This report is prepared by bodyshop Middle East
MARKET OVERVIEW
Challenges/opportunities facing collision repair market
Car sales reduced in 2016 by as much as 30% which in turn has seen some Middle East markets see a reduction in work volume of up to 20%. As insurers find it increasingly difficult to manage loss ratios, there is downward pressure to reduce the average repair costs. Some repair shops experiencing a downturn in volume are now accepting multi-brand work, at reduced rates, losing some margin in the process. This will require some careful management controls of the work processes. The independent bodyshop sector is developing and a growing number of these facilities are maturing to offer a solution to insurers which will cater for all makes and produce a high quality repair at a lower cost than the agencies. To counteract this, some agencies now accept all brands into their workshop.
Bodyshop trends
Vehicle agencies who have previously only repaired their own brands are now opening up to all brands. In the 2016 report we highlighted and forecast that we felt vehicle agencies would start
to repair all brands and this is now becoming more common. The independent sector, while still quite immature and often with low equipment levels and inconsistent quality, do have a group of tier B workshops who are clearly developing and offer the insurer and customer a high quality service at a reduced cost.
Vehicle manufacturer involvement in the sector
OEMs have experienced a reduction in vehicle sales, which is turnhas focused more attention on aftersales and specifically the valueof the customer in terms of the spare parts and service revenue.
Recent changes in the UAE saw service intervals increase under direction of government legislation, this results in the vehicle
visiting the workshop less frequently, hence collision repair and the possible revenue from parts sales and labour is much morefocused. The mainstream manufacturers all operate paint andbody programmes, provide dedicated resources to the agencybodyshops and are encouraging investment in new equipment, skills and products.
Standards
Vehicle agencies need to meet the OEM standards and will be measured and monitored against these. The independent
sector is relatively unregulated with no mandatory standards or environmental controls at the moment. However in the UAE and KSA, there has been work ongoing to create and a workshop standards scheme which will be implemented over the comingtwo years.
Impact of new vehicle technology on the sector
The vehicle parc in Gulf countries has a high number of prestige and performance models, so bodyshops see complex vehicles on a regular basis. The investment is required in skills to meet this demand both now and for the future and many recognise this. The problem is the region has a transient workforce, many ex-pats who may move on from the market in the short term, which often means the decision to invest and train can be difficult or delayed.
However it is widely acknowledged that investment in training, equipment and education is the only solution to this. Older, morebasic vehicles of lower values are often repaired in the industrial areas by many of the unregulated segment workshops, where questionable quality and repair methods are a cause for concern.
Trends/developments over the next three to five years?
1. Skills availability
2. Vehicle technology
3. Standards – environmental and quality
4. Reducing margins for bodyshops
5. Increase in collaboration between insurer – OEM – agencies
FACTS & FIGURES
All data is provided to cover the GCC region
1. Bahrain or Kingdom of Bahrain
2. Kuwait
3. Oman or Sultanate of Oman
4. Qatar
5. Saudi Arabia or Kingdom of Saudi Arabia (KSA)
6. UAE – United Arab Emirates (Abu Dhabi, Ajman, Dubai,
Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain)
Population 51.5 million
GDP $1,423.59bn
Number of people who hold a full driving licence Unknown
Total vehicle parc 12.5 million
Average vehicle age 6 years
Total new road vehicle sales
2015 – 1.8 million
2016 -1.4 milion
2017 – 1.1 million
New car sales have been hit hard by the market correction of 2016 to drop by 27%. The biggest losers within this correction are KSA (sales dropped by 38%), UAE (28%) and Bahrain (41%).
Number of reported road collisions per annum
Total numbers unknown but accident rate is circa 34% however this is changing, for example a number of road safety initiatives are operating. If we look at the UAE as an example of this, the results speak for themselves as statistics reveal a significant decrease in the number of traffic accidents at the countrywide level – from 4,895 traffic accidents in 2014 to 4,788 accidents in 2015.
This constitutes a decrease of 107 accidents, accounting for 2.2% in 2015 and this trend is likely to continue as road infrastructures improve, also vehicle specifications in the GCC region are high so the increase of safety systems on newer vehicles will assist in the reduction of major accidents.
The trend highlights that accident rates across the region are reducing year-on-year, driven by a number of factors, which
include: increased awareness of driving behaviour influenced by increasing levels of fines; road systems are improving; increasenumber of radars; and the increase in vehicle technology which means cars are becoming safer and accidents, which previously would have resulted in heavy collision damage, are seeing a lower level of damage.
Number of vehicle write-offs per annum Not recorded
Number of motor insurers
The UAE and Saudi Arabia are the GCC’s two major insurance markets, accounting for more than 70% of the total premium
collected. Motor/automotive premium rates increased by an average of 10% in 11 countries and by more than 10% in two
others. These rate increases are attributed to high loss ratios in the motor third-party liability business and additional regulations driving up underwriting costs.
The insurance sector, like other industries in the region, has been hit by the steep decline in the price of oil since mid-2014,
according to analysts. The oil crisis has negatively impacted the economies of Gulf Arab states that rely heavily on oil revenues.
Saudi Arabia, the world’s largest oil exporter, suffered a record budget deficit of R367bn (riyals) or $97.86bn in 2015.
Country Number of insurers
UAE 80
KSA 35
Kuwait 36
Qatar 28
Bahrain 36
Oman 23
Average motor insurance premium and excess/deductible
Insurance risk calculation models typically work on the vehicle value depending on the insurer, which is typically between three and seven per cent of the vehicle’s market value. Competition for marketshare among insurers has seen this go even lower which, in a market with a considerable motor claims rate and variable repair costs, creates real issues around the sustainability of motor insurance.
However, motor insurance is developing and more awareness of the risk calculation around driver behaviour is in the process of being implemented as the markets become more regulated. In the UAE, a major change in 2016 was to motor insurance policy regulations that will offer customers more clarity and benefits such as courtesy cars. Under the new rules, motorists will
also see liability coverage extend to husbands, wives, children and parents – as well as a sharp increase in cover for property destruction. Damage inflicted on property belonging to others in a vehicle accident is now insured to a maximum of Dh2m from Dh250,000.
However, the changes – which bring civil liability, or third party cover, and comprehensive loss and damage cover under the same policy – will come with increased costs for insurers and that’s likely to be passed on to customers. The regulations are a step towards a more transparent system.
As well as the increase in third party cover and property damage, the other most salient part of the new regulation is that it will be mandatory for insurance companies to give policyholders compensation equivalent to the cost of a replacement car after an accident for a maximum of 10 days and a value of up to Dh300 per day. A replacement, or courtesy, car – or cash for a rental – is sometimes provided when a vehicle is under repair but until now this has been entirely dependent on the type of policy and insurer.
The premiums insurance companies received through vehicle policies last year reached Dh5.6bn, comprising about a fifth of all insurance premiums, according to the Insurance Authority. Under the new guidelines, good drivers will continue to obtain discounts on their insurance premiums and drivers with poor records will be made to pay more.
Insurance approved collision repair networks in operation Yes, although low maturity in this area as the development of approved repairer networks grows. Networks typically consist of vehicle agency bodyshops although the independent sector is starting to mature and within the insurance approved networks there is an increasing number of independent bodyshops. Insurers have agreements in place with workshops but these tend to be focused towards a small number of workshops rather than a full network. Vehicle insurance prescribes that within the first or second year, motor insurance cover will be ‘agency’ cover, which means the vehicle will be repaired by the vehicle agency.
After this the vehicle will typically be repaired in the independent market. Changes are starting to take place as OEMs have started to develop closer working relationships with insurers to create branded insurance schemes which look to secure older vehicles back into their agencies.
Insurance owned collision centres in operation No
Annual cost of motor insurance fraud Unknown
Insurance approved collision repair networks operating Yes
Insurance owned collision centres in operation No
Vehicle manufacturer approved collision networks in operation Yes
Vehicle manufacturer owned collision networks operating No
Accident management companies active within market No
Accident management company approved collision repair networks in operation No
Total number of bodyshops 4,500. It should be added that within the region there is an absence
of accurate market data, this is due to the market still developing.
It really is a story of two halves as we have the regulated professional market segment – ‘regulated’ being businesses which would operate to a set of standards, for example a vehicle manufacturer brand – and the unregulated market.
It is recognised that outside of the primary regulated bodyshops there are many small, local bodyshops within industrialised areas whose numbers are difficult to confirm. It has been estimated for example that there are several thousand such businesses in the UAE alone and it is considered to be even greater in KSA. The actual figures are difficult to confirm.
Number of primary bodyshops Circa 1,200. These predominantly consist of agency
(manufacturer) bodyshops.
Average cost of repair $2,178 or often calculated in number of panels which is 4
Cycle time 21 days
Average labour rate Repairs are costed as a per panel rate rather than purely labour rate, the average cost per panel is AED1,050, Typically the figure is distorted as unregulated independent repair centres can charge as low as AED200.
Accident repair market value €107m
Mobile collision repairers in operation No. There are a number of smart operators but these tend to have relationships with retail business or auto sales and not directly linked to collision repair.
Other vehicle damage repair facilities/models in operation
Across the region there is a growing market in vehicle detailing, this is becoming a widely recognised segment with a high number
of workshops adding detailing to their overall offer. While overall numbers are unknown, professional detailing centres which may be part of a bodyshop operation or standalone are much more visible, the UAE in particular is seeing enormous growth in this market. Organisations which provide products to this segment are also helping to develop its professionalism. Organisations such
as Norton, part of the Saint-Gobain companies in 2016 launched a ‘car spa’ programme which looks to formally recognise the professional vehicle detailers.