SPONGE CAKE OR TIRAMASU?
Thank you Warren Mallard - Lyonswood Investigations & Forensic Group for this article.
It is interesting to analyse the recent profits of insurers and most recently those of QBE insurance who announced a greater than 50% increase in profit which they attribute to better investment forecasting and reduced claims, the latter being the area that does not auger well for investigation companies and others who have traditionally depended upon insurance companies for their livelihood.
Over the past 25 years in the investigation industry I have watched with interest the trends that have affected the potential for the industry and how they have affected the market place and the necessity or otherwise for insurance companies to outsource to the private sector. There have been great highs and lows mostly influenced by trends in fraud and counter trends in risk minimisation. We are in a risk minimisation phase however unlike previous risk minimisation that was largely due to investigation, we are now seeing the risks reduced via changes to personal injury and O.H.&S. legislation. I don't have a problem with O.H.&S. legislation however I do have a problem with injured persons being disenfranchised from receiving adequate compensation because the State Government and the insurers ran the system down to a massive deficit through greed and mismanagement.
The investigation industry is not the only industry that has been affected by the reduction in claims, the motor repair industry has also been decimated and the number of those engaged within it has been reduced considerably from where they were in the 1980's. In the 1980's Motor Panel Repairers had their own clients, clients that were generated by their own service levels and satisfaction or otherwise. These reductions of motor industry participants have been brought about largely for a few reasons. The introduction of legislation such as random breath testing, speed and red light cameras, better roads and signage, better constructed and designed motor vehicles and laws that regulate drivers are the major contributors. We must not however lose sight of the very important fact that insurers are publicly listed companies driven by shareholders and profit expectations.
Insurance companies are very pro active in lobbying governments to assist them in claims reduction. The recent NSW changes to personal injury laws are proof positive of how insurers managed to convince the Carr Government that the evil in personal injury claims was the legal profession. Subsequent studies however, commissioned far too late, provided evidence that this was not necessarily the case. The legal profession did not exacerbate claims and payouts in NSW; they were exacerbated by an inept Government Department (Workcover Authority) and a decreasing amount of investigation by insurers hungry to satisfy their shareholders. The well-known fact that Bob Carr hated the legal profession did not assist the legal profession and their client claimants one bit.
The investigation industry has now suffered the same fate as the motor repair industry at the hands of monopoly profit driven insurers. In the personal injury sphere, there is now less investigation due to the limitations placed upon victims with regard them being able to lodge claims at Common Law. Theft investigations have also declined in the motor sector due to better alarming of vehicles and DNA of the component parts.
Why am I comparing the motor and investigation industries?
Its easy, they are both largely dependant upon the insurance industry and the Motor industry has a well documented history of being ground down and manipulated by the insurance industry for many years. The main grinder being the IAG group under its many guises, NRMA Insurance, CGU Insurance, Swann; etc. Just ask an NRMA motor body repairer panel member how much they get per hour to repair a motor vehicle. They haven't had an increase in hourly rates for over 9, almost 10 years. How much? $30.90 per hour and that includes all overheads and panel materials, spray booths, auto robots, paper, labour etc. Surprised? I haven finished yet. They then send out assessors to slash and burn the time estimates provided by the repairers. I am verily advised that they are even looking at supplying the repairers with parts. Further, they give preference to second hand or parallel parts over genuine parts. I have witnessed these parallel parts first hand, they generally have less welds, are lighter and quite often don't fit correctly. All of this has to be borne by the motor panel repairer. Heaven help a motor panel repairer that bucks the system and tells their owner clients that they are getting an inferior part. Did I say "Their clients" well that's another point of contention in itself. If your not on the NRMA panel and an NRMA insured approaches you to repair their vehicle they are generally told by their insurer that the repairer they have attended in not NRMA approved and that they should take their vehicle to XYZ company who is approved. If the owner insists upon attending the repairer of their choice they are then told that the NRMA will not guarantee the repair. If this is fair and just then I must be mistaken. So much for having your own client base established through your own good work.
So you might say, why is it they only pay motor panel repairers who are qualified tradesmen (4 year apprenticeship) $30.90 hr and investigators double and more? Are investigators more intelligent than panel beaters? Do investigators study harder or require more qualifications and training than a panel beater? Do investigators have to buy equipment etc. to complete their work? The answer of course is No! Its simple, motor panel repairers cost insurers money and investigators save them money. This does auger well for insurers retaining investigators however don't be lulled into a false sense of security. They have been able to control the motor panel repair industry through division and fear of losing the work of the major insurer clients within that industry. When you are a monopoly you can easily do this. They have transferred this very successful and controlling approach to the investigation industry. If you are not on the panel of a major insurer then how do you survive? If there are fewer panel members then how do you complain? Thus, if the insurer says, "jump" you know what to do. If the insurer says we are not paying for travel from a particular location to a particular destination and nominates charge out points and you haven't got an investigator close to that location, what then must you do? If you're a principal panel member, you screw down your operatives. What then can the sub-contractors do? Wear it or get another job.
Its far easier for profit driven insurers to slash and burn what they outsource than it is to make internal cut backs which of course may effect them.
I don't have the answer however I am observing an emerging more pro active motor panel repair industry lead the way through the courts to get justice for 'real money for real time'. My advise is that the rates will be doubled or even trebled but just wait to see what the insurers get up to recover some of those increases. As with the investigation industry they use smoke and mirrors, they increase the hourly rates and then take away by restricting travel and administrative charges. Our investigation industry is far too disintegrated and not in any way cohesive and the insurers know this. Perhaps the way forward for those who rely upon the insurance industry for their income is becoming more united in terms of rates and conditions. I suspect however this is a very long way off because there are fewer companies on the investigation panels of these insurers and to make waves would certainly bring about a tsunami for the wave maker and this is how the insurers like it.
Divide and conquer. It's an old but effective strategy. Where once there might have been several hundred panel members nationally, there are now less than 30 major companies. The insurers will argue that these companies were the best and provided the best integrated solutions and words to this effect. What it really means is that those who are now doing the work are well and truly under the control of the insurers. They don't run their own businesses, the insurance companies run them.
I recall the halcyon days of claims managers being reasonable, being able to establish good working relationships with insurers and have them listen to the reasons behind traditional charges and of course the volumes of work that flowed. I recall dealing with senior experienced persons and not junior inexperienced persons. Looking back I can reflect upon a time where I had six offices, eighty operatives, a 24-hour typing pool and over 6,000 investigations P.A. and made a good honest profit from providing excellent factual and surveillance investigations and at the same time selflessly contributing to industry representative investigation associations and drafting competencies and new legislation. In fact I recall one day where I attended an insurer and collected 157 investigations. Alas, these are distant memories never to return.
Now, few scramble for a slice of the insurance personal injury cake albeit the cake being more akin to a sponge rather than a sweet tiramisu.
Beware of the stealth that exists within the insurance industry. I await the outcome of the long-term battle between motor panel repairers and the insurance industry with great interest.
Warren Mallard -
Managing Director
Lyonswood Investigations & Forensic Group
204 Lyons Road, Drummoyne NSW 2047
http://www.investigators.net.au
+61 (0) 2 9819-6833 F +61 (0) 2 9819-6300
DX 21007 Drummoyne