Every quarter when I look at the combined operating ratio results for the P&C claims industry, I see a constant problem: increasing loss adjustment expenses (LAE).
To combat this trend, many insurance carriers have begun automating or outsourcing tasks like vehicle collision damage appraisals. As a result we're seeing an increase in the volume of these appraisals "outsourced" to direct repair program (DRP) partners, likely in an effort to avoid pricey insurance company or independent staff appraisals. The cost of a staff appraisal can be the most expensive collision repair appraisal channel, potentially more expensive than an independent appraisal — hence the shift.
Direct repair appraisals have two advantages: lower costs, and a potential to reduce claims cycle time if the vehicle is left for repairs and repairs begin promptly.
Carriers can make this transition by automating portions of the direct repair process, which can help make it the quickest and therefore most cost effective appraisal channel while also allowing it to be scalable to meet increasing volume.
It's also important to implement electronic auditing via a "pass and pay" feature, which lets DRP reviewers focus on appraisals that really need attention rather than individually reviewing 100 percent of repair claims volume. Simplifying tasks such as matching electronic photos to repair orders can help with efficiency, as well.
Not everyone is a fan of using DRP-supplied appraisers though. Many feel that DRP severity rates run higher than staff appraisal average severity, but this is not always the case because you are measuring two different areas.
A DRP average severity is the average payment it took (with supplements) to repair a car. Staff appraisals are frequently "cashed out" and owners choose not to repair their vehicles. If you compare staff and DRP appraisal data sets by $100 increments, you will likely see that DRPs don't have many repairs that total under $500, as in the case of typical staff appraisals, which is where the higher average DRP repair average is coming from.
When was the last time you looked at your data in this way?
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