NRMA and MTA launch real time, real money

By June 2009 every repairer who does work for NRMA Insurance or its sibling brands under the IAG umbrella will be quoting in real time, real money or, as NRMA calls it 'new times and rates'(NTAR)
NRMA Insurance made an industry-leading move away from 'funny time, funny money' in October by requesting that its preferred smash repairers (PSRs)begin quoting in NTAR. The change will begin in the Sydney suburb of Taren Point where there is a concentration of smash repairers. It will then roll out to other Sydney repair centres, country NSW and eventually on to all Australian states. Initially PSRs will not be compelled to switch to NTAR and will have the option of switching in and out of using it, but NRMA has declared June 2009 as the date for full and permanent compliance.
NRMA Insurance assessors, who are the interface between NRMA Insurance and its repairers, have been undergoing intensive training to equip them to deal with quotes in both 'languages'
The move has come after 18 months working alongside the Motor Transport Association (MTA) of NSW to write a manual for remove and replace (R&R)and paint times that repairers and the insurers agree upon. The times manual displayed on the MTA website and the version for PSRs are now virtually identical.
After considering many models for its new times and rates system, NRMA Insurance has opted to stay with the principle of a specified hourly rate used as a multiplier with the number of real hours Ð now expressed in minute units.
While following a times manual is simple enough, arriving at an hourly rate that each shop can command is far more complicated.
Rather than impose a 'one size fits all' shop rate (currently set at the funny money rate of $30.90 per funny hour), NRMA Insurance allows each shop to calculate its individual rate and submit it to an NRMA Insurance motor repair consultant (MRC)for approval. Using the large amount of comparative data at his disposal, the MRC will decide whether the submitted shop rates are reasonable or not. In arriving at their shop rates, PSRs will have the help of a 'repair validation tool' which is a calculator prepared by accountants Deloittes. The calculator takes into account the three major factors in running a shop: rent, wages and productivity. The range of acceptable shop rates will be between $60 and $94 an hour with an expected average of $79.
Once the rate has been calculated by the PSR and signed off by an MRC it will be accepted, without question, by NRMA Insurance assessors. That will cut out bargaining between assessor and estimator on R&R and paint costs, which account for around 20 per cent of the average repair. A further 30 per cent, which includes panel repair, will still be open to negotiation over time, given the shop rate has been already agreed upon. The use of 'additionals' to unforseen repairs will continue under the established system.
NRMA Insurance has no plans to change the arrangements over parts pricing Ð which has an agenda of its own.
To avoid the hourly rate stagnation that has plagued the last 10 to 15 years of NRMA Insurance dealings with PSRs, each shop's hourly rate and definition will be subject to review when 'triggered' by a mechanism built into the NTAR arrangements. NRMA Insurance suggests this may be yearly.
There are other subtleties to the agreed hourly rate that PSRs will have to consider. While an MRC may agree that a shop's submitted rate is justified, that doesn't mean the shop will automatically charge that rate. It certainly won't be allowed to charge more, but it may decide, in the interests of competition, to charge less. That will presumably bring it more work than an identical shop charging its full, agreed rate. NRMA Insurance expects that this competition will act as a brake on charging full rates while, at the same time, rewarding increases in productivity.
Wages, the first leg of the shop rate formula, will reflect the skill level of the shop. Presumably, higher paid technicians will be more productive Ð which results in an interesting anomaly. While the higher wages push up the shop rate, the higher productivity pulls it back down again. It is only by using the calculator that repairers will be able to balance issues like these. In some cases, shops with high wages and high output equipment could prosper on a lower shop rate than less endowed shops. NRMA Insurance and the MTA both emphasise that the new system will not support inefficient shops.
Rent, the second leg of the shop rate formula, is relatively simple. It takes into account the average rent per square metre in the shop's location. Presumably, while conveniently located shops pay more rent and can reflect that in their shop rate, their accessibility for policy holders and towing acts as an offset.
Productivity, the third leg of the formula, allows a price based on 80 per cent of R&R times in the times manual. Repairers who perform R&R at better than 80 per cent of the manual times will either enjoy higher profits or may feel like lowering their shop rate to attract more work.
Although NRMA Insurance did not go in the direction of AAMI's competitive quote model, believing it not suitable for its general repair purposes, NRMA Insurance has left its WRM internet competitive quoting system in place. Head of claims and assessing, David Brown, says that WRM accounts for around 25 per cent of Sydney metropolitan repairs.
Also unchanged are the insurer's care and repair centres and policy holders' freedom of choice of repairer ? subject to some established conditions.
Brown acknowledges that NTAR has a considerable way to go before it is settled in, and that adjustments will be made as the need arises. He says it is likely that under NTAR the cost of claims would rise and NRMA Insurance is prepared for this. It will not tolerate, of course, a cost blowout, just as repairers would not be expected to tolerate having their incomes cut.
Although NRMA Insurance has not stated it, there is little doubt that the shops with lower shop rates will attract more work than those with higher shop rates, even though they can justify their rates. Rather than impose low money rates on its PSRs and let them look for profit by negotiating higher times, NRMA Insurance is letting market forces into the ranks of the repairers so that competition will set prices.

The education process
The move to real time, real money is not confined to NRMA Insurance repairers. The MTA intends that the change will be adopted by all insurers and all repairers.
This being the case, the education task is massive. NRMA Insurance and its sibling brands have 1800 network repairers nationally. Half of those are centred in NSW and are serviced by 200 assessors and MRCs.
If other insurers, with the exception of AAMI, support real time, real money, several thousand repairers, assessors and managers would need to agree on the ground rules. One question that arises is whether other insurers would accept the shop rates agreed to by NRMA Insurance.

Repairer meetings
Over the coming months, while NRMA is training its assessors and PSRs, the Motor Transport Association of Australia (MTAA) will hold repairer meetings around Australia to extend the reach of real time, real money.
The program was kicked off in Sydney where repairer Richard Nathan and MTA NSW CEO, James McCall, explained the move to real time, real money. At a Cammeray meeting Richard Nathan said:
"This is an historic occasion. We have a unity of purpose, beginning in New South Wales that is unique throughout the world Ð so its no good looking overseas for a guide. The new system will result in a way to calculate each individual shop rate and have it agreed to by the biggest insurer. Under the old funny time funny money system we could never get a reasonable rate increase. This is not a case of them and us. We're doing it together. "
Nathan said that repairers needed to put in time and effort to work out their shop rates. The process would result in them being better educated business people and they'd find out that many of their charges under the old funny system were actually showing a loss.
He said that the times manual would be subject to change as field reports came in which indicated that certain times should be adjusted, but warned that the times did not apply to under equipped shops. In order to achieve an acceptable 80 per cent of the allowed times for R & R, a shop had to have advanced technology. "You can't expect to use a MIG welder when an silicone bronze or an inverter is called for to achieve the time," he added.
James McCall, who also addressed the meeting, made the point that real time and real money would reduce much of the conflict between repairers and assessors. And repairers who mastered the new method, using the MTA's 'OTM Guide' would save at least 50 per cent of their quoting time.

Effect on other insurers
Because the IAG group, through its brands, is collectively Australia's biggest car insurer, any changes it makes will be felt throughout the whole industry. If its own claims costs go up as a result of the move to real time, real money, it is likely to push up those of its competitors. Another factor likely to lead to increased repair prices is that NRMA Insurance PSRs and, in fact, any repairer at all who does business with NRMA Insurance through freedom of choice of repairer, will have to know their shop rate in order to quote.
It is likely that, by NRMA Insurance forcing repairers to educate themselves on time and money matters, those repairers will feel fortified enough to charge more.
The Suncorp merger with AAMI presents a particularly complex When GIO was asked to comment it was understandably reticent in its statement:
?We are considering the real time, real money approach but have not yet made a decision as to whether this is something we will adopt. We understand that any future decisions regarding this issue must appropriately balance the needs of customers, the smash repair industry and our own requirements. We are working closely with the MTANSW through the process of understanding RTRM."
Allianz, which holds in excess of 10 per cent of the motor insurance business in Australia, is also non-committal about RTRM. Corporate affairs manager, Nicholas Scofield, points out that there is no legal compulsion for insurers to adope real time real money as a way of doing business. In fact, the insurer may nominate the form in which he wishes to receive quotes from repairers.
Scofield says that the system evolved between NRMA and the MTAA has still a way to go until all the issues are ironed out.
"We will closely monitor and analyse the situation," he says, acknowledging that at this early stage the move does seem positive and offers more transparency.
It is possible that the freedom of repairer choice that has been enshrined by Allianz could be upset by RTRM. Because the percentage of a repair that can be negotiated with a bodyshop will drop from around 50 currently to 15 if RTRM is adopted, pressure could come from non-network repairers (who handle a significant percentage of Allianz repairs) to raise repair charges. If that happened, Allianz may be forced to move all its repairs back to its own network.