other insurer planning to own shops.

“But taking friction out is really what they all want to do,” he said. Sullivan predicts that repairers will increasingly be able to help reduce the friction by monitoring and proactively managing their own performance in terms of key insurer measurements—in real-time rather than just based on quarterly or annual reports back from the insurer.

Direct repair programs (DRPs) have been another key weapon in the battle against friction costs. Sullivan certainly believes that five years from now—and maybe even 10—insurers will continue to use various models of DRP structures: larger networks with lots of capacity; smaller networks with stricter requirements; concierge-type programs; even programs putting insurer personnel in shops.

“At this juncture there is no clear model that has emerged as ‘the answer,’” said Sullivan. “If I had to say what will happen in five years, my answer is that there will still be a range of solutions. Companies will be doing the things that work best for them and trying new ideas. I just don’t see on the horizon the big ‘a-ha!’ that is going to swallow up the way we do business today.”

For his part, Russell Thrall III believes that more insurers in the next five years will move toward smaller provider networks, “concentrating work toward fewer, hopefully better-performing repair facilities based upon performance goals the insurer sets and measures.” Thrall is technical services manager for the I-CAR Education Foundation, and founder and publisher of CollisionWeek. He, too, predicts that technology will halt the “down-sizing” of insurer-owned shops within the next 10 years.

“Technology will make the benefits of limited referral arrangements largely obsolete,” Thrall said. “Over time, a common set of financial and non-financial performance measures will be used by a larger group of insurers and repair facilities. Tracking these measures and communicating electronically—both estimate data and visual information, such as digital photos and video—will increase productivity on both sides of the transaction.

“For an insurer, why limit that increased efficiency to just a small number of DRP facilities?” added Thrall. “In the long run, I expect what we think of as DRP today will be replaced by electronic communication across an ever larger segment of insurer relationships.”

Will changes in the number of auto insurers and collision repairers impact interactions between the two in the future? Sullivan believes there will continue to be hundreds of auto insurers even 10 years from now, but does foresee a significant decline over the next decade in the numbers of collision repair shops—or at least the number of shop owners.

“If there are 50,000 shops today and you came to me in 10 years and said there are 35,000 shops, that would not surprise me in the least,” said Sullivan. “There may be just as many actual shops, but there will be more multi-location businesses; so, fewer shop owners. The concept of a nationwide chain has proven to be difficult, but the single-shop operator becoming a six-shop operator is a trend that I expect. You start to gain the economies of scale but continue to have the benefit of the owner-entrepreneur.”

Thrall also predicts some, but not massive, consolidation of the collision repair industry.

“People tend to forget that for a large number of the shops out there, it’s not just a business, but a way of life,” he said. “They will survive. Maybe not on a steady diet of insurance company-paid collision repair volume, but certainly with customer-paid repairs, maintenance and custom work.”

Both Thrall and Sullivan see auto manufacturers and new car dealers playing an increasing role in the collision repair industry over the next 10 years. Telematics such as OnStar®, for example, will give manufacturers first notification of accidents and thus greater chance of control over where vehicles are repaired.

“And as cars become more sophisticated and complex to repair, dealers sometimes may have a real leg up on getting that business,” said Sullivan. “The average shop isn’t equipped to deal with the technology on some Jaguars and high-end Mercedes. It is becoming a little more specialized, and the dealers like that.”

What’s more, Thrall adds, auto manufacturers may increasingly sell more than just the vehicles themselves.

“During the next 10 years, bundling the cost of insurance into the lease price of vehicles will become more commonplace as auto manufacturers look for other profit centers,” he said. “This will increase the auto manufacturers' role in the repair industry.”

But for Thrall, any discussion of the future quickly returns to the increasingly dominant role electronic communication will play in the industry. “That will be the big story of the next 10 years,” he said. “It opens so many possibilities. The vehicle owner will come to expect the level of 24-hour access to information or service that can only come from instant communications between the insurer and all of the service providers: collision shops, rental car providers, glass companies, etc.

On the repair facility side, shops will expect the same level of information availability and service from their suppliers. Training, for example, will be available on-demand and be vehicle-specific. “All of these developments may be more evolutionary than revolutionary, but their impact will be widespread and just as dramatic,” noted Thrall. “It will reshape the business of collision repair more than any other development.”

Debbie Day is the General Manager of the Major Insurance Market Group at CCC Information Services Inc.