By Ryan Mandell – Report from Mitchell International
The recycling industry has a strong history of adaptation over the years, and this coming wave of change is simply another in the line of challenges recyclers have had to overcome to modernize their businesses.
In a world of increasing digitization and improving operational efficiencies, the auto insurance claims industry is pushing the boundaries of what can be accomplished using artificial intelligence (AI) and machine learning (ML). A slew of companies, including legacy companies like Mitchell as well as recent startups like Tractable and Claims Genius, have developed technologies that allow a collision damage estimate to be written automatically by a computer based on photos provided by a consumer, collision shop, insurance carrier, tow operator, etc.
The current primary use case is for relatively low severity claims, ideally for damages amounting to under $3,000. While this may appear to be a relatively narrow avenue, estimates in this cost range account for almost 60% of national estimate volume1. The ability to rapidly improve the timeliness of estimate completion means that insurers are able to accurately set reserve amounts, settle claims, and ultimately free up their employees to devote more time to the complex claims they routinely encounter. This may seem like technology of the future, but several large insurers such as The Hartford are already using such technology in production and seeing positive results inside their claims organizations.
As a portion of auto physical damage estimating transitions to greater degrees of automation, it is critical for recyclers to be prepared. They need to adjust their business models appropriately to capture as much market share as possible in an environment that may see a decline in the utilization of traditional sales channels for parts ordering. The following are three practical ways to help prepare any recycling business to compete effectively in a world where computers, rather than humans, are writing a greater share of collision damage estimates.
1. Devote Greater Resources to the Inventory Process
With automated estimating comes automated parts selection. This will be something that will be configurable for every insurance carrier based on price, grade of part, description, availability, and speed of delivery. In an automated world, accuracy is everything!
Additional time and attention must be paid to ensuring every part on a vehicle is inventoried appropriately, accounting for accurate damage patterns and conditions, and pricing the part in a competitive fashion that provides robust profitability. This may seem like a no-brainer even in today’s world, but it becomes increasingly important when people are removed from the purchasing decision equation and sales and quality control teams do not have the same opportunity to cover for any mistakes or omissions that may have been made during the inventory process. Many commission-based pay plans for inventory technicians focus solely on volume, but it may be time to consider adding potential pay incentives for quality and accuracy that come from increased stock number sales above a certain projection. It will be imperative that recyclers continue to maintain a focus on getting as much inventory in stock as quickly as possible, but there must be renewed focus on achieving a higher degree of credibility for the condition of said parts in inventory.
2. Ensure E-Commerce Compatibility
The increase in automation is coupled with a greater push by more collision repair organizations to engage in digital parts ordering. There are a variety of applications that allow for such transactions to take place and these have the potential to greatly improve the efficiency of a shop by reducing time spent searching for parts and contacting a range of vendors to determine the reality of parts availability and pricing. It is critical for a recycler to have integrations with the major digital platforms utilized today in order to remain competitive. When an original estimate is written by an AI platform, it is possible that the estimate can simply be passed through to a collision repair facility’s management system with parts automatically being ordered based on the AI’s decisions and parts selections before someone from the shop even glances at the file for the first time. While this workflow is not currently being utilized, it is a natural progression to achieve ever greater efficiency and resolution of auto physical damage claims.
3. Strategic Geographic Salvage Acquisition
For recyclers with multiple locations, understanding the vicissitudes of each geographic market becomes vastly more important with the growth of estimate automation. As I mentioned earlier, speed of delivery is a criteria that is of paramount importance to insurance carriers today, especially for lower severity claims where cycle time and cost of rental are so sensitive. Understanding claims data and the differences in car parts from one region to the next means that recyclers can be more deliberate in where vehicles are purchased and which yards end up housing certain acquisitions. There may be cases where it makes sense to purchase a vehicle from one auction but rather than send it to the nearest yard, to actually transport it further away if the demand in that region warrants. This practice exists today and many multi-site operators are able to move product quite efficiently through advanced logistics programs. However, if the difference in making a sale comes down to a single day difference in delivery time, a recycler may be able to position inventory more strategically through deep market intelligence.
The recycling industry has a strong history of adaptation over the years, and this coming wave of change is simply another in the line of challenges recyclers have had to overcome to be successful and modernize their businesses. Auto recyclers have become some of the most prolific sellers on online platforms such as e-Bay, something that 20 years ago would have felt like a serious stretch of the imagination. By being proactive in preparation for estimate automation, recyclers will not only be able to better position themselves for the future but also improve the efficiency of their operations today!
Footnote: (1) Based on Mitchell Data for 2019-21
Ryan Mandell is Director of Performance Consulting at Mitchell International. He engages with auto insurance carriers to analyze claims data and identify opportunities for performance improvement. He also works with claims executives to develop action plans to optimize such opportunities and see them through to fruition, and provides continuing consultation to insurance carriers on the most up-to-date trends in the automotive industry. Prior, he worked at Autowrecking.com/B&R Auto Wrecking and with Precision Collision Auto Body.
