The average cost of a fleet accident is at an all-time high due to the technology content of vehicles that must be replaced following an accident, according to fleet accident management services providers. In 2005, the average severity of a fleet claim was $1,848.36, which is a 3.18 percent increase over 2003. (The accident management term “severity” is defined as the total dollars a company spends on the repair of a vehicle, which includes the cost of labor and parts, but excludes the cost of a replacement vehicle.) Factors driving severity costs in 2005:
• Increased number of airbags.
• Increased use of electronics.
• Frequent increase in parts prices.
• Increases in the price of commodities such as steel, aluminum, and oil used to manufacture parts and components.
• OEM sales of more “assemblies” rather than individual parts.
• Increased use of plastic components, which are expensive and are more easily damaged in an accident.
Need to Replace Multiple Airbags
A key reason for the increase in fleet claim severity costs is the proliferation of airbags within a vehicle, said Margaret Morrish, vice president of operations for Fleet Response. Three years ago, the average car was equipped with only two airbags. Today, five or even six airbags in a vehicle is not unusual.

“This increases repair costs as airbags need to be replaced following deployment in an accident,” said Vincent Brigidi, director, strategic account services, of The CEI Group. “When you have a car with five or six airbags in it, you are more likely to total a vehicle compared to three years ago, because the repair costs are higher even though the accident damage may be no different,” said Brigidi.

At a minimum, in a frontal collision, fleets need to replace the driver and passenger-side airbags, along with knee airbags, which deploy at the same time. In addition, many fleets err on the side of caution and replace all airbags in the vehicle, even if they did not deploy.

“Three years ago, a car with $10,000 in damage would today, involved in the same accident, most likely have $12,000 to $14,000 damage because of the additional airbags that deployed. In this case, because of the dollar amount, we would total the car, which contributed to the increased average number of vehicles totaled in 2005,” said Brigidi.

As vehicles become more complex, some repair work is beyond the expertise of the average repair shop.

“With the wide array of shops available to repair vehicles, it’s important they have the expertise to ensure repairs are completed in accordance with industry standards. For instance, some shops are good at painting cars and fixing dents, but not so good at resetting the airbag system and all the myriad of other electronics that need to be reset,” said Eliot Bensel, manager, vehicle accident services for PHH Arval. “Typically, they outsource this work to a franchised dealer with whom they may or may not have rapport and that’s where you could run into problems.”

John Wolford, senior manager of training and provider network services for The CEI Group, offered a similar observation. “One reason for the higher repair costs is that most shops are uncomfortable replacing airbags and electronic sensors. They typically sublet the repair to a franchised dealer, who works at a higher dollar per hour rate,” said Wolford. “We are seeing more subletting of this type of work.”

Advanced frontal airbags, or 3rd generation, are being phased into new-model vehicles, which started with 2004 vehicles. All light vehicles will have advanced frontal airbags by model-year 2007. “With seat position sensing airbag systems, you can’t just replace the parts and reset the system. It has to be calibrated using a very special process,” said Bensel. “If this is not done, a shop could deliver a vehicle to a driver whose airbags will not perform the same way in a second collision as they did in the first.”

More Electronics to Replace
In addition to airbags, other technologies are also increasing accident repair cost. “For instance, seatbelts are sensored to work in conjunction with the airbags,” said Wolford. A seatbelt retractor will electronically deploy in a collision. “More and more manufacturers are requiring seatbelt replacement following retraction in a frontal impact,” added Wolford.

Another trend has been the migration of technology from high-end vehicles to less expensive models in a manufacturer’s lineup. New automotive technology, often introduced first in high-end models, in later model-years proliferates downstream throughout the model line. “Because of this, much technology that has been around for a while is now more prevalent in models that fleets typically operate,” said Brigidi.

Parts Prices Continue to Increase
The price of replacement parts has also been increasing for the past three years. A variety of factors are driving these price increases. “One factor is the price of commodities, such as steel, aluminum, and copper,” said Greg Neuman, quality control supervisor for The CEI Group and a licensed appraiser.

“The cost of fuel is also impacting parts prices because it has increased the cost to transport parts,” said Neuman. Also, plastic parts, which are derived from petroleum, have seen manufacturing costs increase with higher fuel prices. Likewise, the cost of paint has increased due to the higher cost of its oil content “We are seeing price increases every two months,” said Wolford. “They are single-digit price increases, but they are occurring more frequently.”

Another factor for the increase in repair cost is that manufacturers continue to sell more assemblies rather than individual parts. “If you have a damaged quarter panel, now you have to buy an integrated body side unit that contains the quarter panel,” said Neuman. “Although some manufacturers are reverting back to selling individual parts, most continue to sell parts as part of modules.” In some cases, manufacturers sell assemblies for safety considerations. “Manufacturers are focused on safety and not necessarily on ease of repair, which can result in a higher cost of repair,” said Bensel.

Increased Use of PDR
The use of paintless dent repair (PDR) is much more prevalent. “This method of repair is becoming more prominent in the repair industry because of its cost-effectiveness,” said Morrish of Fleet Response. “PDR limits the amount of downtime to the vehicle, keeps the structural integrity by limiting the amount of parts that have to be removed, and does not require refinish time.” PDR has been instrumental in helping to control repair costs. “PDR is the number one reason why repair costs have not gone up as much as they could,” said Brigidi.

Another reason for its prevalence is that insurance companies now approve the use of PDR, where in the past they didn’t, said Neuman. “There is increased acceptance that the PDR industry is more professional, especially now that there is a national certification program. As a result, there is now better quality work. Plus, the metal on vehicles is thinner than in the past, which makes it easier to do PDR,” said Neuman.

PHH Arval agrees, but advises fleet managers to exercise caution. “We support PDR done the right way,” said Bensel of PHH Arval. “There are still people who compromise structural integrity by doing PDR the wrong way. PDR is always preferred over the replacement of panels when it can be done without compromising the structural integrity of the vehicle.”

Trend to Safety-Only Repairs
There is a trend among some fleet managers to adopt a policy of safety-only repairs, meaning they don’t necessarily want the vehicle repaired to pre-damage conditions. “These fleets want to repair a vehicle to the point where it is safe for the driver to drive and not incur additional expense. In many cases, this only delays the repair expense to remarketing,” said Maurice Chenier, program manager safety solutions for GE Commercial Finance Fleet Services. “The best cost-savings opportunity lies with accident prevention rather than minimal repairs.”

Another factor influencing accident repair is that companies are paying closer attention to containing cost, says Bob Martines, president/CEO for Corporate Claims Management. “Our client base is very diverse. Some clients in the professional arena are still image-conscious; therefore, they are still not overly concerned about minimizing the cost for cosmetic repairs,” said Martines. “However, clients in the service profession with vans and pickup trucks are more concerned with keeping the vehicle in use, regardless of its appearance. As long as the vehicle is safe to drive (or can be made safe to drive), that is their concern. Keep the vehicle in service until it cannot go any longer, and then fix what you must.”

Total Loss Declarations are Up
One fleet accident management trend is the increase of total losses among self-insured fleets. “A total loss is declared when the cost to repair a damaged vehicle exceeds a threshold percentage of the vehicle’s actual cash value (ACV),” said Neuman. In the insurance industry, the threshold for declaring a total loss is between 70- and 80-percent ACV. Among self-insured fleets, the average total threshold ranges from 60-70 percent, said Neuman.

“With pressure mounting to contain costs, decisions on repair versus total are becoming more of an issue in both the short- and long-term,” said Martines. “With repair versus salvage decision-making in times past, fleet managers thought hard about investing more than 40 percent book value into repairs and totaled units once the repair costs equaled 50 percent of book value. Now we are seeing repair costs approaching 60 to 65 percent of book value.

“One reason is simply that vehicle replacement costs are much higher. Also, with everyone so worried about capital expense versus operating expense, repairs become a viable option. Driver safety should still be the primary concern, but sometimes it is not. All the money saved over a year cannot make a ‘blip’ on the radar screen if an injury occurs due to negligence from a faulty or illthought repair,” said Martines.

“One additional point I would like to make clear, regardless of the type of client, we make each client aware of the options regarding what can be fixed in its entirety versus partial repairs. At no time will we permit a partially repaired, but unsafe vehicle returned to a driver. We still must protect our clients and their drivers from potential liability. If you factor liability costs into an accident claim, the costs skyrocket,” he added.

Fleet Response also reports seeing an increase in the number of fleet vehicles deemed a total loss.

“The complexity of vehicles has increased labor hours, labor rates or more specialized repair technicians, diagnosis times, and parts prices,” said Morrish. “One example of a costly component is a supplemental restraint airbag system, which can cost from $2,000 to $8,000, depending on the severity of the accident. Many times, this pushes the repair cost over the total-loss threshold.”

Another reason for the increase in total losses is the damage done to a car today is much greater throughout the vehicle than in the past. “For example, windshields are now a part of a vehicle’s protection system designed to absorb the energy of an impact. Today, we see windshields shatter in accidents, where in the past they didn’t. This is contributing more cost for accident repairs,” said Neuman.

Also, some damaged areas of the vehicle are non-repairable. “For instance, if the crush zone collapses, by law in most states, you can’t repair it, requiring you to replace the vehicle,” said Morrish. “Fleet Response uses the standard calculations to determine total losses based on company-by-company policies.”

Sometimes a vehicle is declared a total loss because further repairs could jeopardize safety, added Bensel.

Although there is a trend toward more total losses, there is also a counter-trend among some segments of the fleet industry willing to “spend the money” to extend the service life of a damaged vehicle.

“I have noticed clients willing to invest more dollars into fixing higher mileage or more severely damaged vehicles,” said Martines. “The rationale is that it is still less costly to invest in the unit in service than lease a new one. This will drive up overall repair cost averages, but hold the line on new purchases.”

Subrogating Diminished Value
Subrogation recovery has expanded to include recovery of a vehicle’s “diminished value” following an accident. The concept behind diminished value is that when a vehicle is damaged in an accident, it will never have the same original market value as if it had not been damaged. Diminished value is based on the perceived difference between a vehicle’s pre-loss value and its post-loss value after complete and proper repairs. Currently, only the state of Georgia recognizes diminished value, but this isn’t deterring fleet management companies from pursuing recovery throughout the U.S.

“We have been aggressively pursuing diminished value over the past year,” said Pam Walinski, director, vehicle accident services for PHH Arval. “We are settling and collecting on diminished value in states other than Georgia,” she said.

PHH Arval has also joined several insurance carrier companies in a pilot program, partnering with Arbitration Forums, Inc., a provider of intercompany arbitration services, to test E-Subro Hub, an electronic claims clearinghouse to significantly speed up the subrogation process for automotive claims and reduce costs.

According to Walinski, E-Subro Hub’s Web-based subrogation technology will enable users to send and receive subrogation demands electronically, attach supporting documents (estimates, bills, photos, police reports, etc.), automatically route demands to file handlers, negotiate online, and view and download online reports. “With the new e-Subro Hub, we expect to see a significant decrease in cycle time to settle a claim,” she said.

Originally posted on Automotive Fleet