Malcolm Weatley finds out how insurance claims handling companies are working with manufacturers and logistics providers to identify damage trends and make claims process faster and smoother, with the aim of reducing incidents and financial loss for all parties.
On June 22nd, 2008, a brief but vicious hailstorm hit a vehicle storage compound at Volkswagen’s plant at Emden, a port on Germany’s northern coast. In the compound were some 30,000 vehicles–a combination of Passats produced at the plant, and also imported Volkswagen Group vehicles awaiting distribution. Pelted by hailstones up to the size of golf balls, many of the cars were heavily damaged, with an insurance claim reported at $70m. More dramatically, on July 24th, 2006, the Mitsui OSK Lines ro-ro car carrier MV Cougar Ace developed a 60 degree list to port during a ballast transfer operation. Inside the ship were 4,812 vehicles valued at $117m–4,703 of them Mazdas.
Eventually righted after listing at nearly 90 degrees for over a month, the ship was towed to Portland, Oregon, where the cargo was inspected, revealing damage caused by crushing and leaking fluids–including battery acid. Responding to mounting public concerns, Mazda announced that none of the vehicles would be sold as new, then declared that the entire cargo would be scrapped. Taking place half a world apart, events such as the Emden hailstorm and the scrapping of the vehicles on board the MV Cougar Ace are thankfully rare. For while finished vehicle shipments are far from damage-free, damage is more usually caused by driver error or bumps and scrapes during handling. But such events do throw a spotlight on the role played by the vehicle logistics insurance industry’s claims handling processes, and the role that these processes play in reducing the incidence of damage.
Far from merely acting as compensator of last resort, insurance and claims management companies are proactively working to harness data from the claims that they process to identify how, where, when and why damage is occurring–and to prevent future occurences. “We’re all heading in the same direction,” says Derek Sturley, a logistics loss prevention expert with the Sompo Japan Insurance Company of Europe, which handles insurance for carmakers such as Honda, Suzuki and Mazda. “The logistics service provider doesn’t want the claim, we don’t want the claim, and the vehicle manufacturer doesn’t want the damage. It’s a win-win-win situation.” In addition, says Tom Lowin, an account executive at claims handling specialist Sevatas, and head of the team handling Ford’s European vehicle logistics claims and risk management function, the claims management sector can play a useful role in administering claims, as well as imposing consistency and best practice on the process.
“In manning terms, manufacturers are thinly stretched, and an event such as a hail storm can quickly overload them,” he says. “You can find yourself dealing with external clients such as sales organisations in 30 national markets, as well as with internal clients such as sales, insurance, treasury and logistics– each of whom might have differing objectives. Some might not want the affected cars to be shipped out to dealers, some might prefer them to be shipped out, and others simply want to keep costs down.”
Who foots the bill?
Stripped to its core, the claims management process is simply defined. At each point of vehicle handover, the vehicle is inspected. If damage is noted, the presumption is made that the preceding link in the chain caused it–unless this link can in turn show that the damage was already present when they received it.
Who pays? It depends. The cost of incidental damage can be borne by the nsurer–to whom it must e-notified–or handed to the offending arty, if identified. And while bumps, scrapes nd similar low-level accidental damage undeniably form the bulk of the claims by volume, there’s always the risk–however slight– of more serious loss: hail storms, compound fires, ships foundering, and transporters overturning. The trouble is, it’s a process that can cause delays and considerable cost. Customers and dealers wait for repairs to be authorised and carried out, while repairers wait to be paid. And bogged down by inconsistent paperwork trails and a culture of blame avoidance, the administrative costs of resolving even quite simple instances of incidental damage can quickly mount.
“We often inherit small damage that may have been detected earlier in the process, but of which–due to a lack of shared visibility between vehicle manufacturers and logistics service providers–we are unaware,” complains Ray MacDowall, managing director of ECM Vehicle Delivery Service. There’s an element of uncertainty to deal with, too, with the profitability of a given shipment being known to a logistics provider only when all outstanding claims have been resolved. “We need to carry insurance to cater for serious incidents that lie outside our expectations of normal day-to-day operations, such as a transporter crash,” says Ian Brown, deputy managing director of logistics provider STVA UK.
“But on another level, we need to be able to anticipate and monitor the level of damage claims–not just to identify damage trends and respond to them–but also to keep track of the damage claims that we might be liable for, and alert our accounting function accordingly.”
Putting the pieces back together
Carmakers’ disparate systems add to the challenge of making repairs, says Leo McFadden, senior vice-president of operations at port operator and auto processor Amports, which handles over a million vehicles a year. “With some manufacturers, you can go to a single screen and see the part numbers that you need, together with the allowed labour hours,” he notes. “With other manufacturers, you have to go [through] several different systems to locate and order the parts in question, and identify the allowed labour hours for the repair. It all takes time.”
But technology has turned out to deliver an unexpected fillip: reduced damage levels. It’s a ‘win-win-win’ situation that has seen manufacturers as diverse as Mitsubishi, Volkswagen, Ford and Honda all experience distinct improvements in the underlying damage claims process, as well as the incidences of damage itself. Better still, it’s readily scaleable. An incident such as a hail storm that might have easily swamped a claims department under a deluge of paperwork becomes a headache, not a nightmare. The hail storm at Volkswagen’s Emden plant, for instance, hit 30,000 cars. It was over two years after the incident before the last Mazda vehicle from the MV Cougar Ace was written-off and crushed. While individual insurance companies’ and claims management companies’ systems all vary, the core underlying enabling technologies are much the same. Better still, they leverage inexpensive productivity-boosting solutions: digital photography, the internet, barcoding, and simple analytics tools coupled to claims databases. Rocket science, in short, it is not. The basic idea is to get rid of paper; initiate claims with data entry at the point of damage identification; speed the process up with electronic communication along the logistics value chain and to the insurer; and hold data centrally–the latter point being the key to unlocking opportunities for damage reduction.
Going back to the source “It takes the origination of a claim right back to the source,” says Sompo Japan’s Sturley. “The link in the chain that identifies the damage is responsible for logging the claim and taking the photographs. And with data entry at the point of incident, it’s almost ‘real time’: you can see trends emerge as they are happening, and everyone is in the picture.” “We capture data at ports, compounds and at dealers,” adds Tim Doonan, vice-president and general manager of Tokio Marine Claims Services, which uses a system developed for the company in 2003. “We’ve eliminated paper, we’re communicating data electronically, and we can sit in our offices and review photographs and damage reports from every point of inspection in the chain.” Kathy Moynihan, national operations manager for claims and major damage at logistics service provider Vascor, agrees. “The replacement of old mainframe computers with webbased systems technology has given the automotive industry new opportunities for cost savings,” she says. “Automakers and logistics providers have easy access to current information via the web, leading to more accurate adjudication and a quicker turnaround on claims resolution. And with visibility from virtually anywhere, automakers are better able to outsource claims administration to third-party specialists, thereby saving on resources and labour costs.” And with data recorded electronically and stored centrally, it becomes possible not only to process claims faster, but also to analyse them for trends, damage ‘hot spots’, and vulnerabilities.
“We look at the data, see where the problems are occurring, and then audit and examine the logistics pipeline at those points in order to identify why the damage is occurring,” says Sompo Japan’s Sturley. “We can compare one port compound to another, one logistics service provider to another, and even one dealer to another,” adds Tokio Marine’s Donnan. “In effect, we’ve become part of the process, going back to clients with data for them to go to their suppliers with, in conjunction with loss prevention or damage control recommendations.” Tokio Marine client Mitsubishi Motors Europe, for instance, is presently working with just such Tokio Marine-provided data to reduce damage levels in its Italian operations. “We use several Italian ports, but find that a lot of our damage occurs with just one carrier, using one compound close to a single specific port,” says Eduardo Munoz, Mitsubishi general manager for supply chain management.
“It’s not possible to change the route, so we need to figure out the causes of the damage and figure out what can be done by way of preventative action.” The idea is very much to provide insights that are actionable and which will make a measurable difference, stresses Matt Holmes, director of claims handling specialist Sevatas. “A certain model might get a lot of front bumper damage during offloading, indicating incorrect ramp angles, or a certain compound might see a lot of door scratches, possibly from a lack of car-friendly clothing,” he notes. “Where necessary, we’ll do physical route audits, accompanying vehicles and observing what actually happens. It’s very practical guidance: on some vehicles, for instance, some types of wheel protection actually increases the risk of damage. But the logistics service provider might not know that, unless we tell them which vehicles and which type of wheel protection.”
Less damage, greater savings
The savings from damage reduction add up quickly. For one client, Holmes points out, damage levels have more than halved in just two years–from an incidence of over 3% to 1.5%. Mitsubishi, too, reports reduced damage levels since working proactively with Tokio Marine on damage claims analysis. Sevatas client Volkswagen is another convert to the principles of data-driven preventative measures, explains Robin Slough, head of vehicle operations at Volkswagen Group UK. “Our partnership with Sevatas is now in its fourth year, and it is clear from the damage ratios that there have been consistent year-on-year improvements,” he notes.
“Transit damage claims management isn’t rocket science, but it is a niche skill within the automotive business, and one which we feel could dramatically impact on our bottom line if issues aren’t dealt with in a consistent and efficient way.” What’s more, adds Slough, the imposition of a single delivery and inspection process across all five brands within the operation’s portfolio, coupled to a single webbased platform, widens the universe of comparison points, broadening the scope for potential improvements. “Sevatas analyses the data across all five brands, identifying damage patterns by location, transport type, and retailer, rather than just by the brand and model,” he says. “Damage trends are analysed and reported by Sevatas, with the information being shared with insurers, carriers and the individual factories.” Tokio Marine client Honda has also seen significant improvements in North America since beginning an initiative four years ago to use the claims process to drive down damage levels.
Over that period damage levels have halved, falling from 0.45% to 0.22%, says Joe Plascencia, manager of logistics planning and quality assurance at American Honda. “The number 0.45% may not seem big, but it’s still 4,500 cars out of every million that we ship,” he notes. “Halve that level–as we have done–and that’s fewer claims to process, fewer vehicles to repair and a higher level of vehicles quality reaching the dealer.” What’s more, he adds, the transition to a paper-free EDIbased claims system has delivered a process that is smoother and faster. Whereas claims typically took over a hundred days to resolve when the damage claims process improvement initiative started, over half are now resolved in 40 days or less. “We measure carriers against resolution time,” says Plascencia. “The goal is 30 days, but we acknowledge that this is going to be a challenge.” Critical to the process, too, is a single database of claims, visible throughout the supply chain, but administered centrally by Tokio Marine.
“A claim stays open until Tokio agree that it’s closed,” sums up Honda assistant manager of logistics planning and quality assurance, Gary Cooper. “The carrier closing it, or denying it, doesn’t count.” Mobile computing adds an extra dimension, reports Elena Lukanova, president of Polish vehicle logistics specialist Adampol, which transports vehicles from General Motors, BMW, Volkswagen Group, Ford, Suzuki and Mitsubishi to dealers across Poland. “Our claims handling system is connected with each of our trucks via a real-time communication system,” she says. “Damage is recorded by Adampol’s drivers, sent on line, and then analysed by our staff from the quality control department, who can trace and display a route of each truck including all of its stops. If damage is recorded at the loading site we can react before the truck enters the unloading compound, which really saves money and time–not only for us as a carrier, but also for our clients.”
Third party possibilities?
For all the progress in using the claims process as a tool for reducing damage levels, some observers think that opportunities are still being missed. Willem de Lange, managing director of claims management company TES, for instance, reckons that the importance of IT has been over-played. “IT is very much part of the process these days, but the process is still following the same rules: it is more efficient, but it’s still the same process,” he observes. “You’ve still got claims departments within each part of the logistics chain trying to minimise their own liabilities, which from the point of view of the entire process is inefficient.”
A better way, he argues, would be for a third party to oversee the entire process, collecting information and making judgements about how individual damage claims should be settled–a process somewhat akin, although not identical, to how Tokio Marine works with Honda. “This would reduce discussions around individual incidence of damage to a minimum, and focus more attention on damage prevention rather than payment: everybody would be focused on the same target,” asserts de Lange. A step too far? At present, possibly. But the progress that the industry has made to date is undeniable–and IT would very much be an enabler for such a move, were it to happen.