Funny money and funny hours: not funny at all

Special feature

Fraser McEwing bravely tackles the issue of 'funny money, funny hours' and finds many differing opinions but no easy solutions.
There are few subjects more likely to lead to a punch-up in the body repair industry than a debate on 'funny money and funny hours'. There are definitely no laughs as insurance assessors and repairers settle into the poker game of pretending that jobs takes longer than they really do, and tradesmen are paid hourly rates below the poverty line.
Just why the majority of the trade is prepared to go on playing this silly game has a lot to do with there being too many panel shops and rationalisation among insurers. The panel shop surplus is augmented by safer roads and speed restrictions which have led to less collisions. And because panel repairs are a local service industry, they are not under threat from imports -- as many manufacturing industries in Australia are. Panel shops see their profits coming from keeping their own costs down while, at the same time, trying to convince insurance assessors that jobs are worth more than they really are. Inefficient and badly managed panel shops tend to think they can survive if their negotiating skills are powerful enough.
One section of the trade, representing the majority, believes in funny money, funny hours, pointing out that this odd interface between insurer, assessor and repairer is practised in many parts of the world, including the US and the UK. The other, led by AAMI, is only interested in dollar quotations -- which exasperates the shops that want to plead their case for more hours and a better pay rate for their labour.
Not only does AAMI (and its offshoots such as the standalone claims management company, All States Auto) believe that dollar quotes are the cleanest way to do business, it sees this method as putting a stop to 'funny practices' and bringing more efficiency into the industry. Ralph Johnston, national director, corporate affairs for AAMI is quite adamant that dollars quoting is the only way to go, and has been for the past 20 years as far as his company is concerned.
"Quoting in hours doesn't encourage efficiency," he says, "and it doesn't allow repairers to look for better ways to carry out their work. Hours and hourly rates are irrelevant."
AAMI is not generally liked for insisting on dollars. Many repair shops resent having to compete in AAMI's two-quote system, especially when the lowest quote does not necessarily get the job at the quoted price. Several repair shops, who asked not to be named, gave instances where AAMI had accepted a quote and then had gone back over it to snip a bit more off. Ralph Johnston answers this by saying that adjustments are a legitimate practice in order to get to the right price. He points out that on some occasions the adjustment is up, rather than down, to ensure the repair is done properly.
Even though AAMI resolutely insists that it deals in dollars, there is no way around the fact that the mental process of the cash quote assessor detours via hours. All the assessors who work for AAMI -- and nearly all assessors in Australia for that matter, have had hands-on panel shop experience. This gives them a mind-set of hours and a tendency to fall back on estimated hours when a quote is in question, even though the discussion may immediately be translated into dollars. However, whatever opinion the repair industry may have of the way AAMI treats it, there is general agreement that AAMI and its offshoots usually achieve the most competitive repair prices -- which goes on to benefit the insurance company's shareholders And that, one could argue, takes precedence over propping up the over-population of repairers.
There is a small body of opinion in the middle which would like to see real hours and real money applied to quotations, but that only leads to an endless debate over what are reasonable real hours and reasonable real labour costs. The MTA manual, which is now more than 30 years old (and out-of-date some would say) is the popular starting point, and immediately runs into trouble when new models and materials hit the market. Moreover, pay rates differ all over Australia. In NSW, workshop employees get paid considerably more if they work in Sydney than if they work in a country town. And even in the city the pay varies. It is significantly higher in Artarmon, for example, then it is Bankstown.
The chance of finding a formula for real money and real time that would satisfy even a small percentage of insurers and repairs seems remote. NRMA Insurance has distanced itself from the debate by fixing its own hourly allowances and its own time estimates. Its designated repair shops cannot get rich on NRMA allowances but, if they play ball, they won't go broke either. NRMA is really running a repair system within the larger one. It comes in for a lot of flak for the way it does business, but uses its size to simply shrug it off. When asked for a comment on the subject of hours and labour rates, its reply was that everything was going quite nicely, thank you, adding that its website contained everything it wanted to make public.
In Queensland, Suncorp Metway (incorporating GIO) tows its policyholders' damaged cars to a central depot where each job is allocated to a trusted repairer who takes it to his shop and issues a quote. The interesting point of this system is that there are not enough assessors to see all the damaged cars and examine all the quotes. The result is that panel shops who work for Suncorp make more profit, but the insurance company also makes substantial savings by not having to employ many assessors. The relative honesty of panel shops is kept in check by their ongoing track record and the threatening prospect of an assessor making a random call.
National assessing manager for Allianz Australia, Keith Dean, is working towards a rational, and slightly different method of assessing and quoting. He says a panel shop cannot give an accurate quote on a heavily damaged car until it is stripped and the work is totally exposed. A trusted repairer is selected before the job is commenced and by the time the quote is ready, the job will stay with that repairer. The advantage of this system is that 'additionals' which haunt every quote, and account for an average of an 11 per cent increase on initial quotations, do not occur.
"If you barrier test 10 identical cars, you will get 10 different results and therefore 10 different repair times," he says. "This means there can be no accurate precedent to judge real times." He believes in repair quotes by discussion and agreement rather than the adversarial system that exists between many insurers and repairers.
Perhaps because insurers and repairers are immersed so deeply in their industry, and this immersion is common throughout the world, the majority cannot see past the hours and rates method of dealing with quotes. But if one steps back from the issue and applies an hours and rates system to another industry, the motor trade starts to look a bit odd. Let us say you want some repairs carried out on your house. You will call for two or three quotes, all based on the same work and materials, and those quotes will be in dollars. How ludicrous would it be for the builder to give a quote on the hours he will take to complete the work and how much he pays his tradespeople. Yet this is the chosen route of the panel repair industry.
Do insurance companies really want to have to employ assessors who are expected to debate hours and pay rates with repairers? Is it even the function of insurance companies to do this? Should they be bothered with reaching into somebody else's business to virtually tell them how to run it? AAMI certainly doesn't think so, but it has failed to lead other insurers in that direction.
To say that the issue is complex is an understatement, yet until repairers and insurers can agree on a common basis of quotation, the industry will continue in a manner that few of its participants find satisfactory. However, in spite of these shortcomings, Keith Dean believes Australia has one of the best car repair industries in the world. He has travelled extensively on fact-finding missions, and says that in terms of quality work and insurer/repairer relationships we sit high on the list. He sees the issue not so much in terms of dollars and hours, but in partnerships, larger shops, greater efficiency and sustainable profits.