Zurich has radically reduced its network of vehicle repairers but what will it mean in the long run?
In an effort to cut costs, improve quality and reduce customer complaints Zurich has announced its decision to cut back its vehicle repair network from 170 companies to four.
The decision has been described as bold by the Motor Vehicle Repairers Association and although rare, it is certainly not unique. Less than a year ago, Norwich Union made a similar move and reduced its panel down to seven national repair firms.
If the new structure proves tricky or unprofitable for Zurich they could be in the precarious position of having to renegotiate contracts with some of the companies they parted ways with – something Mike Monaghan, chief executive of MVRA said the shunned repair shops would be less than thrilled about.
That said, if the new model thrives, Zurich could find themselves in a position of being victims of their own success.
“If this succeeds there could be a number of insurers that would want to replicate this model,” said Monaghan.
“There are a limited number of national repair shops in the UK. It would become very competitive and those national chains would be in such high demand.”
Given the need for these repair companies to have garages in the various regions within the UK, insurers have limited options when they seek these partnerships.
Already Zurich and Norwich Union share the services of several national chains. But what would happen if more insurers switched to similar models? Would the repair shops be able to handle the exceptional influx of business or would turnaround times be impacted and the qualities of repairs suffer?
“I see a situation where the repairers would really start having the upper hand,” said Monaghan.
Those who lost the contract bid, however, stand to lose a lot with Monaghan estimating more than 40 repair shops could potentially shut down without business from Zurich.
It’s likely that if Zurich’s new model works, more insurers will look to follow suit. After all it’s a matter of efficiency and economies of scale and as Bill Payton, chief claims officer at Zurich, said: “Trying to manage 170 relationships is difficult to float but four companies is a lot easier. Trying to improve the quality and speed of service to the customer is equally important as cutting costs.”
Consolidating the number of firms in the network would also allow insurers to better manage the quality of repairs by ensuring that all the participating garages have invested in the tools and technology to fix modern and increasingly more complex vehicles.
As is the case with most structural changes, only time will tell its success but its clear many of Zurich’s competitors will be watching closely.
