STAYSAFE 66 - NRMA Insurance motor vehicle smash repairs.d....Group-approved smash repairers have access to the bid process, and a further filter is imposed by limiting the bids to

PARLIAMENT OF NEW SOUTH WALES

STAYSAFE Committee

REPAIRING TO A PRICE, NOT A STANDARD

Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance)

Preferred Repairer Scheme, and its implications for roadworthiness, crashworthiness, and road safety

Report No. 9/53 – December 2005

New South Wales Parliamentary Library cataloguing-in-publication data: New South Wales. Parliament. Legislative Assembly. STAYSAFE Committee Repairing to a price, not a standard: Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme and its implications for roadworthiness, crashworthiness, and road safety. STAYSAFE Committee, Parliament NSW Legislative Assembly. [Sydney, NSW] : STAYSAFE Committee, 2005, 154 p.; 30cm Chair: Paul Gibson MP, Chairman December 2005 ISBN 0 7313 5133 9 1. STAYSAFE––New South Wales 2. Repairing to a price, not a standard. 3. Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group

(NRMA Insurance) Preferred Repairer Scheme, and its implications for roadworthiness, crashworthiness, and road safety.

I Title. II Series: New South Wales. Parliament. Legislative Assembly. STAYSAFE Committee;

STAYSAFE 66; Report 9/53

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Table of Contents Membership & Staff ……………….……………………………………… 5 Terms of reference ………………………………………………………… 7 Chairman’s Foreword ……………………………………………………… 9 Executive Summary ……………………….……………………..….…… 11 Recommendations …………….…………………………………….…… 15 Chapter One – Introduction …………………………………….….…… 27 Chapter Two – The motor vehicle smash repair industry in New South Wales …….……………..………………………………… 31 Chapter Three – Motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme ……………………………………………… 57 Chapter Four – Findings and recommendations regarding the motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme ……………………………………………… 77 References …..………….……………………………………….….…… 109 Witnesses appearing before the STAYSAFE Committee ………..…… 111 Submissions received by the STAYSAFE Committee …………..…… 113 Appendix A—Thomas (2005) Assessment of the WRM. Report to the Minister for Fair Trading on Insurance Australia Group's web-based repair management system ……….………………………………..…. 117 Appendix B—Examples of educational materials produced by I-CAR (the Inter-Industry Conference On Auto Collision Repair) ….………………………..………..……… 127

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Appendix C—Extracts from the minutes of the STAYSAFE Committee regarding the inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme ….….……………. 141

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Membership & Staff Chairman Mr Paul Gibson MP, Member for Blacktown Members Mr David Barr MP, Member for Manly Mr John Bartlett MP, Member for Port Stephens Ms Noreen Hay MP, Member for Wollongong Mr Jeff Hunter MP, Member for Lake Macquarie Mr Daryl Maguire MP, Member for Wagga Wagga (Opposition Whip) Hon. George Souris MP, Member for Upper Hunter Hon. Rick Colless MLC Hon. John Tingle MLC Hon. Ian West MLC (Vice Chairman) Staff Mr Ian Faulks, Committee Manager Mr Jim Jefferis, Senior Committee Officer Ms Annette Phelps, Committee Officer Ms Millie Yeoh, Assistant Committee Officer Contact Details STAYSAFE Committee

Legislative Assembly Parliament House Macquarie Street Sydney NSW 2000

Telephone (02) 9230 2161 Facsimile (02) 9230 3309 E-mail [email protected] URL www.parliament.nsw.gov.au

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Terms of Reference

The resolution of the Legislative Assembly From the Proceedings of the Legislative Assembly of New South Wales, Thursday 13 October 2005:

That this House requests the STAYSAFE Committee to inquire into motor vehicle smash repairs under the Preferred Repairer Scheme operated by the NRMA and IAG Insurance, and the risk to safety arising from:

(1) Repairers quoting for jobs by inspecting photos of damaged vehicles rather than physically inspecting the damaged vehicle.

(2) Financial penalties if damage is later uncovered that was not apparent through the internet photographs, possibly leading to cost cutting and unsafe repair practices.

(3) Use of second hand vehicle parts, further compromising safety.

(4) The NRMA and IAG employing unqualified smash repair assessors to photograph and help administer vehicles for repair.

The STAYSAFE Committee The general terms of reference of the STAYSAFE Committee are as follows: (1) As an ongoing task, the Committee is to-

(a) monitor, investigate and report on the road safety situation in New South Wales; and

(b) review and report on counter measures aimed at reducing deaths, injuries, and the social and economic costs to the community arising from road accidents.

Without restricting the generality of the foregoing, the following are to be given urgent consideration - (i) countermeasures aimed at traffic accidents associated with alcohol and

other drugs. (ii) traffic law enforcement measures and their effectiveness. (iii) a review of human factors affecting traffic accidents, especially those

relating to driver and rider licensing requirements and standards. (iv) the social and economic impact of deaths and serious debilitating

injuries resulting from traffic accidents. (v) heavy vehicle safety.

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CHAIRMAN’S FOREWORD This inquiry by the STAYSAFE Committee is the first time that the Committee has been asked, because of its well-established reputation for accurate, comprehensive and exhaustive inquiries into road safety matters, to act essentially as a 'select committee' in examining the operation of the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme, with particular reference to the possible compromise of public safety associated with aspects of the scheme such as:

• the requirement for quotations for repair to be based not on the physical inspection of damage to a motor vehicle but on electronic images of the damage taken by an employee of Insurance Australia Group and a written description of what that employee thought the necessary repairs might involve;

• the imposition (or threat of imposition) of a financial penalty if a smash repairer who lodged a successful bid—meaning the lowest cost bid—for the repair of a damaged motor vehicle later found that more extensive repairs were required;

• the use of non-original equipment manufacturer (OEM) parts in the repair of damaged motor vehicles; and

• whether the employees of Insurance Australia Group working as assessors of damage to motor vehicles have the skills and knowledge to perform their job safely and effectively.

After consideration of over 100 submissions and supplementary submissions, and taking evidence from more than 30 witnesses in 16 hours of public and in camera hearings, the STAYSAFE Committee has formed definitive views on the questions it was asked to examine. First, the STAYSAFE Committee finds that the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme is an unsafe system in its current form and operation. Second, the STAYSAFE Committee has found that it is likely that cost cutting and unsafe repair practices are associated with Insurance Australia Group’s imposition of financial penalties—termed the tender adjustment factor, TAF—if damage to a motor vehicle is later uncovered that was not apparent through the electronic photographs taken by Insurance Australia Group employees. Third, the STAYSAFE Committee has found that it is possible that safety is compromised by the use of non-original parts manufacturer—non-OEM—parts in the repair of motor vehicles (including classes of parts termed 'new non-genuine', parallel, grey, recycled, second hand). Fourth, the STAYSAFE Committee has found that there is a need to review the qualifications and training needed by loss assessors to effectively examine and document and photograph damage to motor vehicles, and the role of loss assessors in managing the repair process to a damaged motor vehicle.

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It is obvious from the Parliamentary debates, the representations to local Members, and the submissions and testimony for this inquiry that the new scheme has caused considerable unrest and duress across the New South Wales communities where Insurance Australia Group has sought to introduce the system. This inquiry caused some confusion to those agencies and organisations that deal with the STAYSAFE Committee on a regular basis. In large part, and oddly, this is because issues associated the motor vehicle smash repair industry and the repair of damaged motor vehicles to a roadworthy (and crashworthy) status have not been seen as relevant matters for road safety workers. In the traditional view, road safety is primarily associated with pre-crash and within-crash aspects of drivers and other road users, motor vehicles, and the road environment. When road safety workers think of post-crash aspects, these are usually only associated with the retrieval of injured persons, investigations of the causes and contributors to crashes (and to a lesser extent, near miss incidents), or the treatment and rehabilitation of injured persons. Indeed, Insurance Australia Group staff, in initial discussions about the inquiry, suggested that the terms of reference for the inquiry were ultra vires, literally 'beyond the powers' of the STAYSAFE Committee general terms of reference. While the inquiry into the operation of the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme is well encompassed by the Committee's general head of reference to ' review and report on counter measures aimed at reducing deaths, injuries, and the social and economic costs to the community arising from road accidents', the resolution of the Legislative Assembly of New South Wales of 13 October 2005 establishing the specific terms of reference equals and supplants any limitation that might be perceived in the STAYSAFE Committee's general terms of reference. Acknowledgments I am tremendously grateful for the diligence and care taken by my colleagues on the STAYSAFE Committee, who undertook the task of examining the operation of the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme. It was a matter that required urgent attention. I thank also the many people who so freely discussed the operation of the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme with the STAYSAFE Committee. Finally, on behalf of the Members of the STAYSAFE Committee, I wish to thank my Committee Manager, Mr Ian Faulks, for the exemplary manner in which he has conducted the administrative, procedural and research activities required of this inquiry, and for the way he, assisted by Ms Annette Phelps, Committee Officer, has prepared the draft report at such short notice. I thank also Mr Jim Jefferis, Senior Committee Officer, and Ms Millie Yeoh, Assistant Committee Officer, for their administrative assistance.

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EXECUTIVE SUMMARY In this report, STAYSAFE has examined motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme, and assessed specific safety, or risk issues, namely:

• the web-based repair management system introduced by Insurance Australia Group, where repairers submit quotes for jobs based on a written scope of works prepared by an assessor employed by Insurance Australia Group and inspecting electronic images of damaged motor vehicles, rather than physically inspecting the damaged vehicle;

• if cost cutting and unsafe repair practices are associated with Insurance Australia Group’s imposition of financial penalties if damage to a motor vehicle is later uncovered that was not apparent through the internet photographs;

• if safety is compromised by the use of second hand parts in the repair of motor vehicles; and

• the qualifications needed by assessors employed by Insurance Australia Group to effectively examine, document and photograph damage to motor vehicles, and their role in managing the repair process to a damaged motor vehicle.

On 1 July 2005 Insurance Australia Group commenced a new scheme for motor vehicle smash repairs in parts of New South Wales—metropolitan Sydney, the Hunter, and later in the Illawarra and Central Coast—marketed under the NRMA Insurance brand. Under the scheme, an Insurance Australia Group assessor places a written description detailing observable damage to a motor vehicle, and electronic images of the damage, on a dedicated website and allows approved smash repairers to engage in competitive bidding for an allocation to carry out repairs. Only Insurance Australia Group-approved smash repairers have access to the bid process, and a further filter is imposed by limiting the bids to repairers within a defined geographic area. The web-based repair management system is intended to streamline bids for repairs to motor vehicles with minor or superficial damage—termed 'cosmetic damage' by Insurance Australia Group—and not extend to major damage or structural damage. Insurance Australia Group claims that the new system is easier and more convenient for customers seeking to have work done on their motor vehicles, and will ensure increased competition within the smash repair industry, and allow for greater claims management efficiency. Under the previous system used by Insurance Australia Group, policy holders in need of repairs to minor damage to their motor vehicle would seek a quote from a smash repairer they selected, or Insurance Australia Group would advise of several smash repairers in their area who could be approached for quotes, one of which would be then authorised by Insurance Australia Group. The introduction of the new system for motor vehicle smash repairs by Insurance Australia Group was associated with immediate public concern. In general, there were accusations that the new Insurance Australia Group system for motor vehicle smash repairs was anticompetitive and would drive smash repairers out of business, lower the

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quality of repairs on damaged vehicles by encouraging smash repairers to take short cuts and use inferior parts to win business, and allow unsafe vehicles to be returned to New South Wales roads. These concerns were reflected in repeated questions, statements and debates in New South Wales Parliament. Ultimately, the New South Wales Legislative Assembly resolved that a Parliamentary inquiry was necessary to examine Insurance Australia Group's web-based repair management system and its Preferred Repair System. STAYSAFE has found that the web-based repair management system introduced by Insurance Australia Group, where repairers submit quotes for jobs based on a written scope of works prepared by an assessor employed by Insurance Australia Group and inspecting electronic images of damaged motor vehicles, rather than physically inspecting the damaged vehicle, is an unsafe system in its current form and operation. STAYSAFE has recommended that Insurance Australia Group suspend the web-based repair management system. STAYSAFE has found that it is likely that cost cutting and unsafe repair practices are associated with Insurance Australia Group’s imposition of financial penalties—termed the tender adjustment factor, TAF—if damage to a motor vehicle is later uncovered that was not apparent through the electronic photographs taken by Insurance Australia Group assessors. STAYSAFE has recommended that Insurance Australia Group suspend the imposition of financial penalties—the tender adjustment factor. STAYSAFE has found that it is possible that safety is compromised by the use of non-original parts manufacturer—non-OEM—parts in the repair of motor vehicles (including classes of parts termed 'new non-genuine', parallel, grey, recycled, second hand), and has made a number of recommendations for further investigation. STAYSAFE has found that there is a need to review the qualifications and training needed by loss assessors to effectively examine, document and photograph damage to motor vehicles, and the role of loss assessors in managing the repair process to a damaged motor vehicle. STAYSAFE has made a number of recommendations to improve the training and knowledge of motor vehicle loss assessors. A striking feature of the inquiry was the inability of Insurance Australia Group to provide any definitive research documentation regarding its consideration of potential safety issues associated with the web-based repair management system and its Preferred Repair System prior to the commencement of the system. Insurance Australia Group did commission a vehicle safety consultant to provide an expert opinion after the inquiry was announced. There is little comprehensive data that provides a clear overall picture of the smash repair industry in New South Wales. While there is some data available from the Motor Vehicle Repair Industry Authority and the Australian Bureau of Statistics, and

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data quoted in submissions sourced from commissioned studies, it does not provide a clear assessment of how the industry has changed over time. As a result, the development of appropriate safety policy and regulatory frameworks for the smash repair industry and the motor vehicle insurance sector has lagged, and it appears that there can be a wide disparity between what is understood about the smash repair industry by motor vehicle insurers and government agencies, and the leading edge exponents of modern motor vehicle smash repair techniques, processes and methods. STAYSAFE has made further recommendations addressing such matters as:

• assessment and inspection of the safety of repaired motor vehicles • recording and reporting of motor vehicles that have undergone major repairs • assessment and certification of roadworthiness • assessment and certification of crashworthiness • reporting of consumer complaints and other safety issues relating to smash

repairers and motor vehicle insurers in new south wales • community education • compliance, licensing and certification arrangements for motor vehicle smash

repairers and a number of individual issues associated with the Road Safety 2010 strategy in New South Wales, the legal liability of motor vehicle smash repairers and motor vehicle insurers operating Preferred Repairer Schemes, and the need for better data on the New South Wales motor vehicle insurance sector. STAYSAFE proposes to review the response to findings and recommendations during 2006.

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RECOMMENDATIONS The Insurance Australia Group Preferred Repairer Scheme Suspend web-based repair management

RECOMMENDATION 1: Insurance Australia Group (NRMA Insurance) suspend web-based repair management, as a component of the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers without the repairers physically inspecting the damaged vehicle before quoting for work, as it is an unsafe system in its current form and operation.

Suspend use of the tender adjustment factor and other financial penalties

RECOMMENDATION 2: Insurance Australia Group (NRMA Insurance) suspend the use of the Tender Adjustment Factor and any other forms of financial penalties against motor vehicle smash repairers who find and report further damage to a motor vehicle during repair.

Reintroduce policy holder choice of repairer

RECOMMENDATION 3: Insurance Australia Group (NRMA Insurance) reintroduce policy holder choice of repairer at no cost as a component of the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers.

No distinction for policy holders owning prestige or other vehicles

RECOMMENDATION 4: Insurance Australia Group (NRMA Insurance) ensure that policy holders owning prestige motor vehicles and other policy holders owning other motor vehicles are treated equally under the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers.

Cease use of term 'cosmetic damage'

RECOMMENDATION 5: Insurance Australia Group (NRMA Insurance) cease use of the term ‘cosmetic damage’ with regard to damaged motor vehicles, and replace with ‘minor damage’ and ‘surface panel damage’, as opposed to ‘major damage’ or ‘structural damage’.

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Abolish the ‘funny time-funny money’ method

RECOMMENDATION 6: Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, abolish the ‘funny time-funny money’ method used in the Care & Repair centre system and other allocation systems used in assigning damaged motor vehicles to motor vehicle smash repairers.

Insurance Australia Group review hourly rate paid to motor vehicle smash repairers

RECOMMENDATION 7: Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, review the current hourly rate paid to motor vehicle smash repairers paid under the Care & Repair centre system and other allocation systems used in allocating damaged motor vehicles to motor vehicle smash repairers.

NRMA brand

RECOMMENDATION 8: In the interests of public understanding, there needs to be a better delineation of the NRMA brand between Insurance Australia Group (NRMA Insurance) and NRMA Motoring & Services, in order to restore the NRMA brand to represent, inter alia, safe vehicles and safe road use.

Safety assessment and inspection of repaired motor vehicles Audit and inspection program for motor vehicles repaired after major or structural crash damage

RECOMMENDATION 9: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance sector, initiate a program incorporating audit and inspection to assess the safety of repaired motor vehicles following major or structural crash damage.

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Electronic imaging during repair processes of structural components in damaged motor vehicles

RECOMMENDATION 10: The motor vehicle insurance sector and the Motor Traders Association assess the feasibility of requiring electronic imaging during repair processes of damaged structural components in motor vehicles to document the work undertaken for subsequent assessment and possible certification regarding crashworthiness.

Recording and reporting of motor vehicles that have undergone major repairs Register of motor vehicles that have undergone major repairs

RECOMMENDATION 11: The Motor Vehicle Repair Industry Authority and the Roads and Traffic Authority, in conjunction with the Insurance Council of Australia and the motor vehicle insurance sector, develop a register of motor vehicles that have undergone major repairs, including listing of major or structural components have been replaced, repaired, and not repaired on the vehicle, which can be attached to the Register of Encumbered Vehicles—REVS, or the Roads and traffic Authority’s motor vehicle registration database.

Necessary qualifications, training, knowledge and skills for loss assessors and adjusters Reintroduction of licensing of loss assessors and adjusters

RECOMMENDATION 12: The Minister for Fair Trading review whether licensing of loss assessors and adjusters should be reintroduced in New South Wales.

Role of peak professional bodies in the accreditation of loss assessors and adjusters

RECOMMENDATION 13: Motor vehicle loss assessors and adjusters be accredited with the Institute of Accident Assessors, Institute of Public Insurance Assessors, or some similar organisation in regard to licensing.

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Loss assessors and adjusters to regularly upgrade knowledge and skills

RECOMMENDATION 14: Motor vehicle loss assessors and adjusters be required to enhance their knowledge and skills on a regular basis.

Knowledge and skills required of loss assessors and adjustors

RECOMMENDATION 15: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the motor vehicle damage assessment and repair knowledge and skills required of loss assessors and adjustors to use a web-based repair management system such as that used by Insurance Australia Group currently.

Feasibility of independent loss assessors in motor vehicle insurance claims

RECOMMENDATION 16: The Office of Fair Trading, in consultation with the Motor Traders Association and the Insurance Council of Australia, assess the feasibility of requiring a system of independent loss assessors and adjusters for the assessment of damage to motor vehicles.

Assessment and certification of roadworthiness Roadworthiness of damaged vehicles during claims assessment processes

RECOMMENDATION 17: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance industry, assess the roadworthiness and road safety issues associated with policy holders being required to drive damaged motor vehicles to and from motor vehicle insurers’ assessment centres and to smash repairers.

Certification of roadworthiness after repair

RECOMMENDATION 18: A system of motor vehicle safety inspectors be devised and made available in major centres to certify that repairs to damaged motor vehicles involving structural components comply with Australian Design Rules, relevant New South Wales safety standards for vehicle operation, and manufacturers standards before the motor vehicles are allowed to again be driven on New South Wales roads

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Policy holders to be able to request certificate of roadworthiness from motor vehicle insurer

RECOMMENDATION 19: Motor vehicle insurers be required to supply policy holders with a certificate of roadworthiness for a motor vehicle after crash damage involving major repair or structural repairs, if requested, and to ensure that policy holders are advised that they can request the certificate of roadworthiness from the insurer under this circumstance before taking delivery of their motor vehicle.

Assessment and certification of crashworthiness Crash testing program to assess safety of motor vehicles after major or structural repairs

RECOMMENDATION 20: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, NRMA Motoring & Services, and the motor vehicle insurance industry, initiate a program of crash testing to assess the safety of repaired motor vehicles following major or structural crash damage.

Publication of recent crash test results from repaired motor vehicles

RECOMMENDATION 21: The Motor Traders Association, Autoliv Australia, and other groups and organisations involved in the recent crash testing of repaired motor vehicles publish the full data analyses and report on each vehicle tested as soon as possible.

Certificate of crashworthiness

RECOMMENDATION 22: The Roads and Traffic Authority introduce a certificate of crashworthiness for a motor vehicles, applicable after crash damage to motor vehicles involving major repair or structural repairs and modifications.

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Certificate of crashworthiness for vehicles that have had major structural repairs following crash damage

RECOMMENDATION 23: The Roads and Traffic Authority review and report on whether motor vehicles that have had major structural repairs following crash damage should be required to undergo inspection and certification regarding crashworthiness.

Certificate of crashworthiness for repaired written off vehicles

RECOMMENDATION 24: The Office of Fair Trading and the Roads and Traffic Authority review and report on whether written off motor vehicles that have been subject to major repair should be required to undergo inspection and certification regarding crashworthiness.

Crashworthiness auditors

RECOMMENDATION 25: The Office of Fair Trading and the Roads and Traffic Authority review and report on whether it is appropriate to consider if persons engaged in crashworthiness assessment—possibly to be termed ‘crashworthiness auditors’—should be required to be licensed, accredited to a relevant peak professional body, be required to enhance their knowledge and skills on a regular basis, and perhaps be independent of the motor vehicle smash repair industry and the motor vehicle insurance sector.

Review of safety issues associated with the use of locally and imported recycled parts, imported new parts and other replacement parts in the repair of motor vehicles Commonwealth review of safety issues associated with imported new parts used in the repair of damaged motor vehicles

RECOMMENDATION 26: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with imported new non-genuine parts, imported parallel parts, and ‘grey imports’ used in the repair of damaged motor vehicles.

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Commonwealth review of safety issues associated with imported recycled (second hand) parts used in the repair of damaged motor vehicles

RECOMMENDATION 27: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with the use of recycled (second hand) parts sourced from overseas in the repair of damaged motor vehicles.

Review of safety issues associated with locally sourced recycled (second hand) parts used in the repair of damaged motor vehicles

RECOMMENDATION 28: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, review and report on safety issues associated with the use of recycled and second hand parts sourced locally in the repair of damaged motor vehicles.

Motor vehicle insurers to inform policy holders of the nature of parts used in the repair of damaged motor vehicles

RECOMMENDATION 29: Motor vehicle insurers to be required to inform policy holders when recycled (second hand), original equipment manufacturer (OEM), parallel parts, etc., are proposed to be used in the repair of damaged motor vehicles.

Replacement of seat belts following crashes

RECOMMENDATION 30: The Roads and Traffic Authority, in conjunction with the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, should:

(a) review safety issues associated with the replacement of seat belts in motor vehicles that have been involved in a serious crash;

(b) ensure seat belt safety issues are included in assessment of crashworthiness of repaired motor vehicles.

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Replacement of air bags following crashes

RECOMMENDATION 31: The Roads and Traffic Authority, in conjunction with the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, should:

(a) review safety issues associated with the replacement of air bags in motor vehicles that have been involved in a serious crash;

(b) ensure air bag safety issues are included in assessment of crashworthiness of repaired motor vehicles.

Reporting of consumer complaints and other safety issues relating to smash repairers and motor vehicle insurers in New South Wales Review the role of the Insurance Ombudsman Service in resolving motor vehicle insurance matters in New South Wales

RECOMMENDATION 32: The Minister for Fair Trading assess the role of the Insurance Ombudsman Service in following up consumer complaints relating to smash repairers and motor vehicle insurers in New South Wales.

Reporting of sub-standard repairs

RECOMMENDATION 33: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the information insurance companies should be required to provide to the Motor Vehicle Repair Industry Authority in the case of repairs that are sub-standard.

Mandatory notification of removal or disqualification of smash repairer from a Preferred Repairer Scheme for safety reasons

RECOMMENDATION 34: The Minister for Fair Trading examine whether a motor vehicle insurer who removes or disqualifies a smash repairer from a Preferred Repairer Scheme for safety reasons should be subject to a mandatory requirement to notify the Motor Vehicle Repair Industry Authority.

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Review the role of the Motor Vehicle Review Industry Authority in resolving complaints about motor vehicle smash repair matters in New South Wales

RECOMMENDATION 35: The Office of Fair Trading review the role of the Motor Vehicle Review Industry Authority in following up consumer complaints relating to smash repairers, and, in particular, consider mandatory notification of complaints being dealt with the an insurer’s internal dispute resolution mechanisms.

Community education Community education regarding the motor vehicle smash repair industry

RECOMMENDATION 36: The Roads and Traffic Authority, Motor Vehicle Repair Industry Authority, and New South Wales Police develop and publish comprehensive educational materials for the general community that clearly outline the issues associated with the motor vehicle smash repair industry, including:

• the identification of motor vehicles and their component parts; • terminology and processes that may be associated with repairs

to motor vehicles that have been damaged or written off; • rebirthing of motor vehicles; • the roles of loss assessors, motor vehicle insurers, smash

repairers, etc.; and • regulatory and complaint mechanisms.

Compliance, licensing and certification arrangements for motor vehicle smash repairers Review of Motor Vehicle Repair Industry Authority’s compliance program for motor vehicle smash repair industry

RECOMMENDATION 37: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the efficacy of the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

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Motor vehicle smash repairers to be assessed and certified for specialised repair capability for different types or motor vehicles

RECOMMENDATION 38: The Motor Vehicle Repair Industry Authority, in consultation with Motor Traders Association and the motor vehicle insurance sector, assess the feasibility of developing an industry-wide assessment and certification system to ensure that motor vehicle smash repairers are equipped and capable to deal with specialised technical requirements for repair of different types of motor vehicles.

Review of penalties for non-compliance with motor vehicle smash repair industry licensing requirements

RECOMMENDATION 39: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the penalties available under the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

Remaining issues Road Safety 2010

RECOMMENDATION 40: The Roads and Traffic Authority, after consultation with the Motor Traders Association, Insurance Council of Australia, NRMA Motoring & Services, and other relevant government, professional and community groups, ensure that the current Road Safety 2010 strategy recognises safety issues regarding materials, structures and components in motor vehicles from initial registration for use on New South Wales roads through to the end-of-vehicle life.

Legal liability of motor vehicle smash repairers and motor vehicle insurers operating Preferred Repairer Schemes

RECOMMENDATION 41: The Office of Fair Trading clarify, review and report on the legal liability of motor vehicle smash repairers and motor vehicle insurers operating Preferred Repairer Schemes in the case of repairs that are sub-standard.

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Data on the New South Wales motor vehicle insurance sector

RECOMMENDATION 42: The Insurance Council of Australia collect and publish data on the motor vehicle insurance sector in New South Wales.

Anti-steering legislation

RECOMMENDATION 43: The Minister for Fair Trading review the response of Insurance Australia Group to the findings and recommendations of inquiries into the operation of its Preferred Repairer Scheme, and consider the introduction of anti-steering legislation into New South Wales to open up competition by preventing motor vehicle insurers from closing off access to repair work by the majority of smash repairers.

STAYSAFE to review response to findings and recommendations

RECOMMENDATION 44: STAYSAFE re-examine the Insurance Australia Group Preferred Repairer Scheme within 6-12 months to review its motor vehicle damage assessment and repair system, and to examine the motor vehicle insurance sector’s response to the findings and recommendations in this report.

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Chapter One— INTRODUCTION 1.1 On Thursday 13 October 2005 the Legislative Assembly resolved that STAYSAFE should inquire into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme:

That this House requests the STAYSAFE Committee to inquire into motor vehicle smash repairs under the Preferred Repairer Scheme operated by the NRMA and IAG Insurance, and the risk to safety arising from:




(4) The NRMA and IAG employing unqualified smash repair assessors to photograph and help administer vehicles for repair.

This resolution was passed unanimously—Government, Opposition, and crossbench Members all supported the motion. 1.2 In the conduct of this inquiry, STAYSAFE is relevantly acting as a select committee in addressing the specific terms of reference expressed in the motion that passed the House by unanimous vote. That is, for this specific inquiry, STAYSAFE was selected as the vehicle for the inquiry—STAYSAFE’s general terms of reference are superceded by the resolution specified in Paragraph 1.1. 1.3 Although the terms of reference for the inquiry did not specify particular reporting dates, there is an urgency for STAYSAFE to commence, conduct its inspections and hearings, and report its findings and recommendations. 1.4 The terms of reference are quite clear. First, and generally, STAYSAFE is to examine and report on motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme. In doing so, STAYSAFE has been mindful to review prior relationships between motor vehicle smash repair industry and Insurance Australia Group and the earlier insurance arm of the mutual organisation, the National Roads and Motorists’ Association (NRMA), as well as to review the relationships between the motor vehicle smash repair industry and other motor vehicle insurers active in the New South Wales market. 1.5 Second, STAYSAFE is required to assess and report on specific safety, or risk issues, namely:

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1.6 In addressing these specific safety issues, STAYSAFE has also identified a number of related safety issues. These were also examined, and are reported. The origins of the inquiry 1.7 On 1 July 2005 Insurance Australia Group commenced a new system for motor vehicle smash repairs in New South Wales, marketed under the NRMA Insurance brand. 1.8 Under the scheme, Insurance Australia Group places a written description detailing observable damage to a motor vehicle, and electronic images of the damage, on a dedicated website and allows approved smash repairers to engage in competitive bidding for an allocation to carry out repairs. Only Insurance Australia Group-approved smash repairers have access to the bid process, and a further filter is imposed by limiting the bids to repairers within a defined geographic area. 1.9 The web-based repair management scheme is intended to streamline bids for repairs to motor vehicles with minor damage or superficial—termed 'cosmetic damage' by Insurance Australia Group—and not extend to major damage or structural damage. Insurance Australia Group claims that the new system is easier and more convenient for customers seeking to have work done on their motor vehicles, and will ensure increased competition within the smash repair industry, and allow for greater claims management efficiency. 1.10 Under the previous system used by Insurance Australia Group, policy holders in need of repairs to minor damage to their motor vehicle would seek a quote from a smash repairer they selected, or Insurance Australia Group would advise of several smash repairers in their area who could be approached for quotes, one of which would be then authorised by Insurance Australia Group. 1.11 The introduction of the new system for motor vehicle smash repairs by Insurance Australia Group was associated with immediate public concern. In general, there were accusations that the new Insurance Australia Group system for motor

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vehicle smash repairs was anticompetitive and would drive smash repairers out of business, lower the quality of repairs on damaged vehicles by encouraging smash repairers to take short cuts and use inferior parts to win business, and allow unsafe vehicles to be returned to New South Wales roads. These concerns were reflected in repeated questions, statements and debates in New South Wales Parliament. Insurance Australia Group’s motor vehicle insurance activities in New South Wales 1.12 Insurance Australia Group was established in January 2002 after shareholders of NRMA Insurance Group voted to change the name of the holding company. Insurance Australia Group companies own the NRMA Insurance, SGIC, SGIO, CGU, NZI, State and Swann brands. NRMA Insurance was established in 1925 to provide motor insurance for motoring club members. Insurance Australia Group is the leading motor vehicle and CTP insurer in New South Wales. 1.13 The then NRMA Insurance formed a strategic alliance with the Royal Automobile Club of Victoria in 1999 whereby, its subsidiary licensed insurer, Insurance Manufacturers of Australia, underwrites motor vehicle, home and other general insurance products. Thus Insurance Manufacturers Australia is a 'manufacturer' of short tail personal lines insurance products (motor vehicle, home, etc). The manufacturing function means that Insurance Manufacturers Australia relevantly develops motor vehicle insurance products, formulates pricing, and manages claims. The risk for the products is carried within Insurance Manufacturers Australia. 1.14 Insurance Manufacturers Australia has a board of seven directors: two directors from Insurance Australia Group, two directors from the Royal Automobile Club of Victoria, and three independent directors (two nominated by Insurance Australia Group, and one nominated by Royal Automobile Club of Victoria). The Royal Automobile Club of Victoria is a separate organisation, and is not owned by Insurance Australia Group. 1.15 Insurance Manufacturers Australia products are primarily sold through Insurance Australia Limited, under the NRMA Insurance brand, in New South Wales and the Australian Capital Territory, and the Royal Automobile Club of Victoria, under the RACV brand, in Victoria. 1.16 Since at least early 2000, within the Insurance Australia Group, Insurance Australia (under the brand NRMA Insurance) has engaged Insurance Manaufacturers Australia to provide, among other things, claims management services with respect to claims lodged under motor vehicle policies issued by the NRMA Insurance brand. Under the engagement, Insurance Manufacturers Australia provides to it a ‘teleclaims’ service, assesses claims, and manages the claim settlement process.

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1.17 Insurance Manufacturers Australia is a controlled entity consolidated by Insurance Australia Group and not carried as an investment that is subject to regular revaluation in the books of Insurance Australia Group. 1.18 Insurance Manufacturers Australia's 2004-05 accounts report Gross Written Premium (GWP) of $2 billion. As Insurance Australia Group’s 2004-05 accounts report Gross Written Premium of $6.6 billion, about 30% of Insurance Australia Group’s general insurance business is attributable to Insurance Manufacturers Australia. 1.19 In this report, STAYSAFE will use to Insurance Australia Group as a generic term referring to the business structures and activities of Insurance Australia Group, Insurance Australia Limited, Insurance Manufacturers Australia, and the brand NRMA Insurance.

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Chapter Two— THE MOTOR VEHICLE REPAIR INDUSTRY IN NEW SOUTH WALES 2.1 This chapter provides an overview of the motor vehicle repair industry in New South Wales, with particular reference to the emergence of Preferred Smash Repairer schemes. 2.2 STAYSAFE has found there to be little comprehensive data that provides a clear overall picture of the smash repair industry in New South Wales. While STAYSAFE has been able to source some Australian Bureau of Statistics data in addition to some figures quoted in submissions sourced from commissioned studies, it does not provide a clear assessment of how the industry has changed over time. Overview of the New South Wales smash repair industry 2.3 The smash repair industry is part of the motor vehicle retailing and services industry, which is one of the largest industries in Australia. The most recent Australian Bureau of Statistics Retail Industry figures indicate there were 5,594 smash repair businesses in Australia in 1998-99, employing 32,659 persons with a total income in excess of 3.0 billion (ABS cat. No. 8622.0, cited in Productivity Commission, 2005; (see Table 1) 2.4 The Australian Bureau of Statistics Business Register indicates that in June 2004 there were 3,964 smash repairing businesses in New South Wales (ABS cat. nos. 8161.0.55.001, 8161.0.55.002 and 8161.0.55.003 unpublished data June 2004). Smash repairing businesses account for 19% of motor vehicle retailing businesses in New South Wales. Less recent unpublished Australian Bureau of Statistics data cited by the Productivity Commission (2005) indicates that smash repair businesses in New South Wales represent approximately 36% of smash repair businesses nationally. 2.5 According to IBISWorld figures quoted by the Motor Traders Association (2005) in their submission to the Productivity Commission inquiry into the smash repair industry and insurance, New South Wales dominates the share of establishments and turnover in the national smash repair industry. New South Wales makes up for 32% of smash repair establishments nationally followed by Victoria (24%) and Queensland (21%). New South Wales accounts for 40.6% of industry turnover followed by Victoria (23.6%) and Queensland (14.7%). 2.6 Australian Bureau of Statistics Business Register indicates that the large majority of smash repair businesses are small businesses, with 47% employing between 0 and 19 people and the remaining 53% employing between 20 and 199

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people (ABS cat. nos. 8161.0.55.001, 8161.0.55.002 and 8161.0.55.003 unpublished data June 2004). 2.7 Generally speaking, the smash repair industry is made up of a large number of small, independent (privately owned) businesses, with only a very small number of businesses owned by insurers. TABLE 1: Motor vehicle retailing services, New South Wales, 2002-2003

Wages and

salaries, $m Total income,

$m Total expenses,

$m Operating profit before tax, $m

Motor vehicle retailing and services, NSW 2139.3 28792.3 28792.3 28792.3

Total for all industry divisions, NSW 87440.4 584867.7 545343.9 42653.7

Motor vehicle retailing and services, Australia 6059.8 83871.8 82591.1 1952.9

Total for all industry Divisions, Australia 242297.6 1692575.9 1565084.6 135792.6

Source : ABS Cat No. 8155.0.55.003 Australian Industry 2002-2003 (Due to confidentiality the Australian Bureau of Statistics is not able to provide data which relates specifically to smash repairers in New South Wales) 2.8 The geography of New South Wales, with large distances between towns in rural and regional New South Wales, contributes to a larger number of smash repair businesses than might be otherwise expected on measures based on population or number of motor vehicles registered. Motor vehicle repair licences 2.9 All motor vehicle repair businesses in New South Wales must hold a repairer’s licence. The Motor Vehicle Repair Industry Authority (MVRIA) states that in 2004/2005 there were 17,256 licenses in New South Wales representing an increase of 441 or 2.6% compared to 2003/2004. These licences include 16 different classes of repair work (including panel beater and smash repairer). The Motor Traders Association cites Motor Vehicle Repair Industry Authority data, which indicates a slight decrease in the number of licensed smash repair shops in New South Wales over the last five years. This is consistent with national trends where the industry has undergone a process of rationalisation. It should be noted that the vast majority of these shops carry dual licenses. Based on this, the Motor Traders Association estimates that in 2004 there were approximately 2,100 licensed shops in New South

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Wales (see Table 2) and 5,100 in Australia. This is significantly less than the ABS Business Register figures. TABLE 2: Motor vehicle repair licences (Panel beater and Vehicle painter) 2001-2004

Year Panel beater Vehicle painter

2004 2,085 1,900

2003 2,160 2,045

2002 2,189 2,060

2001 2,253 2,108

2000 2,326 2,156

Source: Motor Vehicle Repair Industry Authority (MVRIA) Financial climate - cost squeezes on smash repairers 2.10 The smash repair industry in New South Wales (as in other states) is characterized by an increasing degree of competition and has been subject to pressure from the motor vehicle insurance industry. 2.11 The Productivity Commission (2005) inquiry into smash repair and insurance found that there were a number of factors which have contributed to an overall cost squeeze on the smash repair industry nationally. In addition to increased consolidation of the insurance industry which has resulted in efforts from the insurance industry to reduce costs, changes in accident numbers and severity, and changes in capital requirements connected to new car design, new materials and new repair were also found to have a significant impact. Environmental standards, the impact of technology and occupational health and safety requirements has meant that smash repairs are increasingly required to invest capital into their businesses. 2.12 The Productivity Commission also found that while rationalisation has taken place within the Industry and there have been fluctuation in profit margins in recent years, profit margins were greater than in all other sectors of the motor vehicle retailing and services industry. 2.13 The Motor Traders Association claims that the hourly rates currently met by insurers do not reflect the ‘real’ cost of doing business and the repair times to not reflect the ‘real’ repair times (see Table 3).

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Table 3: Hourly rates paid by Insurance Australia Group

State Labour rates/hour Paint rates/hour

Solid Three layer

Victoria $23.00 $40.90 $47.50

NSW $30.90 $49.30 $68.80

SA $28.00 $47.00 $54.50 (pearl)

WA $26.20 $40.60 $51.35 (pearl)

Source: Motor traders Association submission to the Productivity Commission, p. 28 Table 4: Original applications approved – Automotive apprenticeships and traineeships

Year

Approved automotive apprenticeships and traineeships

1995 2525

1999 3132

2004 4094

Source: New South Wales Department of Education and Training Apprenticeships in the automotive trades area in New South Wales 2.14 The most recent data provided by the New South Wales Department of Education and Training, for October 2005, indicates there are 10,026 automotive apprenticeships and traineeships in training representing 7.3% of the total apprenticeships and traineeships in training. Comparative data of the number of applications approved for automotive apprenticeships and traineeships has shown steady growth since 1995 (see Table 4) with the most significant increase occurring in 2004 (increase of 18% on the previous year).

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Insurers in the New South Wales motor vehicle market 2.15 The New South Wales motor vehicle insurance market forms part of the general insurance industry and is dominated by four major insurer groups, as indicated below:

Insurance Australia Group (IAG) NRMA and CGU. Currently holds 50% of national market.

Promina Includes Australian Associated Motor

Insurers Limited (AAMI), Shannons, Australian Pensioners Insurance Agency (APIA) and Vero. Currently hold 20% of the national motor vehicle insurance market.

Suncorp Metway Limited (Suncorp) GIO and Suncorp. Australia’s largest

general insurance provider holding 22% of the national motor vehicle insurance market.

Allianz Australia Insurance Limited Allianz. Subsidiary of Allianz group. Holds

7% of national market. 2.16 The most recently available comprehensive data provided by the Australian Prudential Regulatory Authority demonstrates the significance of motor vehicle insurance in the general insurance sector. 2.17 For the year ending 30 June 2002, the five largest direct insurers in Australia accounted for 78% of earned premium income for motor vehicle insurance in Australia. In terms of premium revenue, motor vehicle insurance represents the largest component of the general insurance business in Australia (APRA 2003). Premium revenue for the domestic and commercial vehicle insurance was $3.71 billion and $1.12 billion and billion for commercial motor vehicle insurance. From 1997-2002, premium revenue from domestic motor vehicle insurance has increased by 25% and 28% for commercial motor vehicle insurance (APRA 2003). An overview of Preferred Smash Repairer schemes 2.18 The market dynamics of the motor vehicle insurance and smash repair sectors have changed significantly over the last 80 years. In recent years, market concentration has increased in the insurance industry following the demutualisation of many insurers, the privatisation of government insurance businesses, the collapse of HIH and regulatory reforms. The smash repair industry relies heavily on insurance companies for business. According to an IBISWorld 2003 study cited by the Productivity Commission (2005), the insurance sector accounts for 75% of revenue in the industry. Whilst there is fierce competition the motor vehicle insurance market it is dominated by four major insurer groups. The tensions which have characterised the relationship between smash repairers and motor vehicle insurers has meant that insurers are not only looking for ways of keeping costs down but also being able to

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have more control over the repair process. The emergence of Preferred Smash Repairer Schemes is characteristic of a general response from motor vehicle Insurers to these pressures. 2.19 Preferred Smash Repairer schemes are commonplace in the New South Wales and Australian motor vehicle insurance industry. Preferred Smash Repairer Schemes exist in New South Wales, Victoria, South Australia, Queensland and Western Australia. The majority of insurance funded repair work is carried out by preferred smash repairers and all major vehicle insurers have Preferred Smash Repairer arrangements of some kind (Productivity Commission 2005). Generally speaking, Preferred Smash Repairer schemes serve as a way for insurers to increase control over repair costs and the repair process through entering into a contractual relationship with a selection of smash repairers. Despite the wide spread use of Preferred Smash Repairer arrangements, models do vary significantly from insurer to insurer. 2.20 Insurance industry arguments advanced for Preferred Smash Repairer schemes include:

• Preferred Smash Repairer schemes benefit consumers by helping to keep premiums down.

• They improve the productivity and economic performance of the repair sector and insurance industries.

• They reduce or limit the need for Government regulation in areas such as repair quality.

• It is critical that insurers play a more active role in the claims process to ensure that there is adequate focus on customer satisfaction, improved quality and cost outcomes.

• Repair quality and safety is not jeopardised by Preferred Smash Repairer schemes. Quality repair outcomes are for reputation, growth and profitability in a highly competitive insurance market.

2.21 Motor vehicle repair industry arguments against Preferred Smash Repairer schemes include:

• Preferred Smash Repairer schemes do not enable smash repairers to price its products and services according to its costs and the dynamics of the market. The hourly rates paid by insurers and repair times given do not reflect the real time and cost for the industry.

• Preferred Smash Repairer schemes limit consumer choice of repairer, removing the consumer from the repair process. Consumer choice is also important to promoting productivity in the smash repair sector.

• Preferred Smash Repairer schemes compromise quality of repairs and therefore safety.

• Preferred Smash Repairer schemes result in restrictions on market competition. 2.22 The following sections provide an overview of three different Preferred Smash Repairer models used by motor vehicle insurers (including Insurance Australia Group)

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Insurance Australia Group (NRMA Insurance) History 2.23 The traditional assessing model used by NRMA involved customers obtaining multiple quotes from smash repairers to be reviewed by an NRMA Insurance assessor. Each vehicle required a physical inspection and quotes were evaluated based on price and method of repair. 2.24 In 1997 the Repair Distribution Centre Model—also known as the Quality Repair System—was trialed in Wollongong by NRMA. Under this model, multiple quotes were sourced from repairers at a Repair Distribution Centre (for a review, see Joint Standing Committee on Small Business, 1998). Over the next five years, NRMA, and later Insurance Australia Group, further developed their repair models. 2.25 In 1999, NRMA trialled a ‘Competitive Partnering’ scheme where the insurer appointed ‘Partnered Repairers’ who they would refer work to. In return, these repairers were required to adhere to agreed standards of service. This scheme was reviewed in 2000 and the Preferred Smash Repairer scheme was subsequently developed. 2.26 This involved the making of a National Preferred Smash Repairer Agreement between the Insurance Australia Group and individual Preferred Smash Repairer. Insurance Australia group uses three categories to refer to smash repairers:

• Preferred Smash Repairer (PSR) – A preferred group of repairers who meet certain criteria including cost and quality of repairs. These repairers have entered into a formal Preferred Smash Repairer agreement with Insurance Australia Group.

• Associate Smash Repairer (ASR) – Other smash repairers who were identified as ‘Partnered Repairers’ and ‘Known Repairers’ from previous schemes. These repairers are required to enter into the Associate Smash Repairer Service Level Agreement

• Non-Accredited Repairers – Smash repairers with whom Insurance Australia group has no established business relationship (they have not entered into a Preferred Smash Repairer or Associate Smash Repairer agreement and are therefore not ‘recognised by the insurer)

2.27 Currently, Insurance Australia Group has 855 Preferred Smash Repairers nationally and 395-405 Preferred Smash Repairers in New South Wales. 2.28 The web-based repair management system has been operational in Sydney since 1 July 2005 and in Brisbane, Gold Coast, Adelaide and Perth since August 2003. Under this system, smash repairers are required to bid for work on the internet based on digital images of the damage.

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How the Preferred Smash Repairer scheme works 2.29 The following is a description of how the Preferred Smash Repairer scheme works in concept. In actual practice, the Preferred Smash Repairer scheme works somewhat differently, as will be discussed in a later chapter regarding STAYSAFE’s findings and recommendations. 2.30 In metropolitan areas, when a policy holder contacts Insurance Australia Group they are either assigned by a telecentre operator by direct allocation to a Preferred Smash Repairer, or they are directed to make arrangements to take their car to the closest Care & Repair Centre. If the car is not driveable, arrangements are made for the car to be towed. 2.31 Insurance Australia Group selects the repairer using two main methods:

• Tendering through Care & Repair Centres in metropolitan areas – the vehicle is assessed at a Care & Repair Centre and initial quotes are obtained over the internet from Insurance Australia Group network repairers

• Direct allocation to a repairer in the network outside of the metropolitan areas -

This would happen if the vehicle is outside of the metropolitan area; the vehicle requires a specialist repairer; the vehicle has suffered structural damage or the customer has purchased a policy with a Choice of Repairer Option

Tendering through Care & Repair Centres 2.32 In concept, only ‘superficial or cosmetic damage’ is allocated through the tendering system. If the assessor determines that the repair is to be priced by competitive tendering using the web-based repair management system, the assessor completes a scope of works and takes a series of images of the damage with a high definition digital camera which are both posted on a secure website. Insurance Australia Group network repairers in the relevant geographic area are then able to tender for the work by completing a quote and submitting this electronically to Insurance Australia Group. The assessor validates the quote against the scope of works and authorises the repair and the work is allocated to a repairer. Direct allocation 2.33 When a policyholder’s vehicle is directly allocated to a repairer, the repairer inspects the vehicle and prepares a quotation including a price and repair method. The repairer takes digital images of the damage and forwards this to an Insurance Australia Group assessor together with the quotation. The Insurance Australia Group assessor checks the repair method and price based on this information and then either authorises the repair or requests that the repairer adjusts the quotation and then authorises the repair.

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2.34 Once work is completed, all customers are offered a free post-repair quality check. Insurance Australia Group states that its assessors conduct random quality audits of repairs. Use of recycled or non-genuine parts 2.35 Second hand parts represent 4% of the total cost of Insurance Australia Group’s New South Wales crash repair costs. Insurance Australia Group procedures and guidelines state that Second hand parts are only used if the vehicle is over three years old, the vehicle is outside the new vehicle warranty period; and the available second hand part is consistent with the age and condition of the vehicle. Performance Monitoring System 2.36 The performance of Preferred Smash Repairers is monitored by the Insurance Australia Group where repairers are ranked as ‘gold’, ‘silver’, ‘bronze’ and ‘red’. Repairers ranked gold or silver are considered the better performers and those ranked bronze and red are considered not to be performing at the expected standard. Unless a bronze or red rated Preferred Smash Repairer improves its performance, Insurance Australia Group will consider terminating the Preferred Smash Repairer agreement with that repairer. Associate Smash Repairers are ranked in a similar way, and it is possible for Associate Smash Repairers to achieve the status of a Preferred Smash Repairer. Promina (AAMI ) 2.37 AAMI first introduced a ‘two-quote’ system in 1981 in an effort to contain repair costs. In 1982 the insurer set up a preferred repairer group in Victoria where repairers received a regular flow of work. In 1984 AAMI introduced a two-quote system for driveable vehicles which were taken to an assessment centre. The quotes were then assessed and the most competitive repairer was awarded the job. In 1986 competitive quoting practices extended to non-driveable vehicles. 2.38 Under AAMI’s current system, customers are advised that it is necessary to obtain two quotes on all repairs with at least one from an AAMI repairer. The owner is able to request a quote from a repairer who is not an AAMI repairer. This repairer is invited to submit a quote. Repairs are authorised to the most complete and competitive repairer. AAMI has three repair options for customers:

• Non-driveable repairs – AAMI will arrange to have the vehicle towed to one of its Customer Service Centres where 2 repairers are invited to quote for repairs

• Valet repairs – Customer drives vehicle to a Customer Service Centre. A Client

manager inspects the damage and provides customer with written confirmation of claim details

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• Driveable Repairs – When a customer wants to obtain quotes themselves and

make arrangements directly with the repairer, the customer is asked to obtain two quotes with at least one from an AAMI repairer. The vehicle is then assessed with the Customer Service Centre and repairs are authorised. The customer arranges to book car in for repairs directly with the repairer.

2.39 Quotes are submitted in dollar terms and include a description of the proposed repair method. Assessors determine the successful quote based on the repair method and parts quoted. 2.40 AAMI guarantees all repairs it authorises, whether the repairer is an AAMI repairer or not 2.41 AAMI states that they conduct a quality follow up call on most repairs. If there is a problem, the vehicle is returned to the Customer Service Centre and rectification work is carried out. Use of recycled or non-genuine parts 2.42 AAMI states that ‘Only Original Equipment Manufacturers (OEM) parts are to be used in carrying out repairs, and only new parts will be used during the manufacturers’ warranty period.’ (Submission to the Productivity Commission 2005, p27) Allianz 2.43 Although Allianz has a network of repairers, their approach to motor vehicle insurance is quite different to Insurance Australia Group and AAMI. Allianz offers ‘full and unrestricted customer choice of repairer’ and does not have a competitive quoting system because of ‘its potential to conflict with our choice of repairer policy (Allianz 2005, p iv). The policy holder is not required to obtain a quote – they only need to choose a repairer (which may or may not be an Allianz network member). 2.44 Under the Allianz Management Repair Process (MRP), assessors and repairers cooperatively examine the damaged vehicle and determine the method and price of repair. This included deciding whether parts will be repaired or replaced, whether new or original recycled parts will be used and hours to be allocated to repair process. The quote is left open until there is no uncertainty about the repair so it can be amended if necessary. Particularly with network repairers where there may be a high volume of Allianz work, assessors will work on-site at the repairers. The assessor can work with the repairer as the job progresses. 2.45 The system operates in this way for all repairers whether or not they are members of the Network or not however only network repairers are permitted to dismantle the vehicle before the assessor inspects the vehicle

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2.46 Allianz states that their current network of 157 repairers nationally which includes 34 in Sydney is currently adequate to meet the amount of work policyholders choose to put through the network. Allianz does not guarantee their network of repairers a minimum amount of work. Use of recycled or non-genuine parts 2.47 Allianz does not use non-genuine parts in its repairs but supports the use of ‘good quality recycled parts where appropriate’. Recycled parts represent about 10% of all parts used by Allianz. Allianz’s policy is to use only new mechanical and safety related parts (eg steering, brakes) and of using new parts on new vehicles. Reviews of Preferred Repairer Schemes 2.48 STAYSAFE examined recent reviews on aspects of Preferred Repairer Schemes to assess any findings or recommendations regarding safety. These include:

• Productivity Commission (2005) inquiry into smash repair and insurance; • Australian Competition and Consumer Commission investigation of Insurance

Australia Group's Preferred Smash Repairer policy; • Australian Competition and Consumer Commission (2003) issues paper on the

relationship between the Australian motor body smash repair industry and the general insurance sector

STAYSAFE also examined the Australian Competition and Consumer Commission investigation of the Preferred Accident Towing Operator scheme introduced by Insurance Australia Group. 2.49 In addition, STAYSAFE reviewed the Federal Court decision in Australian Automotive Repairers' Association (Political Action Committee) Inc v Insurance Australia Limited (formerly NRMA Insurance Limited), (No 6) [2004] FCA 700, which considered issues affecting the Insurance Australia Group Preferred Smash Repairer scheme, and noted the Australian Competition and Consumer Commission roundtable discussions convened in 2002 in response to complaints received by the Commission involving representatives of the motor vehicle repair industry, insurance, consumer and government groups; and the Industry Commission (1994) inquiry investigating issues affecting the insurance industry, smash repairers, etc.. Productivity Commission (2005) inquiry into smash repair and insurance 2.50 The report of the Productivity Commission inquiry is generally significant to the overall context of STAYSAFE’s inquiry into the Insurance Australia Group Preferred Smash Repairer scheme. The Productivity Commisssion inquiry was requested by the Federal government after smash repairers indicated concern about their ongoing viability as a sector, particularly when presented with commercial arrangements over which they feel they have little or no control.

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Background 2.51 The Productivity Commisssion was asked to report on the following matters:

• the appropriateness and transparency of criteria used by insurance companies to confer Preferred Smash Repairer status on smash repairers, including:

• the transparency with which Preferred Smash Repairer status is conferred on (and removed from) individual repairers;

• measures to ensure that market arrangements, including Preferred Smash Repairer status, do not compromise quality and safety;

• the scope for nationally agreed criteria to qualify for Preferred Smash Repairer status; and

• any measures to ensure that non-preferred repairers are treated in a fair and reasonable manner and which improve overall transparency, competitiveness and consumer protection in the smash repair industry.

• financial relationships between smash repairers and insurance companies, including:

• the rates paid by insurance companies for smash repair work; the timeframes provided to smash repairers by insurance companies to consider and make an informed decision on contract offers; and

• the time taken by insurance companies to pay smash repairers for completed work.

• arrangements for consumers to have reasonable choice in the selection of repairers.

• the extent, adequacy and independence of dispute resolution systems between the smash repair industry, insurance companies and consumers.

Where appropriate, recommendations were to be made for improving the relationships between insurance companies, smash repairers and consumers, including possible regulatory approaches that take into consideration the need to keep red tape at a minimum. In making assessments in relation to the matters in the above matters, the Commission was required to have regard to relevant provisions of the Trade Practices Act 1974 (Commonwealth) and the recommendations contained in the Australian Competition and Consumer Commission (2003) issues paper on the smash repair industry (fore a brief summary of the issues paper, see later section). 2.52 STAYSAFE notes that at the commencement of the Productivity Commission’s inquiry, Insurance Australia Group released the results of its own assessments of more than 64,000 vehicles repaired by Preferred Smash Repairers in the three months to July. Insurance Australia Group claimed each vehicle met its safety and quality requirements. 2.53 In contrast, several Victorian independent smash repairers claimed that the low hourly rates paid by motor vehicle insurers to smash repairers lead to cost cutting which is putting dangerous cars back on the roads, and that “ .. 70 per cent of the 370 cars inspected in the past year [at the Australian Automobile Inspection Centre at Moorabbin] … failed in either quality or roadworthiness [and] were insured by major insurers.” (Anonymous, 2004).

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Findings 2.54 The Productivity Commission found that there were serious issues of dispute between the motor vehicle smash repair industry and the motor vehicle insurance sector. These issues of dispute affected fair trading and transparency, and impact on efficiency. The situation has worsened in recent years as insurer power has concentrated. 2.55 The Productivity Commission found that Preferred Smash Repairer arrangements should not, in principle, adversely affect the quality and safety of repairs to damaged vehicles. Preferred Smash Repairer arrangements benefit motor vehicle insurers, policy holders and many, but not all motor vehicle smash repairers. Inevitably, some smash repairers are disadvantaged. 2,56 The Productivity Commission found that rationalisation and productivity improvement in the motor vehicle smash repair industry will continue in response to a wide range of industry and market factors, not just in response to actions by the major motor vehicle insurers to reduce costs. Recommendations 2.57 The Productivity Commission found that improvements to the motor vehicle smash repair industry and the motor vehicle insurance sector can be made, including:

• motor vehicle insurers could, at little cost, enhance the transparency of Preferred Smash Repairer arrangements;

• provided probity and prudential requirements are met, Preferred Smash Repairer status should not be automatically terminated on sale or transfer of a repair business;

• the quoting system known as ‘funny time, funny money’ should be abandoned, and if times and hourly rates are used, they should reflect realistic times and rates, with parts, paint and significant consumables separately costed;

• if an insurer specifies repair methods and/or parts, it should accept responsibility in writing for the quality and safety consequences of its requirements;

• repairers should only be required to guarantee their work for an agreed reasonable time, and should not be required to guarantee parts or paint for longer than the manufacturers’ own warranties.

• policy holders wanting choice of repairer can choose a policy from one of the several insurers offering that choice, and thus, on that basis, consumers have restricted, but reasonable, choice of repairer.

• motor vehicle insurers should clearly and accurately explain to policy holders just what are the choice options under their policies.

• there is prima facie justification for the development of an industry-wide code of conduct as a cost effective way to improve the relationships between motor vehicle insurers and smash repairers, but the net benefits of a code depend critically on its scope and content—provided that the scope and content of the code follow the principles outlined in the Productivity Commission report, the benefits for the community as a whole of a code are likely to outweigh the costs, even if mandated.

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Safety 2.58 STAYSAFE notes that the Productivity Commission’s findings and recommendations centred around the relationship between motor vehicle insurers and smash repairers. The nature of the terms of reference of the inquiry meant that the issue of safety was not central to the findings and recommendations. The Productivity Commission acknowledged that it did not investigate road safety aspects:

“The [Productivity] Commission is not in a position to make judgments about the technical and safety aspects of parts or repair methods. (p.94)

and

“In their submissions, repairers and their representative groups canvassed a wide range of issues, extending well beyond the specific matters covered by the terms of reference. Several that are of significant concern to repairers have been mentioned in relevant sections of this report and some conclusions reached. Nevertheless, the [Productivity] Commission has not attempted to comprehensively analyse issues related to the following topics:

• towing; • subcontracting by the insurer or repairer; • preferred supplier arrangements for parts; • prices for parts; • technical and safety issues related to the use of parts and repair

methods; • licensing of repairers, premises, tradespeople and assessors; and • possible amendments to the TPA [Trade Practices Act 1974

(Commonwealth)]. (Productivity Commission, 2005, p.41, underlined emphases added)

2.59 An examination of the submissions made to the inquiry indicated that major Australian road safety groups, organisations, and State and Federal government agencies did not contribute to the inquiry. 2.60 STAYSAFE reviewed comments and remarks concerning road safety in the Productivity Commission (2005) report, including:

“There is some evidence that the incidence and severity of accidents may have declined in recent years due to factors such as improvements in vehicle safety, better roads and more stringent policing of road safety.” (p.14, no references cited)

and

“Quality and safety Through fostering a closer relationship between insurers and repairers, PSR arrangements should facilitate the opportunity for enhanced quality and safety of repair. But many repairers argued that the awarding and

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maintenance of PSR status give an unduly high weighting to cost, at the expense of quality and safety. For example, several claimed they were required by insurers to use lower quality parts and materials or inferior repair methods. The objective of smash repair under insurance policies, however, is to return the vehicle to the ‘quality’ or state it was in before the accident. From this viewpoint, the use of second hand parts (or non-genuine replacement parts) may be quite acceptable, provided the consumer is not misled about this when taking out insurance, and safety is not compromised. Under PSR arrangements, the responsibility for the quality and safety of repairs generally remains entirely with the repairer. (Indeed, insurers require repairers to offer warranties with their work, sometimes even ‘lifetime’ guarantees — see below.) To an extent, this appears inappropriate, given the often close involvement of insurance assessors in specifying the scope of work, parts usage and, in some instances, the manner of the repair to be carried out. • In the Commission’s view, if an insurer specifies the repair method

and/or the parts to be used, it should do so in writing and accept responsibility for the quality and safety consequences of those requirements. Of course, the repairer should continue to accept responsibility for the quality of its workmanship in response to the insurer’s specifications.

Insurers have strong incentives to ensure adequate quality and safety of vehicles repaired by their PSRs—indeed, most consumers consider this to be the responsibility of the insurer, not the repairer. • Consumers who find the value of their vehicles devalued on sale or

trade-in because of poor quality smash repairs are very likely to take their insurance business to another insurer. A poor reputation can quickly spread in this highly competitive market.

• Accidents resulting from poor quality repairs can have far reaching consequences, including possibly severe legal sanctions, for insurers, as well as repairers.”

(pp.17-18, no references cited) and

“National licensing of repairers and assessors Several participants suggested that there would be quality and safety advantages from implementing national registration of repairers, of tradesmen and/or of insurance assessors. In respect of repairers, existing mechanisms such as state-based regulation, the insurers’ PSR arrangements and repair-industry-based accreditation already provide some assurance about quality and safety.” (p.18, no references cited)

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“Given the significant volatility in the claims data reported by IEC, it is difficult to determine confidently any longer term trend in the rate of motor vehicle repairs. Nevertheless, a number of participants have asserted that there are a range of factors that are having a lowering effect on the incidence and severity of motor vehicle accidents. These include: • improvements in vehicle technology, which have assisted drivers to

avoid accidents (for example, anti-lock braking and traction control systems);

• drier weather, which has resulted in generally improved driving conditions;

• traffic calming initiatives (for example, reductions to speed limits in certain suburban areas) and better roads; and

• more stringent policing of unlawful drink driving and greater numbers of speed cameras (sub. 17, p. 4; sub. 19, p. 20; sub. 20, p. 3).

Other factors also exert an influence on claims numbers and the volume of available repair work. These include the number of vehicle thefts—many vehicles are written off or damaged as a result of theft—and the prevalence of major hail storms. Such storms can cause widespread damage to motor vehicles, especially in built-up areas. Over recent years there has been both a reduction in vehicle thefts and an absence of major hail storms. (The last major hail storm to significantly affect claims occurred in Sydney in April 1999.) While the precise processes and the extent of rationalisation within the smash repair industry may be contested, factors in the market, such as advances in vehicle technology and a possible decline in the incidence and severity of road accidents, are likely to increase pressure on repairers to improve their productivity.” (p.59, some references cited, as indicated)

2.61 Taken together, it is clear that an explicit examination of road safety considerations did not form part of the Productivity Commission’s inquiry. Code of conduct 2.62 The Productivity Commission recommended that, in the first instance, a voluntary agreement should be reached between the four major insurers and the Motor Traders Association) within the six months following the Government’s response to the outcomes of the inquiry. If an agreement cannot be reached, the Government should develop a code of conduct that is mandated under the Trade Practices Act 1974 (Commonwealth). 2.63 The Productivity Commission said areas the industry-wide code of conduct should address include requirements for:

Preferred Smash Repairer

• Notification of opportunities for smash repairers to apply for Preferred Smash Repairer status;

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• Disclosure of selection criteria; • Provision of a ‘cooling off’ period for repairers to consider PSR

contract offers; • Realistic hourly rates that are mutually agreed.

Quoting for work and payment

• Where they are used, times and rates need to be realistic and mutually agreed between the insurer and repairer.

• Hourly rates should not include paint, parts and significant consumables (these should be separately costed).

• Competitive quotation systems need to be fair and transparent. • Full disclosure of insurer’s terms of payment to repairers. • ‘Minimum terms of payment where work is not in dispute’.

Quality and safety

• The insurer should accept responsibility for the quality and safety consequences the repair method and/or quality of parts used where the insurer specifies the repair method.

• The guarantee liability of a repairer should be restricted to the actual work completed and for ‘an agreed reasonable period’.

Consumer choice

• Clear explanation of repairer choice options and policy provisions which relate to use of parts and guarantees.

• Not making misleading and inaccurate comments about non-preferred repairers.

Dispute resolution

• Transparent and independent external dispute resolution mechanisms.

2.64 The Productivity Commission said areas the industry-wide code of conduct should not specify or regulate the following:

• Minimum hourly rates or prices • Standard hours for repair jobs • Types of parts to be used • Industry-wide Preferred Smash Repairer selection criteria and/or weightings for

Preferred Smash Repairer criteria • Compulsory choice of repairer • Requirements to spread work among repairers; and • Particular conditions of guarantees

Federal government response to the Productivity Commission (2005) report 2.65 The Productivity Commission (2005) report was publicly released in August 2005, and was accompanied by the Federal government’s response.

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2.66 The Minister for Small Business, the Hon. Fran Bailey MP, stated in 18 August 2005:

“Small Business and Tourism Minister Fran Bailey today announced the establishment of an industry code of conduct as part of the Australian Government’s response to the Productivity Commission’s inquiry into the relationship between the smash repair industry and the motor vehicle insurance industry. “An industry code will inject transparency and certainty for smash repairers and will go a long way to resolving the longstanding disagreements between the two sectors,” Fran Bailey said. The Government requested the inquiry last year as part of the Coalition’s push to improve the working relationship between the two industries. “The Government agreed with the key recommendations of the report - that disputation between the parties is serious enough to warrant the introduction of an industry code” said Fran Bailey. “On close analysis of the Productivity Commission’s report, the main problem identified that the four main insurance companies wield strong negotiating strength in their dealings with mostly small, independent smash repair businesses. In short, insurance companies should at every opportunity ensure smash repairers receive a fair go” said Fran Bailey. The report found that insurers are in a position to address many of the problems between the two industries at little cost to either industry and the most appropriate mechanism for achieving this is an industry-wide code of conduct which will ensure the cost of regulation for small business is as low as possible. As a minimum, the code will address issues of concern including:

• A transparent and independent external dispute resolution mechanism • Full disclosure in preferred smash repairer arrangements • Retention of preferred smash repair status upon the sale of a business • Full disclosure in quoting for work and payment • A fairer system of guarantees for repairers • Up front disclosure on whether insurance policies provide choice of

repairer “I will be establishing a taskforce comprising representatives from both the smash repair and insurance industries to develop and agree to a voluntary code. Should the development of a voluntary code not be achieved within nine months, then other regulatory options will be considered by Government.

2.67 The Minister for Small Business, the Hon. Fran Bailey MP, later stated on 10 November 2005:

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The Minister for Small Business and Tourism, Fran Bailey, today announced the appointment of Mary Urquhart as the chair of a new industry taskforce for the smash repair and motor vehicle insurance industries. The taskforce will be responsible for implementing the Government’s response to the Productivity Commission report which found that disputation between the two parties was serious enough to warrant the introduction of an industry code. The taskforce comprises balanced representation from both the smash repair and motor vehicle insurance industries to ensure that those affected by the code have their say on its content. The taskforce will have six months to finalise the code of conduct. “Ms Urquhart brings a range of expertise and skills which will ensure that industry participants contribute to the development of a code that works for the industry, and the Government is provided with quality, independent advice on the implementation of the new prescriptive voluntary code,” Fran Bailey said. Ms Urquhart has most recently held the position of Deputy President of the Victorian Civil and Administrative Tribunal, heading the Anti-Discrimination List in the Human Rights Division. She also has extensive expertise in the field of alternative dispute resolution. The taskforce will address the key issues identified in the Government’s response to the Productivity Commission report, such as: • A transparent and independent external dispute resolution mechanism • Full disclosure in preferred smash repairer arrangements • Retention of preferred smash repair status upon the sale of a business • Full disclosure in quoting for work and payment • A fairer system of guarantees for repairers • Up front disclosure on whether insurance policies provide choice of

repairer “The ultimate aim of the taskforce is to inject some much needed transparency for smash repairers,” Fran Bailey said. The first taskforce meeting is scheduled to take place on 14 November in Melbourne. The full list of committee members is attached.

Smash Repair and Insurance Industry Taskforce

• Ms Mary Urquhart, Chair, Smash Repair and Insurance Industry Taskforce;

• Mr David Brown, Head of Claims and Assessing, Personal Insurance Division, Insurance Australia Group;

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• Mr Michael Delaney, Executive Director, Motor Trades Association of Australia;

• Ms Maureen Joseph, National Manager, Strategic Development Repair Industry, AAMI;

• Mr Gunther Jurkschat, General Manager (Divisions and Membership), Victorian Automobile Chamber of Commerce;

• Mr Alan Mason, Executive Director, Insurance Council of Australia; • Mr Mark Milliner, General Manager, Property Claims, Suncorp

Metway; • Mr Richard Nathan, Chairman Body Repair Division, Motor Traders’

Association of New South Wales; • Ms Sue Scanlan, Deputy Executive Director, Motor Trades Association

of Australia; • Mr Nicholas Scofield, General Manager, Corporate Affairs, Allianz

Australia; and • Mr David Weatherall, Chairman Motor Body Repairers Association,

Motor Trades Association of Queensland and immediate past President of the Australian Motor Body Repairers Association (AMBRA).

Australian Competition and Consumer Commission (2005) decision on differential premium pricing regarding choice of repairer under the Insurance Australia Group Preferred Smash Repairer scheme 2.68 In late 2005, the Australian Competition and Consumer Commission (2005) announced its decision on an investigation of differential premium pricing regarding choice of repairer under the Insurance Australia Group Preferred Smash Repairer scheme. 2.69 The Australian Competition and Consumer Commission issued a statement that it would not overturn notified arrangements for motor vehicle insurance policies offered by the Insurance Australia Group. Notification provides immunity from legal action by the Commission and any other party for potential breaches of the exclusive dealing provisions of the Trade Practices Act 1974 (Commonwealth). Insurance Australia Group had notified the Commission of arrangements relating to the offering of comprehensive motor vehicle insurance policies to consumers under their Standard Policies and their Choice of Repairer Policies. Under the scheme, customers wanting to have the choice of repairer are required to pay a higher premium than those who choose a standard policy and allow the insurer to determine the repairer. 2.70 The Australian Competition and Consumer Commission’s assessment was limited to considering the pros and cons of the conduct notified by Insurance Australia Group, that is, the offering of a cheaper premium to policy holders that agree to their insurer choosing the repairer under a Preferred Smash Repairer arrangement. The Commission‘s assessment dealt with the question of whether the scheme, in this particular aspect, was an example of third line forcing conduct. Third line forcing conduct involves the supply of goods or services on condition that the purchaser acquires a second good or service from another supplier.

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2.71 The Australian Competition and Consumer Commission accepted Insurance Australia Group's submission that the arrangement allowed Insurance Australia Group to more efficiently price their motor vehicle insurance products. 2.72 The Australian Competition and Consumer Commission noted that policy holders are still able to have a choice of repairer, either through deciding to pay the additional premium to obtain this choice with Insurance Australia Group, or by purchasing motor vehicle insurance through an alternative insurer. 2.73 Importantly, the Australian Competition and Consumer Commission stated that its decision does not relate to other aspects of Insurance Australia Group's Preferred Smash Repairer arrangements, including:

• the merits of Insurance Australia Group's web-based repair management system were outside the scope of the Commission’s assessment of the notified arrangements for motor vehicle insurance policies offered by the Insurance Australia Group;

• the notified arrangements for motor vehicle insurance policies offered by the Insurance Australia Group do not cover how Preferred Smash Repairers are chosen;

• the notified arrangements for motor vehicle insurance policies offered by the Insurance Australia Group did not cover Insurance Australia Group's contractual arrangements with Preferred Smash Repairers.

2.74 The limits to the extent of the Australian Competition and Consumer Commission’s approval of notified arrangements for motor vehicle insurance policies offered by the Insurance Australia Group does not have general relevance to STAYSAFE’s consideration of the general safety issues arising from the operation of the Insurance Australia Group Preferred Smash Repairer scheme. Australian Competition and Consumer Commission (2005) investigation of a preferred towing operator scheme operated by Insurance Australia Group 2.75 STAYSAFE noted that in early 2005, the Australian Competition and Consumer Commission announced its decision on an investigation of a preferred towing operator scheme operated by Insurance Australia Group. The investigation followed a notification of the arrangement affecting motor vehicle insurance policies offered by the Insurance Australia Group. Under the preferred towing operator scheme, termed the Preferred Accident Towing Operator (PATO) scheme, policy holders receive certain additional services on condition that they use a preferred towing operator following a motor vehicle accident. 2.76 The preferred towing operator scheme is designed to improve towing service quality to policy holders, particularly in areas where there is little or no regulation relating to the towing industry. Where existing legislation or regulations relating to the towing industry is in force, the scheme is implemented so as to work within the requirements of each jurisdiction.

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2.77 The Australian Competition and Consumer Commission considered that the operation of the Preferred Accident Towing Operator scheme was likely to result in improvements in service, safety, and presentation standards. It is also likely to reduce costs for the Insurance Australia Group which might then lead to lower insurance premiums for policy holders. 2.78 The Australian Competition and Consumer Commission found that there may be some detrimental impact on customer choice and thereby competition, for smash repair services. However, the Commission felt that this impact would be reduced as policy holders are not required to use a particular tow truck operator and the notified conduct does not include recommending or discussing smash repairers with policy holders. The Commission said that anti-competitive impact of the scheme on towing operators not part of the Insurance Australia Group would be diminished by several features, including that the scheme will primarily affect only accident towing and will operate within the current legislation and regulations in each state and territory. Also, non-Preferred Accident Towing Operators will still be able to provide towing services for other insurance companies and Insurance Australia Group policy holders will be able to have their vehicles towed by a non-Preferred Accident Towing Operator if they choose to do so. 2.79 Overall, the Australian Competition and Consumer Commission decided that the arrangements are likely to provide benefits to the public that would outweigh any potential detriment. The Commission, however, indicated that intended to seek further submissions from interested parties and initiate a review of the notifications after 12 months. Australian Competition and Consumer Commission (2003) issues paper on the relationship between the Australian motor body/smash repair industry and the general insurance sector 2.80 STAYSAFE notes that the Australian Competition and Consumer Commission has been very active in seeking to resolve issues arising from the adoption of Preferred Repairer Schemes. This has included facilitating a number of roundtable discussions initially involving the smash repair industry, motor vehicle insurers, and consumer groups, but later including State and Federal government representatives, aimed at improving information exchange between insurers and smash repairers (see, e.g., Australian Competition and Consumer Commission, 2002a, 2002b). Particular attention was paid to consumer choice and information, with discussions centred on issues such as Preferred Smash Repairer schemes, guarantee requirements, repair terms, customer ownership, consumer choice, and consumer information, as well as a national code of conduct to improve the relationship between insurers and smash repairers. These round table discussions led to the Commission preparing an issues paper . 2.81 In 2003, the Australian Competition and Consumer Commission published an issues paper examining the relationship between the Australian motor body/smash repair industry and the general insurance sector, with particular regard to the Trade Practices Act 1974 (Commonwealth). The issues paper canvassed issues relating to:

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• effective methods of dispute resolution; • transparency and accountability in commercial relationships; • the sustainability of small business body repairs; and • clarity for the policy holder on the nature of the service available.

2.82 The issues paper provides an outline of the current issues and concerns in the smash repair sector. It was prepared following roundtable discussions facilitated by the Australian Competition and Consumer Commission between smash repairers, insurers and consumers who were invited to identify their key concerns with the way in which the market operates. 2.83 The Australian Competition and Consumer Commission did not find evidence supporting allegations of breaches of the Trade Practices Act 1974 (Commonwealth). However, the Commission has determined that there is conduct occurring in the industry that is perceived to be unfair and unreasonable. This conduct may impact on the development of continuing commercial relationships. A high proportion of smash repairs are performed under insurance contracts, and many smash repairers are concerned by the introduction of Preferred Smash Repairer schemes by insurance companies. However, the Commission found that such schemes have resulted in a number of consumer benefits, including lower insurance premiums, lifetime guarantees and repair work performed to a high standard. 2.84 The Australian Competition and Consumer Commission said that any further developments in the industry should take into account substantive issues on behalf of smash repairers, consumers and insurers. These include:

• an efficient and effective smash repair industry which can perform work efficiently, at a low cost and in a professional manner;

• the treatment of smash repairers in a non-discriminatory manner whether or not they are part of a Preferred Smash Repairer or Associate Smash Repairer scheme;

• that payment should be afforded repairers within 30 days unless there are reasonable grounds otherwise;

• access for consumers, repairers and insurers to dispute resolution procedures which include timely and efficient decision making processes.

• entitling consumers to a reasonable level of choice of repairers without being penalised; and

2.85 The Australian Competition and Consumer Commission said that:

• that there is scope for greater transparency in the dealings between smash repairers and insurers;

• there should be further industry discussion, especially between the smash repair sector and the insurance industry; and

• industry participants should consider the potential application of codes of conduct involving wider access to dispute resolution mechanisms.

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Anti-steering legislation 2.86 Where a dominant company is able to stifle competition by controlling the marketplace through directing work to selected suppliers or facilities, anti-steering laws can be enacted to protect the consumer. 2.87 In the case of the motor repair industry, anti-steering legislation has been identified as one mechanism for protecting the interests of both policyholders and the motor vehicle smash repair industry. 2.88 The Productivity Commission noted that:

“A range of regulatory arrangements governing the commercial relationship between the smash repair and insurance industries have been adopted in other countries. In the United States, for example, around 35 states have some form of anti-steering legislation that prohibits insurance companies from directing claimants to a particular repairer. In respect to such legislation, the MTAA stated:

The legislation differs in degree from state to state and deals with issues and matters such as insurers requiring that consumers travel unnecessary distances to have their vehicle repaired, requirements that consumers have their vehicle repaired at certain shops, recommendation of a preferred repairer, pre-inspection price setting, intimidation, coercion and threats of non-payment of claims. (Motor Traders Association—Australia, sub. 15, p. 43)

Canada also has legislation that enshrines consumer choice. The Collision Repair Standards Act 2002 (Canada) requires that consumers have a choice of repairer. Insurers are also required to provide a range of information to their customers in the form of a ‘Bill of Rights’ that advises on matters like:

… the customer’s right to safe repair, a shop of their choice, advice to the effect that they are not required to use an insurance company’s recommended shop (although they can should they so wish), a declaration of whether parts used are OEM or aftermarket and a statement from the shop that the repair has been undertaken in accordance with all applicable safety standards. (Motor Traders Association—Australia, sub. 15, p. 41)”

(Productivity Commission, 2005, p.68) 2.89 The motor vehicle insurance sector argues that this kind of legislation would result in increased costs for insurers and consumers and adversely affect the structure of the repair sector. The Productivity Commission (2005) found that there has been little analysis of the advantages and disadvantages of such measures.

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2.90 The Productivity Commission (2005) did not support anti-steering legislation, but as can be seen from a reading of the debates and statements in the Legislative Assembly of New South Wales, Government, Opposition and crossbench parliamentarians are generally supportive of anti-steering legislation if it will address concerns that Insurance Australia Group is forcing policyholders into using only its nominated smash repairers, and at the same time cutting the cost of payments to those smash repairers who have contracted to be a Preferred Smash Repairer. 2.91 The concern of other major motor vehicle insurers in New South Wales is that legislative action addressing what might be seen as unreasonable or oppressive dominant marketplace behaviour by Insurance Australia Group may impact generally across all insurers:

“AAMI would have to abandon its two quote system, GIO could have to close its depots, and even the highly praised Allianz may have to tear up its repairer network list—because all of these have the effect, to some degree, of steering policyholders [to selected repairers]” (McEwing, 2005)

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Chapter Three—

MOTOR VEHICLE SMASH REPAIRS UNDER THE INSURANCE AUSTRALIA GROUP (NRMA INSURANCE) PREFERRED REPAIRER SCHEME 3.1 As indicated in the introductory chapter, in this inquiry STAYSAFE has generally examined motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme, and assessed specific safety, or risk issues, namely:





3.2 The Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme uses a Teleclaims centre and a network of Care & Repair centres to provide a damage assessment process which relies on internet or web-based technology to allow Preferred Smash Repairers and Associate Smash Repairers to submit quotes for the repair of damaged motor vehicles and be allocated work. Web-based repair management under the Preferred Repairer Scheme and the use of electronic images as basis for quote 3.3 In early March 2005, Insurance Australia Group issued a repairer notification to its Preferred Smash Repairers and Associate Smash Repairers that it would commence web-based repair management as the means of allocating smash repair work in Sydney, Newcastle and the Australian Capital Territory from 1 July 2005, and introduce this allocation method in Gosford and Wollongong later in 2005.

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3.4 In the repairer notification, Insurance Australia Group stated:

"You are receiving this letter because you are an IAG Preferred Smash Repairer that is in an area to be affected by a new way that we will be using to allocate our smash repair work from July 1, 2005…. Allocation of smash repair work by Web-based Repair Management (WRM) Insurance Australia Group has been allocating smash repair work in metropolitan areas of South Australia, Western Australia and Queensland via a competitive Internet-based arrangement called Web-based Repair Management ("WRM"). Due to WRM's success In these States, and due to our assessment of the market In NSW, IAG has decided to introduce this system in some metropolitan areas of NSW and the ACT There will be no change to the existing way that work is allocated in the rural and regional areas of NSW. What is WRM? WRM IS an evolution of the way IAG does business with its preferred smash repairers Essentially, it is simply a change to the way we allocate work to our Preferred Smash Repairers (PSRs) and, if a business need arises, to our Associate Smash Repairers (ASRs). WRM involves competitive tendering by smash repairers for work over the Internet. Why is IAG moving to WRM for allocation of work? Our experience In Western Australia, South Australia and Queensland has shown us that WRM has delivered certain benefits to smash repairers and our customers. The results have included:

• high satisfaction scores from our customers who have their repair work allocated and managed via WRM;

• smash repairers tendering for jobs that best suit their type of business, expertise, capability, equipment levels and work volumes;

• smash repairers determining the competitive price of repairs. WRM has proved popular with our customers because it gives them more Information about the repair process. Through WRM, customers are able to have their car repaired at a time, and in an area that is normally most convenient to them. Customers also have the option of having an additional post-repair quality check at the repair assessing centre. From IAG's perspective, we enjoy benefits such as greater customer contact and receiving competitively priced repairs. For these reasons, we have decided to introduce WRM in 2005 in NSW.

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How does WRM work? Customers lodge their claim with Teleclaims in the normal way. When a customer's vehicle needs to be repaired after an accident and their vehicle is drivable, they are asked by Teleclaims to take their vehicle to a conveniently located repair assessing centre in certain metropolitan areas. Vehicles that cannot be driven may be towed to be assessed. An assessor at the repair assessing centre reviews the damage, takes digital images of the vehicle, develops a scope of work and posts this information on a secure Internet website. PSRs interested in tendering for that job submit a quote online. The website, like the Internet, is generally accessible at any time of the day or night. ASRs may also be Invited to submit quotes if the business need arises. This cou1d include instances when no tenders for work are received from PSRs. The WRM system processes all quotations and allocates the job, in most cases, based on price, as competing PSRs will have already met the quality, customer services, probity and business need criteria that are required to be a PSR. Once a job is allocated, the customer takes the vehicle to the successful repair shop. If the vehicle is not drivable the vehicle may be towed to the successful shop. Once the authorised repair has been completed, customers are given {he option of taking their vehicle back to the repair assessing centre for a post-repair check. WRM is planned to kick-off on July 1 2005. There will most likely be some tests of WRM arrangements before then…." (Letter from Mr David Brown, Head, IAG Personal Insurance Assessing and Claims, to smash repairers in the Preferred Smash Repairer scheme, 3 March 2005)

3.5 Assessors, who are Insurance Australia Group employees, are required to take electronic images of the “full extent of damage and the intended repair method” (Insurance Australia Group briefing document on Care & Repair centres, November 2005). When taking the electronic images, an assessor must make sure that the damaged area(s) are clean, and that the damaged area is highlighted by marking with a pen or use of magnetic sign markers to highlight damage and reduce the number of electronic images required. Use of pen and magnetic strip markings can also show damage that may not be clearly visible on an electronic image (e.g., scratched mouldings, irregular gaps, the perimeter of damage, etc.). 3.6 Enough electronic images must be taken to clearly identify the extent of all damage. A minimum of three electronic images must be taken of each damaged repairable panel, with an overview electronic image of mandatory replacement panels. Electronic images of old damage, or damage inconsistent with a policy holder’s claim as to the circumstances of the crash or incident which resulted in damage, must also

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be taken (but retained for documentation rather than used in the web-based repair management process). 3.7 Insurance Australia Group requires assessors to ensure that all electronic images are consistent so that smash repairers are aware of the sort of data they will receive. The set of electronic images should include:

• a shot of the rear or front of the motor vehicle for identification • overview of the damage • fittings on the motor vehicle • all damaged areas, proceeding on a panel-by-panel basis, starting with an full

image of the first panel with close ups and different angle images of the damaged panel, before an entire image of the second panel, etc..

• any unusual trims or accessories that may require removal or replacement (e.g., bull bar, mudguards, etc.)

• any access areas that may be handy for a repairer to consider in developing a quote

• the engine bay of the motor vehicle • the compliance plate of the motor vehicle • the colour code and build date of the motor vehicle

3.8 Assessors are required to check each electronic image once taken, and to delete and re-take electronic image if it is of poor quality. The use of electronic images is intended to provide a ‘visual description’ for a smash repairer to view when decided if a quote will be submitted and in the development of the costings for the quote. 3.9 The assessor is also required to complete a scope of works which is a complete written description or overview of the nature and extent of the damage so that a smash repairer has sufficient information, in conjunction with the electronic images, upon which to base a quote. The scope of works must contain:

• a written description of the damaged area, listing the extent of damage • fittings requiring removal or release for repair, replacement, or blend • any unusual accessories requiring replacement • type of pinstripe or transfers requiring replacement • damage size • compliance plates, Vehicle Identification Number—VIN, motor vehicle build

date, paint codes, and the make and model of the motor vehicle An assessor may list some scope of works items for mandatory replacement due to the extent of the damage sustained. 3.10 There is no detailed physical inspection of the damaged motor vehicle by an assessor. All physical assessment is based on examination of external accessible surfaces of the vehicle. There is neither a capacity to remove panels, wheels, or other superficial components, nor to place the damaged motor vehicle on jacks or a hoist to conduct inspections.

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3.11 Smash repairers were critical of the use of electronic images of damage to support the development of a quote for the repair of damage. This was so in evidence:

Mr HENSON: … When the Preferred Smash Repairer system was in place we were at one stage a self-assess shop, which meant that the Insurance Australian Group and its management acknowledged the fact that you cannot accurately quote or assess accident damage sustained to a car until it has been partly dismantled or in some cases fully dismantled and start the repair process to attain the correct method of repair and cost. How can they expect us to accurately submit a quote or a bid on the car and sight the full extent of the damage from images? (Mr Greg Henson, Transcript of evidence, Monday 5 December 2005)

and

Mr MOORE: … under the web-based repair management system, it is impossible to do an accurate quote. A genuine tender from the Internet image that is supplied by Insurance Australia Group, or in fact any other insurance company, is absolutely impossible. [and later] Mr MOORE: … For an assessor to photograph damage on cars and ask quality repairs to tender for these jobs is absolutely out of order. (Mr Graham Moore, Transcript of evidence, Monday 5 December 2005)

3.12 This was the consistent view of motor vehicle smash repairers in submissions received by STAYSAFE. 3.13 Even motor vehicle smash repairers who are participating in the Insurance Australia Group’s Preferred Smash Repairer scheme were concerned about the use of electronic images of damage to support the development of a quote for the repair of damaged motor vehicles. 3.14 STAYSAFE was also advised by other motor vehicle insurers that the use of electronic images of damage to support the development of a quote for the repair of damage is not appropriate. 3.15 Thomas (2005), see Appendix A to this report, found that the vast majority of images that he examined failed to adequately depict clear and precise details of the damage to enable a repairer to accurately estimate the correct method of repair or repair time. He noted that 80% of images viewed from a particular Insurance Australia Group Care & Repair Centre were blurry containing unrecognisable detail. While some images were clear and precise depicting relevant details, generally the images that were blurry and unrecognisable in detail, and of all the images accompanying the scope of work for repair that he examined, over 75% failed to accurately depict the full extent of damage to the vehicles. In fact, many smash

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repairers he interviewed felt some assessors were not taking electronic images with the intent to illustrate damage but were merely taking images of the vehicle. 3.16 STAYSAFE notes that electronic images of damage to motor vehicles have been used in Insurance Australia Group’s motor vehicle smash repair operations for some time, and have been used by other motor vehicle insurers, but in reverse. That is, motor vehicle insurers use electronic images of damage to motor vehicles taken by repairers at the time of initial quoting and during the repair process to document the specific nature of the damage requiring repair during the process of dismantling and repair to the motor vehicle. Even then, difficulties are experienced in the use of electronic images of damage to motor vehicles—this was discussed in evidence:

Mr NATHAN: … But let me tell you, when it was the other way around—our end—and we had to send pictures to them we may have had to do that, …, five and six times, 30, 40 or 50 images so that the guy sitting on the other end, their assessor, can see what we are talking about. (Mr Richard Nathan, Transcript of evidence, Monday 5 December 2005)

3.17 STAYSAFE notes that within the Insurance Australia Group Preferred Smash Repairer scheme there is the option of assigning a damaged motor vehicle to a smash repairer by direct allocation. This can occur when:

• the policy holder has bought a policy with the choice of repairer option but did not exercise that option at lodgement of the claim through the Teleclaims centre

• the Teleclaims centre operator assigns the damaged motor vehicle • the Care & Repair centre calls for tenders but none are received • the motor vehicle requires a specialist smash repairer depending on the vehicle

type or complexity of the damage sustained (e.g., a 4WD vehicle, the motor vehicle has an aluminium body, the motor vehicle has specific major damage such as mechanical, suspension, steering, radio, trimmer, or glass-only damage)

• the motor vehicle is of a prestige nature, is still under warranty, and is valued at more than $57,000 (sum insured , or market value)

• the work is required to be performed by a specified time but no tendering smash repairer can begin work on the damaged motor vehicle within the required time

• there are issues to be considered regarding the location of the damaged motor vehicle, or the home or work residence of a specified policy holder

In practice, this means that some motor vehicle smash repairers within the Preferred Smash repairer scheme are received almost all work from Insurance Australia Group by direct allocation. In direct allocation, the repairs are managed using the processes previously used by Insurance Australia Group (and which are still used in rural and regional New South Wales). 3.18 In deciding on whether a particular claim should be put to tender, rather than be subject to direct allocation, Insurance Australia Group Care & Repair centre assessors must consider:

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• if approximately 70% of the physical damage to the motor vehicle can be identified by written comments and electronic images, excluding those items placed on report by an assessor;

• if only cosmetic damage has been sustained to the motor vehicle; • if the structural integrity of the motor vehicle has not been compromised; • if there is no apparent suspension or mechanical damage; • if the damage is non-safety related or • if there is only minimal light structural damage.

3.19 Insurance Australia group has neither explained the underlying rationale for the selection of these requirements, nor supplied any research studies that might validate the requirements, for example:

• why permit almost one-third of the suspected damage to the motor vehicle to not be subject to written comments and electronic images?

• what is meant by the term ‘cosmetic damage’? • how does an assessor determine if the structural integrity of the motor vehicle

has not been comprised and that there is no damage to suspension, steering, or mechanical components of the motor vehicle?

• what is meant by the phrase ‘light structural damage’? Financial penalties if damage not apparent in electronic images is later uncovered and require variations to initial quotes for repairs to damaged motor vehicles 3.20 A second area of inquiry for STAYSAFE was an examination of cost cutting and unsafe repair practices associated with the imposition of financial penalties by Insurance Australia Group if damage is later uncovered that was not apparent through the internet photographs. 3.21 Insurance Australia Group reported that 43% or repairs, or almost one in two, of the jobs allocated through Care & Repair centres required the repairer to submit a variation on the initial quote. 3.22 In contrast, STAYSAFE notes that a competitor in the motor vehicle insurance market, AAMI, which uses a similar model of assessment centres for motor vehicle smash repairs but which does not use a web-based repair management system reported that in its business model about “20 per cent of our repairs”, that is one in five vehicle repairs, were associated with the repairer submitting a variation on the quote (sometimes called a ‘supplementary’ or ‘additional’). 3.23 Thus Insurance Australia Group has at least double the rate of variations to initial quotes for repairs to damaged motor vehicles than its competitors in the New South Wales motor vehicle insurance sector. 3.24 Insurance Australia Group can impose financial penalties if damage not apparent in electronic images is later uncovered and the smash repairer needs to submit a variation (also termed a supplement, or an additional) to the initial quote for

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the repair of a damaged motor vehicle. This is done through a clause allowing the use of a Tender Adjustment Factor within the Insurance Australia Group contract under the Preferred Smash Repairer scheme. Mr Wilson, representing Insurance Australia Group, explained:

Mr WILSON: ….[Assessors] might identify repairers that intentionally miss it off the original quote. Let us use the tendering model, for instance. We refer to that as ‘low balling’, where they will miss certain items off the scope just to win the job and then try to put the cost up through the variation. To keep it fair to the other repairers and make sure that it is a level playing field, that is where we might incorporate a Tender Adjustment Factor, which I think is the point you are trying to make. (Mr Steve Wilson, Transcript of evidence, Monday 5 December 2005)

3.25 Insurance Australia Group indicated that it authorises all fair and reasonable variations without penalising smash repairers. Insurance Australia Group assessors can put items ‘on report’ in a scope of works, meaning that the potential requirement for further repairs has been identified prior to the work being tendered. 3.26 Insurance Australia Group stated that whether or not a scope of works for the repair of a damaged motor vehicle listed reportable items, there is no prejudice to variation requests for items that are only identified after a repairer has physically inspected a vehicle. There is no contractual condition that should prevent or discourage a smash repairer from submitting a fair and reasonable variation. Insurance Australia Group indicated that it assesses all variations against the original scope of works for: items on report, additional items required, items inconsistent with the scope of works, and variations in the cost of previously quoted items. 3.27 Insurance Australia Group acknowledged that since the introduction of Care & Repair centres under the Preferred Smash Repairer scheme, 98% of submitted variation items have been approved. So what was the purpose of the penalty implicit in the Tender Adjustment Factor within the Insurance Australia Group contract? Insurance Australia Group stated that the Tender Adjustment Factor was designed to protect smash repairers who submit genuine tenders against those who might deliberately or negligently exclude items from their quote in order to win the tender with an artificially low quote. The Tender Adjustment Factor is only applied in circumstances where a smash repairer submits a variation for an item which should have been included in the original tender, based on the information made available to all tenderers through the scope of works. STAYSAFE questioned representatives of Insurance Australia Group on this matter:

The Hon. Rick COLLESS MLC (STAYSAFE): I have been in contact with a few of the repair shops that have expressed a great deal of concern about this whole process. One of the issues raised with me was that if they have to, say, charge an extra $200 because they quoted for a second-hand part but have to get a new part because they were unable to source the second-hand part, Insurance Australia Group will, they admit, pay the extra $200, but, in respect of every job they quote on for the next month, Insurance Australia Group will penalise them by an extra $200. They have to put an

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extra $200 on every job for which they quote for the next month. Surely you would be aware of that sort of policy detail? Mr HAWKER: My understanding is that 43% of tenders that go through the web based system come back with further work to be assessed from the repairer, because their repairer, once they get the work, needs to pull the car apart— The Hon. Rick COLLESS MLC (STAYSAFE): That is a different issue to that which I am talking about. Mr HAWKER: I will come to the process—43% has actual work required and 98% is then approved. The remaining 2%, which is not necessarily proved, goes through this process. If we believe that the original tender may have been under what would be a reasonable original market price, we put in place what is called a "tender adjustment factor". That prevents people from abusing the system and underbidding by putting in the lowest possible price up front and trying to get extra work, forcing people out of the system—making an unfair system. That is only 2% of cases and that my understanding is that that is when we use that process, when we feel someone has purposely underbid the system. (Mr Michael Hawker, Transcript of evidence, Monday 5 November 2005)

3.28 Insurance Australia Group advised that from the commencement of Care & Repair centres in New South Wales on 1 July 2005 to 30 November 2005, Tender Adjustment Factors have only been applied in 31 instances from over 21,000 tenders, with an average value of only $9. From these 31 Tender Adjustment Factors, there have only been 6 instances where a Tender Adjustment Factor has resulted in what would otherwise have been a successful tender not being awarded a job. 3.30 However, STAYSAFE heard evidence that Insurance Australia Group did not begin to generally apply the Tender Adjustment Factor within the web-based repair management system until November 2005, which would negate the claims reported in the previous paragraph. 3.31 STAYSAFE received submissions and heard testimony that the Tender Adjustment Factor was one matter causing smash repairers to consider whether to not lodge a variation to the initial quote, because of concern that their subsequent bids for repair jobs placed on the web-based repair management system could or would be jeopardized. 3.32 STAYSAFE also heard evidence that the web-based repair management system was a system based on reducing costs of repairs to damaged motor vehicles that were the subject of claims against Insurance Australia Group’s motor vehicle insurance policies. The web-based repair management system allocates successful quotes based on lowest tendered price, as indicated in testimony of Insurance Australia Group:

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Mr GIBSON (CHAIRMAN): … Tell us about the winning tender, does it always go the cheapest price? Mr STRONG: No, some other considerations can be taken into account but normally a tender would not be given outside a very close range. As you know, the average number of tenders is about 2.3 per job. Mr GIBSON (CHAIRMAN): Your Chief Executive Officer told us it went to the cheapest price on the computer. Mr STRONG: Mostly it will but there can be cases where there is another factor that could be taken into account. (Mr James Strong, Transcript of evidence, Wednesday 7 December 2005)

Use of second hand vehicle parts in the repair of motor vehicles 3.33 A third area of inquiry for STAYSAFE was an examination of the Insurance Australia Group’s use of second hand vehicle parts in the repair of motor vehicles. 3.34 The motor vehicle or automotive industry includes the following sectors:

• cars • commercial vehicles (including vans, heavy vehicles, vehicles used in industrial

and other off-road situations) • motorcycles, mopeds and scooters • component manufacture and distribution: OEM and aftermarket

3.35 Globally, the motor vehicle industry is undergoing significant consolidation, with individual country-based manufacturers now being owned and managed by multinational companies; for instance, Ford Motor Company now own the brands Jaguar, Land Rover, Aston Martin, Volvo (Sweden) and Lincoln (USA), which together form PAG, the Ford Premier Automotive Group. An effect of this process is the globalisation of motor vehicle industry, with component parts and even part-completed motor vehicles now commonly sourced from a variety of manufacturers across many countries. Associated with this process has been the rise of industries based on the manufacture of non-genuine motor vehicle parts. 3.36 The Productivity Commission (2005) found that there is considerable scope to vary the type of replacement parts used in the repair of damaged motor vehicles, with parts supplied by vehicle manufacturers or by specialist new and recycled parts distributors. The procurement of replacement parts has typically been the responsibility of the smash repairer, and smash repairers usually earn a margin on the purchase. To control costs, some motor vehicle insurers have increasingly sought to directly control certain elements of parts supply. Under one such form of arrangement, a motor vehicle insurer will itself enter into supply arrangements with parts distributors and effectively remove smash repairers from this aspect of the repair process. As well, some motor vehicle insurers make arrangements for the supply and

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fitting of components such as windscreens, headlights, and radiators by subcontractors. 3.37 According to Insurance Australia Group, the large majority of parts used in the repair of collision damaged vehicles are what it terms ‘cosmetic’—such as panels—rather than structural components. 3.38 There are two main classes of replacement parts — ‘genuine’ parts and ‘non-genuine’ (or ‘parallel’) parts. Genuine parts are manufactured exclusively for, or by, motor vehicle manufacturers, and may be purchased new, as non-badged genuine parts, or as recycled second hand parts. Non-genuine parts are alternative copy parts which may be manufactured independently of the vehicle manufacturer. 3.39 The design and production of parts (and vehicles) are subject to government regulation. In particular, the Motor Vehicle Standards Act 1989 (Commonwealth) prescribes the standards for safety and emissions — the Australian Design Rules — that new vehicles have to meet in order to be registered. 3.40 Different terminology can used by smash repairers and the insurance industry to describe various sub-categories of replacement parts. The different terminology can often be a source of confusion, especially as parts which are branded by a vehicle manufacturer and equivalent unbranded parts are often produced by the same original equipment manufacturer (OEM), and the real technical distinction between parts categories can be contested. 3.41 The terminology to describe the various types of replacement parts available for the repair of damaged motor vehicles was discussed by the Productivity Commission (2005):

Badged genuine parts — these are parts that are branded by a motor vehicle manufacturer and which are guaranteed by the manufacturer. Badged genuine parts can be made by the original motor vehicle manufacturer or by a component supplier to the original motor vehicle manufacturer. These parts are commonly referred to as original equipment manufacturer (OEM) and are usually retailed through the motor vehicle manufacturer’s distribution network. Non-badged genuine parts — these are parts produced by an original equipment manufacturer (OEM), typically a component supplier to the original motor vehicle manufacturer, but which do not include the endorsement of the motor vehicle manufacturer and are not guaranteed by that manufacturer. Retail of non-badged genuine parts usually occurs through independent parts distributors. Parallel parts — these are ‘non-genuine’ parts produced independently of vehicle manufacturers. They are not guaranteed by vehicle manufacturers. Parallel parts are usually retailed by independent parts distributors. Recycled parts — these are second hand parts, often original equipment manufacturer (OEM), that have been salvaged from wrecked motor vehicles

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(and possibly repaired or reconditioned). These parts are often the only source of replacement parts for older model vehicles. Recycled parts are typically retailed through specialist parts recyclers that purchase motor vehicles that have been written off by insurance companies.

3.42 Insurance Australia Group representatives discussed their use of parts in repairs to damaged motor vehicles:

Mr JACKSON: … In repairs, only 4% of our parts are recycled parts. Just over 95% are new genuine, which is not the same as OEM. If I can just clarify that. There has been a long discussion in this industry about OEM versus new genuine. We use new genuine, …. New genuine are parts which have a part number. They are often made in the same factory. They come into Australia and they come through the Australian design standards. About 15 years ago the Australian Competition and Consumer Commission looked at this in terms of the parallel import legislation allowing competition to allow those to compete instead of allowing the major motor manufacturers to tie up, which they have done in other countries—a gerrymander which in effect guarantees the parts. You will find the same part often is double or triple the price just for having a badge. That also applies to mechanical repairs. Mr GIBSON MP (CHAIRMAN): It is like buying a pair of Raybans for $5? Mr JACKSON: No, it is like going to Midas and finding the same part produced with the same number. These are the same part numbers. I can give you an example of where a Mazda part and a Ford part, where they are co-badged, and it is the same vehicle. Depending on whether you choose to buy it from Mazda or Ford you can have a 30% difference with the same part or the same part number.

and: Mr JACKSON: If you look at our contract, it specifies in there that the repairer selects the part. You will see that we say the parts are to be new genuine. They are to not invalidate the warranty or safety. Less than three years old or within warranty, they are to use new genuine. The issue we get with 10-year-old cars—and we have a lot of them—is we often cannot get parts. I have had this discussion with Toyota. They quite clearly run their parts off as do most OEMs, because it is not productive to carry them. One of the issues for a 15-year-old car that might be worth $5,000—and that is particularly in the lower socioeconomic areas—is if you cannot fix it because you are not allowed to use recycled parts, that would involve a write-off of the car. For many people that would mean their only form of transportation would then be written off.

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Mr BARR MP (STAYSAFE): But are you saying for a car that is under three years old, only genuine parts are used? Mr JACKSON: Our policy states—and again I can look it up for you— Mr BARR MP (STAYSAFE): Just tell me. Mr JACKSON: We specify that the repairer should select the best for the repair, but new genuine. We do not say OEM. There is a difference. One is a badging exercise.

And later: Mr BARR MP (STAYSAFE): So you can say unequivocally that after repair work is done on any cars less than three years old the customer is getting back a car of the same quality, and that there has been no change to say the safety ratings because parts have been used that are not properly tested or are unknown? Mr JACKSON: Our policy is very clear, and I have provided it, and I could read you the words. That is what we look for. Can I guarantee that a repairer will not have done something behind a panel that you cannot see? No—but that has existed in the industry for years and years. There was an old scheme whereby you would provide the insurer—because there were no photographs—with a receipt showing that it was a new part. You would get what is called a credit from the parts supplier and put in a part that did not fit. We have had to look at that visually. One of the good things about this system is that we have now got a lot of proof about what went before it went there, proof later, and we guarantee the parts for life. We take that guarantee on. Mr BARR MP (STAYSAFE): But, in a system where you are driving down prices, surely that invites cost cuttings? Mr JACKSON: The competition already exists. What we are trying to have is a better process around that. (Mr Ricky Jackson, Transcript of evidence, Monday 5 December 2005)

3.43 Insurance Australia Group later claimed that the use of second hand parts does not compromise the safety or integrity of the motor vehicle to which they are fitted, that the use of such parts is standard practice for all motor vehicle insurance companies, and that the use of second hand parts has not changed since the introduction of Care & Repair centres. 3.44 Insurance Australia Group admitted that second hand parts are used to create competitive pressure on new parts pricing as well as when new replacement parts are unavailable. The guidelines for the use of second hand parts by Insurance Australia Group provide that:

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• The use of secondhand parts does not compromise the safety and integrity of the vehicle, and

• The vehicle is over three years old, and • The vehicle is outside the new vehicle warranty period, and • The secondhand part is consistent with the age and condition of the vehicle.

Insurance Australia Group has preferred dismantlers, whose performance is measured through a Service Level Agreement to supply high quality secondhand parts. 3.45 While second hand parts represent only 4% of total claims cost, over 90% of the second hand parts that are used in repairs are used on motor vehicles over five years old. 3.46 In contrast to the definitions provided in Para. 3.41, Insurance Australia Group suggested the following definitions:

Aftermarket Part: A part copied from an OEM part, not made by the original manufacturer.

OEM Part (Original Equipment Manufacturer): A part manufactured by a supplier to the original manufacturer of the vehicle.

Parallel Part: A part manufactured by the same supplier as used by the original manufacturer of the vehicle but distributed via a third party. These parts are identical to OEM parts and will generally be packaged and branded similarly.

Reconditioned Part: A part where the component has been rebuilt to an ‘as new’ level, replacing any worn out parts.

Secondhand Part: An original genuine part removed from one vehicle and refitted to another vehicle.

Clearly, there is the potential for considerable misunderstanding about definitions surrounding motor vehicle parts, particularly regarding the definition of a ‘parallel part’. 3.47 STAYSAFE noted that the position adopted by Insurance Australia Group is at variance with other motor vehicle insurers, who have policies that require the use of genuine replacements parts in the repair of a damaged motor vehicle (see, e.g., AAMI). Issues associated with Insurance Australia group’s motor vehicle damage assessors 3.48 The fourth area of inquiry for STAYSAFE was an examination of the Insurance Australia Group employing unqualified smash repair assessors (or estimators) to photograph and help administer vehicles for repair. 3.49 Under the Insurance Australia Group Preferred Smash Repair scheme assessors must:

• Decide what is the actual (and suspected) damage to the motor vehicle

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• Decide if the damaged motor vehicle be put to tender or be subject to direct allocation

• Decide if the damaged motor vehicle is driveable • Administer the processes under the web-based repair management system • Conduct a quality inspection after the damaged motor vehicle has been

repaired 3.50 It is clear that a large responsibility for safely and effectively handling Insurance Australia Group’s claims for damaged motor vehicles rests upon the assessors and their immediate manager within the Care & Repair centres. 3.51 As noted earlier, in deciding on whether a particular claim should be put to tender, rather than be subject to direct allocation, Insurance Australia Group Care & Repair centre assessors must consider:

• if approximately 70% of the physical damage to the motor vehicle can be identified by written comments and electronic images, excluding those items placed on report by an assessor;

• if only cosmetic damage has been sustained to the motor vehicle; • if the structural integrity of the motor vehicle has not been compromised; • if there is no apparent suspension or mechanical damage; • if the damage is non-safety related or • if there is only minimal light structural damage.

3.52 The Insurance Australia Group has a policy that requires its assessors to determine if a damaged motor vehicle is not driveable, and which is applied to ensure that an unsafe damaged motor vehicle is not driven from the Care & Repair centre. Circumstances where a damaged motor vehicle is not driveable include:

• wheel and suspension damage; • exhaust fumes that enter the passenger compartment; • damage to the lighting system; • sharp edges from impact damage that may cause injury to pedestrians; • leaking coolant, leaking fuel, or obvious radiator damage; or • police have instructed that the motor vehicle is not driveable

3.53 Insurance Australia Group indicated that the number of assessors employed has not decreased since the introduction of Care & Repair. In New South Wales, 150 assessors are employed by Insurance Australia Group. While Insurance Australia Group admitted that the number of assessors may increase or decrease at different time due to varying business needs, it rejected allegations raised at the hearings that the number of assessors was increased when the inquiry was announced, and decreased when submissions closed. This is a slight misstatement: the comments in the hearings concerned the increase in Insurance Australia Group staff (including employees and contracted staff) who conducted post-repair quality inspections of motor vehicles. 3.54 Insurance Australia Group indicated that all motor vehicle assessors that they employed must have motor trade qualifications, and at least three years post-apprenticeship experience in the industry, with preference in recruiting given to

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applicants with at least five years experience. Insurance Australia Group's assessors have an average of 23 years’ experience in the motor industry— fifteen years’ trade experience, and eight years’ assessing experience. These requirements are contained in Insurance Australia Group’s recruitment documentation. A technical skills assessment is conducted at the initial interview, to ensure that the applicant has the required skills. This is followed by an extensive four week induction program, with an examination for all candidates at the conclusion of the program. At 6-month and 12-month intervals, further formal assessments are conducted to ensure that the required level of knowledge has been achieved and maintained. The pass marks for all of these examinations is 80%. 3.55 Insurance Australia Group indicated that its assessor development programs are structured to ensure that the skills of the assessors are maintained. These programs are supported by two full-time assessor trainers. Assessors attend manufacturer training programs, as well as various trade seminars and Institute of Accident Assessors seminars. Insurance Australia Group claims that its assessors are considered among the best in the industry, and are sought after by other insurance companies. Insurance Australia Group assessors are also often employed to manage smash repair workshops after leaving the company, due to their high level of technical and customer service skills. 3.56 More generally, organisations such as the Institute of Accident Assessors are involved in training and accreditation of loss assessors and adjusters. In the area of motor vehicle damage assessors, representatives of the Institute commented:

Mr CALLAGHAN: … in the last 12 months or so we have had workshops on forensic accident investigation and accident reconstruction; alternative methods of repair on just small repairs on vehicles; on modern motor vehicle electronics, satellite navigation, sound systems; the safety features of the new range of V8 Falcon and the Ford Territory models. We are working with the Roads and Traffic Authority on the proposed changes to the written-off vehicle register; diagnoses and code of resetting airbags and crash sensors and vehicle control computers; the latest Mercedes Benz techniques and the new safety features of its latest models; new materials and bonding techniques of metals and other materials; repair tech by Jaguar and BMW on new aluminium bodies, etc.. (Mr Ron Callaghan, Transcript of evidence, Wednesday 7 December 2005)

and later:

Mr MAGUIRE (STAYSAFE): Within the industry, how does an assessor increase his level of skill or accreditation apart from accessing the courses that you provide? When they've completed the course, do they get a certificate? How is it authorised? What credibility does that have in the marketplace? The other point is that panel beaters in the industry, how are they accredited so that they can hang their certificate on the wall to say that they are qualified to do X, Y or Z or whether it is

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the panel beating on a Ford Territory or whether it is adjusting intrusion bars on doors? How does that work? Mr MARKS: Manufacturers accredit repair shops. Mr HOLLAND: They run training programs, like Ford training programs and they will invite some repairers to those programs and they will give them accreditation. Mr MAGUIRE (STAYSAFE): That would be a bit of a hit and miss, wouldn't it? Mr HOLLAND: Yes. (Mr Phillip Marks and Mr Ken Holland, Transcript of evidence, Wednesday 7 December 2005)

3.57 In considering this issue, STAYSAFE examined post-trade training in the motor vehicle smash repair industry, including services of organisations such as I-CAR (the Inter-Industry Conference On Auto Collision Repair). Mr Henson, a smash repair with extensive experience commented:

Mr HENSON: … Obviously technology is going ahead and we need to keep up with the equipment levels and the training of the people working on the cars and the training of the estimators who are physically writing the quote. By example, we did some training the other day with I-CAR, the Inter-Industry Conference On Auto Collision Repair on structural foam. I challenge any of the assessors today to tell me where that is in any particular car.… A comment was made before that any repairer in the Preferred Smash Repairer network can repair Holden Commodores, Vectras, Toyotas. There is evidence right here and now that these repairers may not have the correct welding equipment to repair these cars, and have they got the knowledge of knowing what steels are in the cars they are working on? I can guarantee you that in the Holden range there are five that require this technology to be used. In the Toyotas we are talking Corollas, Echos, Prados, so it is not just about prestige motor vehicles, it is about keeping up with technology and what the manufacturers are doing with their cars. Mr BARR MP (STAYSAFE): What are the consequences of the inappropriate welding equipment? Mr HENSON: Safety issues. If that vehicle is involved in another accident, that vehicle will not withstand the impact that it should from manufacture. (Mr Greg Henson, Transcript of evidence, Monday 5 December 2005)

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3.58 In submissions and evidence, STAYSAFE was referred to I-CAR, the Inter-Industry Conference On Auto Collision Repair, which is an international not-for-profit organization dedicated to training the motor vehicle smash repair industry (in United States terminology, the collision industry). The concept underpinning the Inter-Industry Conference On Auto Collision Repair is to achieve an industry resource, ally, and partner to all segments of the motor vehicle smash repair industry to help the industry reach the ultimate goal of providing complete and safe repairs to the consumer. Participants include:

• Motor vehicle smash repair businesses. • Insurance companies. • Motor vehicle manufacturers. • Tool, equipment, and supply manufacturers. • Providers of technical education, training, and research. • Suppliers of related industry services, such as independent appraisers,

technical publishers, and recyclers. 3.59 STAYSAFE noted that the Inter-Industry Conference On Auto Collision Repair conducts motor vehicle smash repair research, using the research data to develop and deliver technical training programs to the smash repair industry. In addition, there is a communication forum for anyone interested in smash repair processes and products. Examples of the educational materials produced by the Inter-Industry Conference On Auto Collision Repair are included in Appendix B to this report. The benefits of training by the Inter-Industry Conference On Auto Collision Repair are held to be:

• The motor vehicle smash repair industry – Smash repair business owners, managers, and technicians learn the latest repair technology. This promotes better communication with customers and insurers, and more productive relationships among all smash repair industry personnel. Training also helps increase the number of tradesmen and technicians who can make quality repairs with fewer repeated repairs and reduced liability exposure.

• The motor vehicle insurance industry – Insurance personnel, from executives to claims personnel and estimators, benefit by understanding the latest smash repair technology. Courses provide insurance personnel with the foundation they need to better understand, communicate with, and work with the smash repair industry. These benefits lead to the most consistent, efficient, and high-quality smash repairs.

• Related Industries – Quality training benefits other industries related to smash repair. By understanding the challenge of smash repair today, recyclers, glass installers, vendors, suppliers, and others can work with smash repair businesses and insurance companies to benefit the consumer.

• The Consumer – The ultimate beneficiary is the consumer who wants a damaged motor vehicle properly repaired in the quickest and most skillful manner possible. An effective repair corrects all the damage, maintains long-term durability, keeps the vehicle running and handling properly, and restores appearance to pre-accident condition.

3.60 STAYSAFE also notes there are other organisations, besides the motor vehicle manufacturers themselves, that play a role in education and research into safer vehicle technologies, including, for example, the Foresight Vehicle knowledge transfer

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network in the United Kingdom, and the International Crashworthiness Conferences (ICrash). Foresight Vehicle is a knowledge transfer network for the automotive industry managed by the Society of Motor Manufacturers and Traders, and is an industry-backed initiative involving more than 400 United Kingdom companies and universities. Its research and development program aims to promote technology and stimulate suppliers to develop market driven enabling technologies for future motor vehicles (cars, taxis, trucks, buses and light commercial vans). For example, it was most recently involved in the 6th International Conference on Materials for Lean Weight Vehicles held at Warwick University, 7-8 December 2005. Keynote papers were presented on trends in vehicle body construction and the potential implications for the motor insurance and repair industries, and a review of automotive lightweighting research and development activities in North America, including the FreedomCAR program. As well, there was a wide selection of both industrial and academic papers, covering:

• Design and concepts (Innovative small car; Crash performance of materials) • Body structure and chassis; (Thermoplastic composite crash structure; The X

structure; Ford GT structure) • Components and sub-assemblies (Lightweight automotive materials solutions;

Processing and properties of titanium and steel alloys for automotive components; Innovative axle design with composite leaf springs)

• Materials and processes (Nanomaterials; Corrosion protection for lightweight vehicles; Self reinforced PP; Spray-processed carbon composites for affordable lightweight body structures; Directional failure in polycarbonate glazing)

• Joining technologies (Future concepts for joining; Pre-treatment of cast magnesium; Aluminium spot welding)

• Powertrain (Concepts to reduce architectural complexity and mass in reciprocating engines; CHARGE – On board hydrogen generation; Titanium alloy powertrain applications engines; Keronite - An enabling technology for lightweight powertrain components)

• End-of-life vehicle directive/Energy efficiency (Future mobility; Fuel cell concept car)

Since the first conference in Dearborn, Michigan in 1998, the International Crashworthiness Conferences (ICrash) have become a recognised platform for engineers, bioengineers, designers and researchers in the field of structural crashworthiness and impact biomechanics, with a particular emphasis on computer modelling and its validation. The next ICrash conference is scheduled for Athens, 4-7 July 2006. The ICrash 2006 debates will focus on advanced crashworthy structures and impact energy management, new concepts in restraint systems, new occupant mechanics hypotheses and improved surrogate biofidelity, new definitions of pedestrian mechanics, and new test approval procedures based on real world accident data. 3.61 Finally, STAYSAFE noted that there are several specialist safety journals that deal with issues of crashworthiness, such as the International Journal of Crashworthiness, and International Journal of Impact Engineering, as well as trade journals associated with panelbeating, spray painting, etc.. The International Journal of Crashworthiness is a journal focusing on matters relating to the crashworthiness of road vehicles (including cars, trucks, buses and motorcycles), as well as vehicles and

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craft in other transportation modes (such as rail, air, maritime). In general, the issues dealt with include the quality of response of materials, body structures, and energy-absorbing structures subject to sudden dynamic loading, as well as impact biomechanics, covering human response, mechanics of injury, human tolerance, development of human surrogates for impact simulation and occupant protection in general. The International Journal of Impact Engineering publishes research work concerned with the response of structures and bodies to dynamic loads arising from exposure to blast, collision or other impact events. Topics include the elastic and plastic response of structures and bodies to impact and blast loading, terminal ballistics, vehicle crashworthiness, containment and other processes and phenomena in which effects due to impact predominate, such as explosive welding. In addition, related matters such as research into fire hazards in association with impact loads are included. An examination of recent papers published in these journals, however, indicated that safety issues associated with, or subsequent to, repair to motor vehicles after damage are seldom addressed.

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Chapter Four— FINDINGS AND RECOMMENDATIONS REGARDING THE CONDUCT OF MOTOR VEHICLE SMASH REPAIRS UNDER THE INSURANCE AUSTRALIA GROUP (NRMA INSURANCE) PREFERRED REPAIRER SCHEME 4.1 Under the terms of reference for this inquiry, STAYSAFE is required to examine and report on motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme, and to assess and report on specific safety, or risk issues associated with the operation of the scheme. In doing so, STAYSAFE has undertaken a wide-ranging inquiry that has examined general aspects of the relationships between motor vehicle insurers and the motor vehicle smash repair industry and other related sectors active in the New South Wales market, and a range of safety issues associated with the repair of damaged motor vehicles. 4.2 This chapter details STAYSAFE’s specific recommendations regarding motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme, and includes a number of more general recommendations associated with the repair of damaged motor vehicles. The recommendations are organised around ten broad areas of concern:

• The Insurance Australia Group Preferred Repairer Scheme • Safety assessment and inspection of repaired motor vehicles • Recording and reporting of motor vehicles that have undergone major repairs • Necessary qualifications, training, knowledge and skills for loss assessors and

adjusters • Assessment and certification of roadworthiness • Assessment and certification of crashworthiness • Review of safety issues associated with the use of locally and imported recycled

parts, imported new parts and other replacement parts in the repair of motor vehicles

• Reporting of consumer complaints and other safety issues relating to smash repairers and motor vehicle insurers in New South Wales

• Community education • Compliance, licensing and certification arrangements for motor vehicle smash

repairers As well, there are a number of remaining issues that fall outside these broad areas.

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The Insurance Australia Group Preferred Repairer Scheme

4.3 It is clear from Insurance Australia Group’s training and other documentation on the use of electronic images to display the “full extent of damage and the intended repair method” that the original intent of web-based repair management was to provide a reduced cost method of managing the replacement of minor damage to a motor vehicle—minor damage was, in the web-based repair management documentation seen by STAYSAFE, considered to be superficial damage to surface panels, fittings and trim , in other words, scratches and dents. 4.4 Insurance Australia Group’s web-based repair management system is not being used for this original limited purpose. Rather, there is a intent to use the web-based repair management system to supplant or replace the old smash repair inspection and quoting system that was used by Insurance Australia Group until 1 July 2005, and which continues to be used by other motor vehicle insurers. 4.5 For STAYSAFE, the current Insurance Australia Group system that requires repairers to submit a quote based on a written scope of works and a series of electronic images is not an efficient approach. In fact, it is a system that transfers costs in claims handling from Insurance Australia Group to the policy holder who makes a claim and to motor vehicle smash repairers who have to formulate bids for work which they, at best, stand a 1:2 chance of obtaining—and STAYSAFE has a number of submissions that indicate that as many as 18–20 bids can be placed before a smash repairer might win a tender to repair a damaged motor vehicle. 4.6 Insurance Australia Group has stated that in the isolated cases where repair work is known to have been substandard, the substandard repairs are a result of the repairer’s actions, not a consequence of the system of allocation. Insurance Australia Group denies assertions that these cases are insurer-specific and as a result of the Care & Repair centres using the web-based repair management system. 4.7 The Productivity Commission (2005) report stated:

“Many repairers expressed concern that, because of pressure from insurers for repairs to be undertaken at minimal cost, some repairers ‘cut corners’ by using inferior parts or undertaking inadequate repair work, to the point where quality and safety can be compromised. One repairer said:

… excess competition must lead to price cutting and it is almost certain quality would be compromised as repairers are tempted to cut corners.

Another said that, to remain competitive:

… repairers are often encouraged by insurance companies to repair rather than replace and use after market parts which are of a sub-standard quality. This may compromise the safety & quality of repairs and the vehicle may lose re-sale value.

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Repairers under cost pressure may reduce the extent and quality of repair work by, for example, seeking to use cheaper parts or lower quality paint or by undertaking incomplete work. This may result in a lesser quality result than the repairer (and vehicle owner) may otherwise prefer. Several repairers told the Commission that they had been forced to do this, reluctantly, because of the considerable price pressure placed on them by insurers. Such work was perceived by them as being of a lower quality than they thought appropriate to the job. Understandably, reputable repairers are concerned about the pressures they feel they are under to cut costs.” (pp. 88-89)

4.8 Insurance Australia Group cannot argue that it was unaware of the safety risk associated with the Preferred Repairer Scheme, as there have been representations and correspondence, discussions, inquiries and court actions, all of which have indicated to some degree that there may be safety consequences from the Preferred Repairer Scheme and its reliance on a web-based repair management system. It may be, however, that these concerns were not effectively communicated to the Insurance Australia Group board at that time. 4.9 After deliberation, STAYSAFE has found that the web-based repair management system introduced by Insurance Australia Group, where repairers submit quotes for jobs based on a written scope of works prepared by an assessor employed by Insurance Australia Group and inspection of electronic images of damaged motor vehicles, rather than physically inspecting the damaged vehicle, is an unsafe system in its current form and operation. 4.10 STAYSAFE recommends that Insurance Australia Group (NRMA Insurance) suspend web-based repair management, as a component of the Care & Repair centre system of allocating damaged motor vehicles to smash repairers without the repairers physically inspecting the damaged vehicle before quoting for work, as it is an unsafe system in its current form and operation.

RECOMMENDATION 1: Insurance Australia Group (NRMA Insurance) suspend web-based repair management, as a component of the Care & Repair centre system of allocating damaged motor vehicles to smash repairers without the repairers physically inspecting the damaged vehicle before quoting for work, as it is an unsafe system in its current form and operation.

4.11 After deliberation, STAYSAFE has found that the use of the Tender Adjustment Factor and any other forms of financial penalties against motor vehicle smash repairers who find and report further damage to a motor vehicle during repair is inappropriate. This policy is inherently unsafe, as it establishes a situation where, because of concern about costs and likely financial penalties, a smash repairer may not report damage, and ignore or only partially perform repairs that are necessary to restore a damaged motor vehicle to a fully safe condition.

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4.12 STAYSAFE recommends that Insurance Australia Group (NRMA Insurance) suspend the use of the Tender Adjustment Factor and any other forms of financial penalties against motor vehicle smash repairers who find and report further damage to a motor vehicle during repair.

RECOMMENDATION 2: Insurance Australia Group (NRMA Insurance) suspend the use of the Tender Adjustment Factor and any other forms of financial penalties against motor vehicle smash repairers who find and report further damage to a motor vehicle during repair.

4.13 STAYSAFE also recommends that Insurance Australia Group (NRMA Insurance) should reintroduce policy holder choice of repairer at no cost as a component of the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers. If, as Insurance Australia Group has stated, the vast majority of its policy holders want the repair of their damaged motor vehicle to be handled completely by their insurer, then the minority of policy holders who do want choice, that is, the direct allocation of their vehicle to a nominated smash repairer, are only a very small percentage of claimants within the Care & Repair centre system. 4.14 It remains unclear why Insurance Australia Group believes that policy holders should pay a higher premium for exercising choice—no data was presented to STAYSAFE indicating significantly higher repair costs associated with policy holders exercising choice of repairer. It would seem that the two types of policy—no choice of smash repairer, and choice of smash repairer at a slightly higher premium—are comparatively cost neutral. STAYSAFE is aware that Insurance Australia Group staff in Care & Repair centres will allow policy holders to retrospectively upgrade their policy at time of claim so that they can exercise choice as to the smash repairer who will repair their damaged motor vehicle.

RECOMMENDATION 3: Insurance Australia Group (NRMA Insurance) reintroduce policy holder choice of repairer at no cost as a component of the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers.

4.15 One aspect of the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers that caused concern relates to Insurance Australia Group dealing with policy holders differently according to the type of vehicle they own. In particular, the policy of direct allocation of more expensive or prestige motor vehicles—motor vehicles of a prestige nature or motor vehicles valued at more than $57,000 (sum insured, or market value)—would seem to be making a distinction between classes of smash repairers: those who do high quality work, and those who do more common repairs. It might also reflect a view that policy holders who own prestige or expensive vehicles might be more effective in complaining about concerns with the web-based repair management system. Insurance Australia Group offered no explanation for this distinction between policy holders based on type of motor vehicle.

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4.16 Whatever the reason for this somewhat arbitary system, STAYSAFE recommends that it be discontinued, and that safety-related reasons be more prominent in Insurance Australia Group’s consideration of the allocation of repair work (e.g., the motor vehicle requires a specialist smash repairer depending on the vehicle type or complexity of the damage sustained, for such reasons as the motor vehicle is a 4WD vehicle, the motor vehicle has an aluminium body, the motor vehicle has specific major damage such as mechanical, suspension, steering, radio, trimmer, or glass-only damage, etc.). STAYSAFE believes that there should be no specific distinction made for policy holders owning prestige or expensive vehicles within the general Care & Repair centre system.

RECOMMENDATION 4: Insurance Australia Group (NRMA Insurance) ensure that policy holders owning prestige motor vehicles and other policy holders owning other motor vehicles are treated equally under the Care & Repair centre system of allocating damaged motor vehicles to motor vehicle smash repairers.

4.17 A novel, but unfortunate, feature of the inquiry for STAYSAFE was encountering the term ‘cosmetic damage’ being used to describe damaged motor vehicles. Much of the debate is coloured, perhaps deliberately, by misuse and misunderstanding of motor vehicle technology, including use of the term ‘cosmetic repair’. The invention and use of this term was the subject of particular criticism in submissions and testimony before STAYSAFE. In particular, strong concerns were expressed that reference to ‘cosmetic damage’ minimised or hid recognition that structural damage is typically associated with significant surface damage to panels and fittings, and that the supporting vehicle body structure is an integral part of many other systems and features of a motor vehicle. 4.18 STAYSAFE, reflecting the view of virtually all involved in the inquiry excepting Insurance Australia Group, regards it as more appropriate to refer to damage in motor vehicles as being a continuum from minor damage or ‘surface panel damage’ (scrapes, scratches, hail damage, minor dents) to major damage or structural damage (intrusions into passenger compartment, damage to steering, mechanical components, damage to boot floor, damage to pillars and windscreen, etc.). 4.19 STAYSAFE recommends that Insurance Australia Group (NRMA Insurance) cease use of the term ‘cosmetic damage’ with regard to damaged motor vehicles, and replace the term with ‘minor damage’ or ‘surface panel damage’.

RECOMMENDATION 5: Insurance Australia Group (NRMA Insurance) cease use of the term ‘cosmetic damage’ with regard to damaged motor vehicles, and replace with ‘minor damage’ and ‘surface panel damage’, as opposed to ‘major damage’ or ‘structural damage’.

4.20 STAYSAFE examined the effect of the quoting system known as ‘funny time, funny money’ used in the motor vehicle smash repair industry and by most motor vehicle insurers (e.g., Insurance Australia Group, Allianz, etc.). Under this system,

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insurers require quotations to be based on a number of separate cost elements: remove and replace (R&R); parts; repair; and paint. Except for parts, each element is costed on the basis of time and hourly rates. But neither the times nor the rates reflect real times and real costs—the hourly rates allowed for repair, for example, are well below the actual costs incurred, and so smash repairers (with the full knowledge of motor vehicle insurers) compensate for this by inflating the number of hours they charge for, while hourly rates for paint typically include the cost of materials (Productivity Commission, 2005). 4.21 The ‘funny time, funny money’ quoting system is an inappropriate system, for a number of very important reasons:

• it is very misleading, especially to anyone outside the motor vehicle smash repair industry or the motor vehicle insurance sector (e.g., smash repairers will use odd expressions such as ‘a 15-minute hour’);

• repairers will tend to use lower quality materials, such as lower-grade paint; • it increases the ability of insurers to force prices down irrespective of repairers’

costs; • it does not reflect the particular costs faced by individual repairers; and • the structure of the repair task is biased, as the system artificially inflates or

deflates particular cost elements at the expense of others (Productivity Commission, 2005).

4.22 There is a need for a simple, transparent and accurate system of pricing and costing motor vehicle repairs. At the very least, if smash repairers used a realistic system for quoting, then the assessment of quotes, and thus effective competition, would become easier between repairers. 4.23 AAMI is one motor vehicle insurer who does not use the system:

Mr BARTLETT (STAYSAFE): Do you get caught up in this 'funny money funny time' business? Mr KAY: No, thankfully we do not. When we first came to New South Wales it was put to us that we ought but we always resisted it. The basic premise upon which AAMI operates is that we ask two repairers to quote on the vehicle and we leave it to their judgment as to the appropriate cost and method of repair. The role of the assessor is then to assess the vehicle and award the job to the most complete and accurate quote. (Mr Michael Kay, Transcript of evidence, Wednesday 7 December 2005)

4.24 In fact, it appears that there is little real support for the commonly used quoting system known as ‘funny time, funny money’ and the general view was that the system should be abandoned. If times and hourly rates are used, they should reflect realistic times and rates, with parts, paint and significant consumables costed separately, rather than a seemingly arbitrary system where loss assessors make an estimate as the work involved and amend a smash repairer’s quoted hours for the repair accordingly.

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4.25 STAYSAFE thus recommends that Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, abolish the ‘funny time-funny money’ method used in the Care & Repair system and other allocation systems used in assigning damaged motor vehicles to motor vehicle smash repairers. STAYSAFE notes that this recommendation is in accord with a key finding by the Productivity Commission (2005).

RECOMMENDATION 6: Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, abolish the ‘funny time-funny money’ method used in the Care & Repair centre system and other allocation systems used in assigning damaged motor vehicles to motor vehicle smash repairers.

4.26 STAYSAFE was also concerned that the hourly rate paid to smash repairers by Insurance Australia Group—$30.90 in New South Wales—is set at an unrealistic and uneconomic level. This hourly rate has not been adjusted over time and has failed to reflect rising costs associated with vehicle design and repair technology. As well, since the rate was last altered in New South Wales, there have been significant increases in occupational health and safety requirements and environmental requirements that have impacted on smash repairers. 4.27 STAYSAFE noted under the ‘funny time, funny money’ quoting system it can be argued that the payment for repairs to damaged motor vehicles is determined by a combination of the hourly rate and the time allowed by Insurance Australia Group assessors, and thus the hourly repair rate simply provides a common measure upon which to base a quote. 4.28 STAYSAFE believes that a simple, transparent and accurate system of pricing and costing motor vehicle repairs is necessary, and thus recommends that Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, review the current hourly rate paid to motor vehicle smash repairers paid under the Care & Repair centre system and other allocation systems used in allocating damaged motor vehicles to motor vehicle smash repairers

RECOMMENDATION 7: Insurance Australia Group (NRMA Insurance), in consultation with the Motor Traders Association and the Motor Vehicle Review Industry Authority, review the current hourly rate paid to motor vehicle smash repairers paid under the Care and Repair centre system and other allocation systems used in allocating damaged motor vehicles to motor vehicle smash repairers.

4.29 STAYSAFE noted that the National Roads and Motorists’ Association, or NRMA Motoring & Services, has expressed concern to Insurance Australia Group about damage to the well established brand ‘NRMA’, which the two organisation’s share following demutualisation.

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4.30 STAYSAFE recommends that Insurance Australia Group (NRMA Insurance), in consultation with NRMA Motoring & Services, take agreed action to restore the NRMA brand to represent, inter alia, safe vehicles and safe road use.

RECOMMENDATION 8: In the interests of public understanding, there needs to be a better delineation of the NRMA brand between Insurance Australia Group (NRMA Insurance) and NRMA Motoring & Services, in order to restore the NRMA brand to represent, inter alia, safe vehicles and safe road use.

Assessment and inspection of the safety of repaired motor vehicles 4.31 The Productivity Commission (2005) argued that motor vehicle insurers and smash repairers face strong incentives to ensure that repair quality and safety appropriately meet the needs of their customers. 4.32 STAYSAFE notes that some repairers argue that Preferred Smash Repairer arrangements drive prices down too far, leading to poor quality and sometimes unsafe repairs being undertaken. STAYSAFE did not find evidence supporting a contention that this is a systemic or industry-wide problem in relation to the safety of repaired motor vehicles. 4.33 There is confusion about the terms ‘quality’ and ‘safety’ in relation to repairs to motor vehicles and the inspection of repairs. STAYSAFE notes that there are a number of differing views regarding quality. A common view of quality in the motor vehicle smash repair industry is that a quality repair restores a damaged motor vehicle to its pre-crash condition. The Productivity Commission (2005) cited commentary that indicated that it is very often difficult for an expert to objectively assess what this means for practical purposes, let alone an average policy holder to understand and assess a quality repair. After all, with the exception of perhaps those working in the automotive industries or fleet management, an typical person might only experience an interaction with a smash repairer once every 8-10 years, on average. STAYSAFE notes lower motor vehicle resale prices when there is evidence of repair to crash damage, which indicates that, irrespective of the skill of the smash repairer, a badly damaged but repairable motor vehicle may be unavoidably of lesser quality post-crash (Productivity Commission, 2005). 4.34 For STAYSAFE, there is strong evidence that quality and safety are used interchangeably in discussions about the safety of damaged motor vehicles. The conduct of quality inspections of motor vehicles after repair by Insurance Australia group is certainly deficient in terms of assessments of the restoration of the vehicle to a safe condition, although the inspection certainly does provide an assessment of such factors as paint finish, fitment of panels, etc.. 4.35 STAYSAFE has particular concern where the repair relates to major crash damage involving damage to vehicle structures involved in ameliorating impact forces.

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4.36 STAYSAFE therefore recommends that the Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance industry, initiate a program incorporating audit and inspection to assess the safety of repaired motor vehicles following major crash damage.

RECOMMENDATION 9: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance sector, initiate a program incorporating audit and inspection to assess the safety of repaired motor vehicles following major or structural crash damage.

4.37 STAYSAFE also recommends that the motor vehicle insurance sector and the Motor Traders Association assess the feasibility of requiring electronic imaging during repair processes of damaged structural components in motor vehicles to document the work undertaken for subsequent assessment and possible certification regarding crashworthiness. 4.38 In STAYSAFE’s view, the electronic imaging during repair processes of damaged structural components in motor vehicles, which is then available to a motor vehicle insurer as an audit mechanism to document the work undertaken, is a valuable means of fraud control. Potentially, such a process can also be used in assessing the crashworthiness of a repaired motor vehicle without necessitating removal of panels, etc., to access and inspect structural components.

RECOMMENDATION 10: The motor vehicle insurance sector and the Motor Traders Association assess the feasibility of requiring electronic imaging during repair processes of damaged structural components in motor vehicles to document the work undertaken for subsequent assessment and possible certification regarding crashworthiness.

Recording and reporting of motor vehicles that have undergone major repairs

4.39 As part of the systematic approach advocated by STAYSAFE in this report, STAYSAFE believes that it may be appropriate for a register of motor vehicles that have undergone major repairs to be developed (similar to the Register of Encumbered Vehicles—REVS). 4.40 STAYSAFE recommends that the Motor Vehicle Repair Industry Authority and the Roads and Traffic Authority, in conjunction with the Insurance Council of Australia and the motor vehicle insurance sector, develop a register of motor vehicles that have undergone major or structural repairs, including listing of major components

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have been replaced, repaired, and not repaired on the vehicle. STAYSAFE suggests that information regarding major or structural repairs to motor vehicles could be placed on the Register of Encumbered Vehicles—REVS, or on the Roads and Traffic Authority motor vehicle registration database.

RECOMMENDATION 11: The Motor Vehicle Repair Industry Authority and the Roads and Traffic Authority, in conjunction with the Insurance Council of Australia and the motor vehicle insurance sector, develop a register of motor vehicles that have undergone major repairs, including listing of major or structural components have been replaced, repaired, and not repaired on the vehicle, which can be attached to the Register of Encumbered Vehicles—REVS, or the Roads and Traffic Authority’s motor vehicle registration database.

Necessary qualifications, training, knowledge and skills for loss assessors and adjusters

4.41 STAYSAFE was particularly concerned with the crucial role played by Insurance Australia Group’s loss assessors in the examination and detection of damage to motor vehicles after a crash or other incident, and their continuing role in the administration of the claims process under the web-based repair management system. 4.42 STAYSAFE was generally concerned that, during the process of bringing the National Competition Policy into force during the mid-1990s, the decision to remove a requirement for the licensing of loss assessors and adjusters may have been mistaken. 4.43 STAYSAFE notes that organisations such as the Institute of Accident Assessors support the reintroduction of licensing of loss assessors and adjusters. 4.44 STAYSAFE therefore recommends that the Minister for Fair Trading review whether licensing of loss assessors and adjusters should be reintroduced in New South Wales.

RECOMMENDATION 12: The Minister for Fair Trading review whether licensing of loss assessors and adjusters should be reintroduced in New South Wales.

4.45 Notwithstanding the recommendation for a review to examine the reintroduction of licensing of loss assessors and adjusters, STAYSAFE recommends that motor vehicle loss assessors and adjusters should be accredited with the Institute of Accident Assessors, Institute of Public Insurance Assessors, or some similar organisation.

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RECOMMENDATION 13: Motor vehicle loss assessors and adjusters be accredited with the Institute of Accident Assessors, Institute of Public Insurance Assessors, or some similar organisation in regard to licensing.

4.46 STAYSAFE also believes that motor vehicle loss assessors and adjusters should be required to regularly upgrade their knowledge and skills, perhaps as part of an annual accreditation or licensing requirement. 4.47 Again, this recommendation is supported by peak bodies that represent loss assessors (e.g., the Institute of Accident Assessors).

RECOMMENDATION 14: Motor vehicle loss assessors and adjusters be required to enhance their knowledge and skills on a regular basis.

4.48 There is a specific issue associated with the knowledge and skills required of loss assessors who Insurance Australia Group requires to use a web-based repair management system. While Insurance Australia Group claim that their assessors are highly trained and experienced and can correctly identify both superficial damage and structural damage to motor vehicles, Thomas (2005) reported problems in this area and submissions and testimony heard by STAYSAFE also raised concerns. 4.49 STAYSAFE recommends that the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the motor vehicle damage assessment and repair knowledge and skills that is required of loss assessors and adjustors in using a web-based repair management system such as that used by Insurance Australia Group currently.

RECOMMENDATION 15: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the motor vehicle damage assessment and repair knowledge and skills required of loss assessors and adjustors to use a web-based repair management system such as that used by Insurance Australia Group currently.

4.50 If the reintroduction of licensing of loss assessors and adjusters is thought by the Minister for Fair Trading to be merited, then accreditation of loss assessors and adjusters with an organisation that is autonomous to both the motor vehicle smash repair industry and the motor vehicle insurance sector would be appropriate. 4.51 STAYSAFE therefore recommends that the Office of Fair Trading, in consultation with the Motor Traders Association and the Insurance Council of Australia, assess the feasibility of requiring a system of independent loss assessors and adjusters for the assessment of damage to motor vehicles.

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RECOMMENDATION 16: The Office of Fair Trading, in consultation with the Motor Traders Association and the Insurance Council of Australia, assess the feasibility of requiring a system of independent loss assessors and adjusters for the assessment of damage to motor vehicles.

Assessment and certification of roadworthiness 4.52 STAYSAFE is concerned at evidence taken in this inquiry that indicated that there are problems associated with the roadworthiness of damaged vehicles during claims assessment processes, where a motor vehicle insurer operates assessment centres and policy holders in a damaged motor vehicle are instructed to drive to and from an assessment centre and later to a smash repairer. 4.53 STAYSAFE recommends that the Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance industry, assess the roadworthiness and road safety issues associated with policy holders being required to drive damaged motor vehicles to and from motor vehicle insurers’ assessment centres and to smash repairers.

RECOMMENDATION 17: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, and the motor vehicle insurance industry, assess the roadworthiness and road safety issues associated with policy holders being required to drive damaged motor vehicles to and from motor vehicle insurers’ assessment centres and to smash repairers.

4.54 STAYSAFE is also concerned that there is no process for the certification of roadworthiness after repair to a motor vehicle that has had major structural damage (except if the motor vehicle was written off, sold, and subsequently repaired). 4.55 STAYSAFE regards this situation as anomalous in comparison with the general requirements for roadworthiness inspections. 4.56 STAYSAFE recommends that a system of motor vehicle safety inspectors be devised and made available in major centres to certify that repairs to damaged motor vehicles involving structural components comply with Australian Design Rules, relevant New South Wales safety standards for vehicle operation, and manufacturers standards before the motor vehicles are allowed to again be driven on New South Wales roads

RECOMMENDATION 18: A system of motor vehicle safety inspectors be devised and made available in major centres to certify that repairs to damaged motor vehicles involving structural components comply with Australian Design Rules, relevant New South Wales

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safety standards for vehicle operation, and manufacturers standards before the motor vehicles are allowed to again be driven on New South Wales roads

4.57 STAYSAFE additionally recommends that policy holders should be able to request a certificate of roadworthiness from their motor vehicle insurer following crash damage involving major repair or structural repairs.

RECOMMENDATION 19: Motor vehicle insurers be required to supply policy holders with a certificate of roadworthiness for a motor vehicle after crash damage involving major repair or structural repairs, if requested, and to ensure that policy holders are advised that they can request the certificate of roadworthiness from the insurer under this circumstance before taking delivery of their motor vehicle.

Assessment and certification of crashworthiness 4.58 STAYSAFE noted comments by the Productivity Commission (2005):

Several participants (including vehicle owners) reported instances of poor repair workmanship, in some cases to the point at which the vehicles were dangerous to drive. Indeed, some participants argued that repair quality in the industry has deteriorated such that crash testing of a selection of repaired vehicles is now needed to demonstrate the safety or otherwise of repaired vehicles. They attributed this deterioration to insurer practices. However, insurers argued that their practices are designed to ensure quality repairs. RACQ said:

… quality repairs are by definition safe repairs. Safety is paramount as part of the quality assurance mechanism …

Accident statistics shed little light on the role of vehicle repairs in accidents. Consequently, the remaining evidence of vehicles that are poorly or unsafely repaired is all anecdotal. That does not mean it should be dismissed or that it does not provide information relevant to this inquiry. (p.97)

4.59 STAYSAFE asked if Insurance Australia Group has conducted any crash tests on repaired motor vehicles to assess structural integrity and crashworthiness. Mr Strong, Chairman of Insurance Australia Group, indicated that no such testing had been conducted:

Mr GIBSON (CHAIRMAN): … You haven't done a crash test on a car that has been repaired, which is the best research you can do. Mr STRONG: No, we generally crash new cars, actually, for quality assessment.

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Mr GIBSON (CHAIRMAN): That's right but seeing we are talking about smash repairs and it is such a big part of business today, one would have thought that you may have done crash tests. There have been plenty of cars that have been brought back because they could not be repaired or whatever and it would have been great to do a crash test on these cars to see whether the parts that you are using, the second-hand parts and parallel parts that you know nothing about, if you are using parallel parts, to see what quality of the repair and second-hand parts you are using. (Mr James Strong, Transcript of evidence, Wednesday 7 December 2005)

4.60 STAYSAFE also asked representatives of the Auto Parts Recycling Association of Australia, if crash testing had been conducted on recycled second hand parts or on parallel parts:

Mr GIBSON (CHAIRMAN): Have they ever been tested—crash tested—to see whether they are as good or they are as genuine as the normal part? Mr JURKSCHAT: Again, I have no knowledge of any crash testing being done to verity whether an imported part, be it an OEM or an after-market part, has been tested. (Mr Gunther Jurkschat, Transcript of evidence, Wednesday 7 December 2005)

and later:

The Hon. IAN WEST (STAYSAFE): With the all the sophistication that you have indicated, which I don't doubt for one minute, is there any reason why there has not been any crash testing of parts? Is it merely that it is all surface parts? Mr JURKSCHAT: Used parts you mean. Mr PERFREMENT: Used or after-market? The Hon. IAN WEST: The products that you represent. The ones that aren't currently-- Mr JURKSCHAT: Could I say on one hand we can argue they have already been tested because most of the recycled parts in this country are from vehicles built for or built in Australia and their parts have to meet Australian design standards and Australian standards, right. That is the majority of what is going on so we can argue that those have been tested. The recycled industry is very comfortable with that.

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What hasn't been tested as far as I know, and there may be other people here you would need to ask to the question to is, whether the after-market parts have in fact been tested. Again, I believe some insurers are quite strong on using after-market parts and perhaps you could ask them the question because they might in fact know whether these parts have been tested or not. (Mr Gunther Jurkschat and Mr Matthew Perfrement, Transcript of evidence, Wednesday 7 December 2005)

4.61 STAYSAFE was surprised at evidence presented to this inquiry that indicated little or no crash testing of motor vehicles that have undergone repair has been conducted or reported by New South Wales authorities, or elsewhere in Australia and overseas. STAYSAFE has, in visits to crash testing facilities such as the Roads and Traffic Authority’s Crashlab, observed tests involving old and damaged vehicles used for real time testing of the mechanical operation of the runway and to check the calibration of measuring equipment. 4.62 STAYSAFE recommends that the Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, NRMA Motoring & Services, and the motor vehicle insurance industry, initiate a program of crash testing to assess the safety of repaired motor vehicles following major crash or structural damage.

RECOMMENDATION 20: The Roads and Traffic Authority, in consultation with the Office of Fair Trading, New South Wales Police, Motor Traders Association, NRMA Motoring & Services, and the motor vehicle insurance industry, initiate a program of crash testing to assess the safety of repaired motor vehicles following major or structural crash damage.

4.63 During the inquiry, STAYSAFE noted media reports of a crash test of repaired motor vehicle conducted at AutoLiv Australia, a company that produces and carries out crash tests for motor vehicle manufacturers and component manufacturers and also manufactures air bags and seat belts. The crash test was conducted on 15 November 2005. The test was an equivalent test to the Australian New Car Assessment Program—ANCAP test, reproducing the test of the new vehicle as manufactured for the purposes of ANCAP star ratings. The purpose of the crash test was to determine whether the repaired motor vehicle would provide the same protection to occupants as it had been assessed in the original new condition. 4.64 STAYSAFE is aware of significant concerns about the preliminary results of the crash test of repaired motor vehicle conducted at AutoLiv Australia. STAYSAFE understands that there appeared to be catastrophic failure of repaired structural components associated with crumple zones that led to a high likelihood that serious lower limb injury would have been caused to the driver of the motor vehicle. In short, the crashworthiness of the motor vehicle appears likely to have been compromised by the repairs effected to the vehicle. The results of this crash test have not been released publicly, but STAYSAFE understands that further crash tests are planned.

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4.65 STAYSAFE recommends that the Motor Traders Association, Autoliv Australia, and other groups and organisations involved in the recent crash testing of repaired motor vehicles publish the full data analyses and report on each vehicle tested as soon as possible.

RECOMMENDATION 21: The Motor Traders Association, Autoliv Australia, and other groups and organisations involved in the recent crash testing of repaired motor vehicles publish the full data analyses and report on each vehicle tested as soon as possible.

4.66 While New South Wales has had a requirement for a certificate of roadworthiness to register a motor vehicle for the better part of a century, developments in motor vehicle design, materials and construction have meant that a assessment of crashworthiness may be appropriate in addition to the assessment of roadworthiness. While on initial consideration it might be expected that a roadworthy motor vehicle would be a crashworthy motor vehicle, and a crashworthy motor vehicle would be roadworthy, a moment’s deeper reflection indicates that this is not necessarily so. 4.67 A repaired or modified motor vehicle that is roadworthy may have such underlying structural deficiency as to be uncrashworthy. As was discussed in the preceding paragraphs, STAYSAFE is aware of one repaired motor vehicle that, when crash tested, was found to have serious safety problems. 4.68 STAYSAFE recommends that the Roads and Traffic Authority introduce a certificate of crashworthiness for a motor vehicles, applicable to motor vehicles that may have had major repair or structural repairs and modifications.

RECOMMENDATION 22: The Roads and Traffic Authority introduce a certificate of crashworthiness for a motor vehicles, applicable to motor vehicles that may have had major repair or structural repairs and modifications.

4.69 STAYSAFE further recommends that the Roads and Traffic Authority, in introducing a certificate of crashworthiness for a motor vehicles, should review and report on whether it should be mandatory for motor vehicles that have had major structural repairs following crash damage to be required to undergo inspection and certification regarding crashworthiness.

RECOMMENDATION 23: The Roads and Traffic Authority review and report on whether it should be mandatory for motor vehicles that have had major structural repairs following crash damage to be required to undergo inspection and certification regarding crashworthiness.

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4.70 STAYSAFE also recommends that the Office of Fair Trading and the Roads and Traffic Authority review and report on whether written off motor vehicles that have been subject to major or structural repair should be required to undergo inspection and certification regarding crashworthiness.

RECOMMENDATION 24: The Office of Fair Trading and the Roads and Traffic Authority review and report on whether written off motor vehicles that have subsequently been subject to major or structural repair should be required to undergo inspection and certification regarding crashworthiness.

4.71 In line with earlier recommendations regarding the accreditation, certification and licensing of loss assessors and adjusters, STAYSAFE considers that it is appropriate to consider if persons engaged in crashworthiness assessment—possibly to be called ‘crashworthiness auditors—should be required to be licensed, accredited to a relevant peak professional body, be required to enhance their knowledge and skills on a regular basis, and perhaps be independent of the motor vehicle smash repair industry and the motor vehicle insurance sector.

RECOMMENDATION 25: The Office of Fair Trading and the Roads and Traffic Authority review and report on whether it is appropriate to consider if persons engaged in crashworthiness assessment—possibly to be termed ‘crashworthiness auditors’--should be required to be licensed, accredited to a relevant peak professional body, be required to enhance their knowledge and skills on a regular basis, and perhaps be independent of the motor vehicle smash repair industry and the motor vehicle insurance sector.

Review of safety issues associated with the use of locally and imported recycled parts, imported new parts and

other replacement parts in the repair of motor vehicles 4.72 STAYSAFE was concerned at evidence taken during the inquiry regarding the parts used in the repair of damaged motor vehicles. STAYSAFE has made recommendations regarding replacement parts for motor vehicles, covering imported new parts, imported recycled (second hand) parts, and locally sourced recycled (second hand) parts used in the repair of damaged motor vehicles. 4.73 First, STAYSAFE recommends that the Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with imported new non-genuine parts, imported parallel parts, and ‘grey imports’ used in the repair of damaged motor vehicles.

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RECOMMENDATION 26: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with imported new non-genuine parts, imported parallel parts, and ‘grey imports’ used in the repair of damaged motor vehicles.

4.74 Second, STAYSAFE recommends that the Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with the use of recycled (second hand) parts sourced from overseas in the repair of damaged motor vehicles.

RECOMMENDATION 27: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, request the Australian Transport Safety Bureau to review and report on safety issues associated with the use of recycled (second hand) parts sourced from overseas in the repair of damaged motor vehicles.

4.75 Third, STAYSAFE recommends that Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, review and report on safety issues associated with the use of recycled and second hand parts sourced locally in the repair of damaged motor vehicles.

RECOMMENDATION 28: The Roads and Traffic Authority, in consultation with the Motor Traders Association, Insurance Council of Australia, and other relevant government, professional and community groups, review and report on safety issues associated with the use of recycled and second hand parts sourced locally in the repair of damaged motor vehicles.

4.76 STAYSAFE believes that it is appropriate that motor vehicle insurers should inform policy holders of the nature of parts used in the repair of damaged motor vehicles. 4.77 STAYSAFE recommends that motor vehicle insurers should be required to inform policy holders when recycled (second hand), original equipment—manufacturer (OEM), parallel parts, etc., are prosed to be used in the repair of damaged motor vehicles.

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RECOMMENDATION 29: Motor vehicle insurers to be required to inform policy holders when recycled (second hand), original equipment manufacturer (OEM), parallel parts, etc., are proposed to be used in the repair of damaged motor vehicles.

4.78 STAYSAFE was particularly concerned at evidence taken during the inquiry that indicated that occupant protection may be at risk in repaired motor vehicles if seat belts and air bags are not replaced. 4.79 STAYSAFE recommends that the Roads and Traffic Authority, in conjunction with the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, should review safety issues associated with the replacement of seat belts in motor vehicles that have been involved in a serious crash, and should also review safety issues associated with the replacement of air bags in motor vehicles that have been involved in a serious crash. 4.80 STAYSAFE believes that seat belt safety issues and air bag safety issues must be included in the assessment of the crashworthiness of repaired motor vehicles, as these equipment play a crucial role in occupant protection in the event of a crash.

RECOMMENDATION 30: The Roads and Traffic Authority, in conjunction with the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, should: (a) review safety issues associated with the replacement of seat

belts in motor vehicles that have been involved in a serious crash;

(b) ensure seat belt safety issues are included in the assessment of the crashworthiness of repaired motor vehicles.

RECOMMENDATION 31: The Roads and Traffic Authority, in conjunction with the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, should: (a) review safety issues associated with the replacement of air bags

in motor vehicles that have been involved in a serious crash; (b) ensure air bag safety issues are included in the assessment of

the crashworthiness of repaired motor vehicles. Reporting of consumer complaints and other safety issues relating to

smash repairers and motor vehicle insurers in New South Wales 4.81 During the inquiry STAYSAFE examined the avenues for review and complaint that are available to a policy holder who is dissatisfied with a smash repair or a motor vehicle insurer regarding the repair of a damaged motor vehicle.

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4.82 STAYSAFE noted that agencies and services such as the Motor Vehicle Repair Industry Authority and the Insurance Ombudsman Service receive few complaints. It is unclear if this is because these complaint mechanisms afforded by these agencies and services are not well known, or if the prescribed ways in which a complaint is lodged, administered, investigated and reported are too complex or too slow, or because the motor vehicle smash repair industry and the motor vehicle insurance sector are able to minimise complaints through internal complaint and dispute mediation mechanisms that have the effect of minimising the progression of complaints to a formal process. 4.83 STAYSAFE therefore makes a series of recommendations for review and report regarding complaints, dealing with

• a review of the role of the Insurance Ombudsman Service in resolving motor vehicle insurance matters in New South Wales;

• a review of the reporting of sub-standard repairs; • an examination of whether mandatory notification of removal or is

disqualification of smash repairer from a Preferred Repairer Scheme for safety reasons is desirable; and

• a review of consumer complaints about motor vehicle smash repairers 4.84 STAYSAFE recommends that the Minister for Fair Trading assess the role of the Insurance Ombudsman Service in following up consumer complaints relating to smash repairers and motor vehicle insurers in New South Wales.

RECOMMENDATION 32: The Minister for Fair Trading assess the role of the Insurance Ombudsman Service in following up consumer complaints relating to smash repairers and motor vehicle insurers in New South Wales.

4.85 STAYSAFE recommends that the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the information insurance companies should be required to provide to the Motor Vehicle Repair Industry Authority in the case of repairs that are sub-standard.

RECOMMENDATION 33: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the information insurance companies should be required to provide to the Motor Vehicle Repair Industry Authority in the case of repairs that are sub-standard.

4.86 STAYSAFE recommends that the Minister for Fair Trading examine whether a motor vehicle insurer who removes or disqualifies a smash repairer from a Preferred Repairer Scheme for safety reasons should be subject to a mandatory requirement to notify the Motor Vehicle Repair Industry Authority.

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RECOMMENDATION 34: The Minister for Fair Trading examine whether a motor vehicle insurer who removes or disqualifies a smash repairer from a Preferred Repairer Scheme for safety reasons should be subject to a mandatory requirement to notify the Motor Vehicle Repair Industry Authority.

4.87 STAYSAFE recommends that the Office of Fair Trading review the role of the Motor Vehicle Review Industry Authority in following up consumer complaints relating to smash repairers, and, in particular, consider mandatory notification of complaints being dealt with the an insurer’s internal dispute resolution mechanisms.

RECOMMENDATION 35: The Office of Fair Trading review the role of the Motor Vehicle Review Industry Authority in following up consumer complaints relating to smash repairers, and, in particular, consider mandatory notification of complaints being dealt with an insurer’s internal dispute resolution mechanisms.

Community education 4.88 STAYSAFE was surprised at the lack of community education regarding the motor vehicle smash repair industry, particularly with regard to a general community understanding of what avenues for review and complaint are available in circumstances where a policy holder is dissatisfied with a smash repair or a motor vehicle insurer regarding the repair of a damaged motor vehicle. 4.89 For example, there is a dearth of information available to a policy holder who feels that the repairs to a damaged motor vehicle have been unsatisfactory, and that the safety, roadworthiness or crashworthiness of the vehicle may have been jeopardised. As well, there are strange and new concepts that a policy holder might face, including terminology concerning the identification of motor vehicles and their component parts (encumbered vehicles, compliance plates, rebirthing, through to descriptive terms such as chassis rail, etc.), and the terminology used by the motor vehicle smash repair industry and the motor vehicle insurance sector (OEM parts, new non-genuine parts, parallel parts, etc., through to cut-and-join, etc.). 4.90 It appears that mechanisms and services offered by the Motor Vehicle Repair Industry Authority, the Insurance Ombudsman Service, the Office of fair trading, and internal dispute processes offered by motor vehicle insurers and some smash repairers are poorly recognised and little understood. 4.91 STAYSAFE recommends that Roads and Traffic Authority, Motor Vehicle Repair Industry Authority, and New South Wales Police develop and publish comprehensive educational materials for the general community that clearly outline the issues associated with the motor vehicle smash repair industry, including:

• the identification of motor vehicles and their component parts;

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• terminology and processes that may be associated with repairs to motor vehicles that have been damaged or written off;

• rebirthing of motor vehicles; • the roles of loss assessors, motor vehicle insurers, smash repairers, etc.; and • regulatory and complaint mechanisms.

RECOMMENDATION 36: The Roads and Traffic Authority, Motor Vehicle Repair Industry Authority, and New South Wales Police develop and publish comprehensive educational materials for the general community that clearly outline the issues associated with the motor vehicle smash repair industry, including:

• the identification of motor vehicles and their component parts;

• terminology and processes that may be associated with repairs to motor vehicles that have been damaged or written off;

• rebirthing of motor vehicles; • the roles of loss assessors, motor vehicle insurers, smash

repairers, etc.; and • regulatory and complaint mechanisms.

Compliance, licensing and certification arrangements for motor vehicle smash repairers

4.92 In light of the concerns expressed in submissions and in testimony before STAYSAFE, STAYSAFE believes that it is appropriate for a review of the Motor Vehicle Repair Industry Authority’s compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs. 4.93 STAYSAFE therefore recommends that the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the efficacy of the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

RECOMMENDATION 37: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the efficacy of the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

4.94 STAYSAFE also recommends that the Motor Vehicle Repair Industry Authority, in consultation with Motor Traders Association and the motor vehicle insurance sector, should assess the feasibility of developing an industry-wide assessment and

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certification system to ensure that motor vehicle smash repairers are equipped and capable to deal with specialised technical requirements for repair of different types of motor vehicles.

RECOMMENDATION 38: The Motor Vehicle Repair Industry Authority, in consultation with Motor Traders Association and the motor vehicle insurance sector, assess the feasibility of developing an industry-wide assessment and certification system to ensure that motor vehicle smash repairers are equipped and capable to deal with specialised technical requirements for repair of different types of motor vehicles.

4.95 STAYSAFE also believes that there should be a review of penalties for non-compliance with motor vehicle smash repair industry licensing requirements. 4.96 STAYSAFE recommends that the Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the penalties available under the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

RECOMMENDATION 39: The Motor Vehicle Repair Industry Authority, Motor Traders Association and the motor vehicle insurance sector, review and report on the penalties available under the Motor Vehicle Repair Industry Authority’s ongoing compliance program that checks businesses and tradespeople are licensed and carrying out quality work with specific regard to motor vehicle smash repairs.

Remaining issues 4.97 There are a number of disparate but relevant issues remaining that were the subject of deliberation by STAYSAFE, and for which findings and recommendations are made. The Road Safety 2010 strategy 4.98 In New South Wales, road safety activities are organised around a general government and community road safety strategy known as Road Safety 2010. This is a ten year strategy that is designed to deliver a 40% reduction in road trauma by 2010. The specific target of the strategy was set in 1999, and aims to have less than 300 road deaths by 2010. The Minister for Roads, the Hon. Joe Tripodi MP, has recently advised STAYSAFE a mid-term review of the Road Safety 2010 strategy is in progress. STAYSAFE examined the Road Safety 2010 strategy, and noted that road

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safety issues associated with repair to damaged motor vehicles is not a specific element of the strategy. 4.99 STAYSAFE therefore recommends that the Roads and Traffic Authority, after consultation with the Motor Traders Association, Insurance Council of Australia, NRMA Motoring & Services, and other relevant government, professional and community groups, should ensure that the current Road Safety 2010 strategy recognises safety issues regarding materials, structures and components in motor vehicles from initial registration for use on New South Wales roads through to the end-of-vehicle life. 4.100 STAYSAFE notes that the Roads and Traffic Authority conducted a major research project over the period 1999-2002 to examine the incidence and nature of defects in crashed motor vehicles, and their impact on injury outcomes for vehicle occupants. This research has not been released publicly. Without making a specific recommendation, STAYSAFE suggests that the Roads and Traffic Authority publish this research study to serve as a benchmark for future research examining vehicle-related factors in road crashes.

RECOMMENDATION 40: The Roads and Traffic Authority, after consultation with the Motor Traders Association, Insurance Council of Australia, NRMA Motoring & Services, and other relevant government, professional and community groups, ensure that the current Road Safety 2010 strategy recognises safety issues regarding materials, structures and components in motor vehicles from initial registration for use on New South Wales roads through to the end-of-vehicle life.

Legal liability issues in repairs to damaged motor vehicles 4.101 The issue of legal liability was raised in submissions and by witnesses testifying before STAYSAFE, with particular regard to Insurance Australia group including a transfer of liability clause in the Preferred Smash Repairer and Associate Smash Repairer contracts. 4.102 Smash repairers already have legal liability for the work they do. Mr Gerry Raleigh, of Accident Solutions, commented:

Mr RALEIGH: Many rectifications are not registered, they slip under the radar simply because the repairers have to fulfil all the obligations as far as warranty goes. These lifetime warranties that insurance companies bring into being are virtually just a marketing ploy. One does it, so the rest have done the same. I think you will find in all of those cases that lifetime warranty must be carried out and fulfilled by the actual repairer. The only time that an insurer will take over that warranty is if the repairer has gone out of business. (Mr Gerry Raleigh, Transcript of evidence, Wednesday 7 December 2005)

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4.103 STAYSAFE is concerned that Insurance Australia group’s action regarding the explicit transfer of legal liability to smash repairers may be an attempt to protect itself in circumstances where the nature, type and manner of repair to be carried out is specified in the assessors scope of works under the web-based repair management system. 4.104 STAYSAFE believes that if Insurance Australia Group or another motor vehicle insurer dictates the nature, type and manner of repair to be carried out on a damaged motor vehicle then the liability for that work should rest in part or in full, depending on the circumstance, with the insurer. 4.105 STAYSAFE recommends that the Office of Fair Trading clarify, review and report on the legal liability of motor vehicle smash repairers and motor vehicle insurers operating Preferred Repairer Schemes in the case of repairs that are sub-standard.

RECOMMENDATION 41: The Office of Fair Trading clarify, review and report on the legal liability of motor vehicle smash repairers and motor vehicle insurers operating Preferred Repairer Schemes in the case of repairs that are sub-standard.

Data on the New South Wales motor vehicle insurance sector 4.106 In conducting this inquiry, STAYSAFE found it difficult to obtain specific data on the New South Wales motor vehicle insurance sector. While general Australian data is collected and published, there is a need for publication of data on the motor vehicle insurance sector in New South Wales.

RECOMMENDATION 42: The Insurance Council of Australia collect and publish data on the motor vehicle insurance sector in New South Wales.

A possible need for anti-steering legislation 4.107 In this report, STAYSAFE has made an extensive series of recommendations regarding the motor vehicle smash repair industry and the motor vehicle insurance sector generally, but has also, in line with the terms of reference for the inquiry, made specific recommendations regarding the Insurance Australia Group Preferred Repairer Scheme. The major recommendations are that Insurance Australia Group should suspend the operation of its web-based repair management scheme as it is an unsafe process. 4.108 STAYSAFE is concerned that Insurance Australia Group may seek to ignore or disregard its findings and recommendations. If that were to be the case, STAYSAFE believes that consideration should be given to introducing anti-steering legislation. STAYSAFE recommends that the Minister for Fair Trading review the response of Insurance Australia Group to the findings and recommendations of inquiries into the operation of its Preferred Repairer Scheme, and consider the introduction of anti-

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steering legislation into New South Wales to open up competition by preventing motor vehicle insurers from closing off access to repair work by the majority of smash repairers.

RECOMMENDATION 43: The Minister for Fair Trading review the response of Insurance Australia Group to the findings and recommendations of inquiries into the operation of its Preferred Repairer Scheme, and consider the introduction of anti-steering legislation into New South Wales to open up competition by preventing motor vehicle insurers from closing off access to repair work by the majority of smash repairers.

Review of the response to STAYSAFE’s findings and recommendations 4.109 Finally, STAYSAFE will review the response to the findings and recommendations in this report within 6-12 months, that is, before the end of 2006. This review will be the subject of a formal inquiry to:

• re-examine the Insurance Australia Group Preferred Repairer Scheme with regard to its motor vehicle damage assessment and repair system;, and

• examine the motor vehicle insurance sector’s response to the findings and recommendations in this report.

RECOMMENDATION 44: STAYSAFE re-examine the Insurance Australia Group Preferred Repairer Scheme within 6-12 months to review its motor vehicle damage assessment and repair system, and to examine the motor vehicle insurance sector’s response to the findings and recommendations in this report.

Insurance Australia Group board knowledge and involvement regarding the Preferred Repairer Scheme 4.110 STAYSAFE is concerned at admissions that Insurance Australia Group's board regarded the Preferred Repairer scheme as an operational aspect of motor vehicle insurance activity. In correspondence to STAYSAFE, Ms Sam Mostyn, the Group Executive, Insurance Australia Group, stated:

IAG's Chairman, Mr James Strong, is unfortunately unavailable on that day. Unlike the relevant management within the company, as a non-executive Chairman, Mr Strong does not have the level of detail and operational knowledge of care and repair process.

4.111 STAYSAFE recognises that there are general concerns in the insurance sector about concerned by board requirements regarding fiduciary responsibilities, but was surprised that, given the profile and controversy about the Insurance Australia Group Preferred Repairer Scheme, and its importance to the Group's management of its

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motor vehicle insurance portfolio, that both Mr Michael Hawker, as executive director, and Mr James Strong, as chairman, had not gotten into "the nitty gritty" of the operation of the scheme. While there is an argument that might be advanced that boards can’t keep up with the level of detail required in a modern commercial business and shouldn't get involved in management processes, the public controversy and the intervention of both Parliament itself and the Minister for Fair Trading might well have provoked some need for a detailed briefing and advice. 4.112 When he testified before STAYSAFE, Mr Strong, Chairman of the Insurance Australia Group board, was concerned to clarify that the board did have a detailed knowledge of the Preferred Repairer Scheme:

Mr GIBSON (CHAIRMAN): … I did receive a letter from [Ms} Sam Mostyn, the Group Executive of your company, and in that she mentioned:

IAG's Chairman, Mr James Strong, is unfortunately unavailable on that day. Unlike the relevant management within the company, as a non-executive Chairman, Mr Strong does not have the level of detail and operational knowledge of care and repair process.

That is an astounding statement for a company as big as yours to make, particularly with the way corporate law is, that the chairman of the company does not know what is going on in his own company. Mr STRONG: Mr Chairman, can I make it very plain that it does not say that and obviously would not say that. I am quite familiar with Care & Repair. Mr GIBSON (CHAIRMAN): That is good because we have got some good questions for you. Mr STRONG: In fact, I would like to point out to the Committee, if I could, that I have visited Care & Repair centres in Western Australia, Queensland and New South Wales and I have talked with assessors, I have looked at their processes because to me it is quite important to understand the process. Mr GIBSON (CHAIRMAN): Yes, so what Sam Mostyn has put in this letter is wrong. Mr STRONG: No, it is not. I think it was your phrasing, which went a bit further, Chairman. Mr GIBSON (CHAIRMAN): Just let me read it out again so we are all very clear on it, "Unlike the relevant management within the company, as a non-executive chairman, Mr Strong—,’ and it does not say "if" or "but", ‘—Mr Strong does not have the level of detail or operational knowledge of care and repair process."

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Mr STRONG: That management would have who are dealing with it every day. In other words, I would not know if you said to me, car registration number XYZ had this occur to it, what do you say about that? My answer would be I am not familiar with the detail of that. That is all it is referring to. If you are asking me whether I understand the basis, the purpose, the methodology of the Care & Repair system, I do, and every board member does because that is part of our responsibility and our governance. That is why I have visited Care & Repair centres and talked to assessors. Mr GIBSON (CHAIRMAN): That's very good because your Chief Executive Officer could not answer most of the questions asked of him on Monday. Mr STRONG: I was not here, Chair, so I cannot comment on that. I would be very surprised because he is a very good Chief Executive and he does a very good job. Mr GIBSON (CHAIRMAN): I have no doubt he is but the fact is that he did not know too much about Care & Repair, stated by him. Mr STRONG: I would doubt that. He might not have known about particular cars or incidents, which would be normal, but if the statement is that he does not understand Care & Repair then I am afraid I disagree with that. He is very familiar with it and has visited sites and has been involved in clearing up issues about it in a very intense personal basis. Mr GIBSON (CHAIRMAN): That's good but that is not the impression he gave this hearing on Monday and seeing that you are over the subject you might be able to give us some answers that he could not give us on Monday. (Mr James Strong, evidence given on Wednesday 7 December 2005)

A note on actions taken by Insurance Australia Group during the inquiry 4.113 STAYSAFE noted some of the Insurance Australia Group tactics regarding this inquiry, extending from the public and Parliamentary concerns expressed immediately following the introduction of the web-based repair management system on 1 July 2005 through to the conduct of public and private hearings over the period 5-7 December 2005. These included:

• Initiating an ‘NRMA Insurance road safety month’ in November 2005 • Commencing an aggressive advertising campaign in print and electronic media

about the benefits of Insurance Australia Group's Preferred Repair Scheme • Engaging in a series of media interviews, etc., indicating that the Insurance

Australia Group's Preferred Repairer Scheme was a good concept, and that any difficulties were teething problems

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• Assigning specific public relations staff to monitor and engage with STAYSAFE • Disputing the terms of reference for the inquiry • Providing advice to road safety officials in government agencies that the issues

to be addressed in STAYSAFE’s inquiry were not able to be substantiated • Making statements alluding to intimidation and threats to smash repairers

participating in Insurance Australia Group's Preferred Smash Repairer scheme • Employing private inquiry agents and commercial agents to monitor and

investigate Insurance Australia Group staff and other parties • Using legal action to challenge critics (and in a manner that attempted to

intimidate witnesses before STAYSAFE) • Disputing witnesses called by STAYSAFE, including proposing alternative

witnesses and attempting to decline the appearance of witnesses by citing unavailability or irrelevancy

• Arguing with Committee staff regarding STAYSAFE’s actions • Inviting STAYSAFE to inspect Care & Repair centres in New South Wales or

interstate, and offering to arrange for briefings from interstate smash repairers participating in the Preferred Smash Repairer scheme, and then complaining that STAYSAFE would not accept these invitations

4.114 STAYSAFE was not unduly surprised at these actions, noting the comments of Lampe (2004) on Insurance Australia Group corporate relations approaches, as reported on the Crikey website:

More recently I was covering a court room stoush between some car repairers at loggerheads with one of our largest car insurers, IAG, in the Federal Court. The IAG spin machine was in attendance every day and was ever vigilant with respect to the media's movements. At the end of the day they would phone journalists covering the case and offer ''assistance'' with any matter that may have arisen in the court, as well as briefings with key IAG executives, and would issue a statement reflecting their view of the key events of the day. Not only that but they would get shirty if their statement did not make it into the day's court report. To top off their efforts, journalists covering the proceeding would be told by the spinners that they had noticed that the journalist was not in court when such and such was said. We wondered if were expected to get a leave pass from the spin doctors in order to get a coffee, make a call or go to the bathroom, like kids in primary school. Then, in the middle of this case, came an offer from the spin for journalists covering the case to attend one of IAG's selected and approved workshops to see how efficiently it operates, the same sort of tour that the company had given people from the ACCC, we were told. What on earth the spin doctors thought we would get out of watching someone beating car panels only they know, but there was no offer to let us look at how their claims call centre operates, where policyholders lodging claims were steered to approved repairers who toed the line with IAG and

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kept their repair costs down to rock bottom. The way claims were dealt with by the call centre operation was at the centre of the court dispute, but there was no way journalists covering the case were going to see how the call centre operates when policyholders crashed their cars and what options policyholders were given in their choice of repairer.

Concluding comments 4.115 In the conduct of this inquiry, STAYSAFE was mindful that there was an urgency to examine, deliberate upon and report upon Insurance Australia Group's smash repairer bidding scheme. There is considerable tension between Insurance Australia Group and the motor vehicle smash repair industry, with commercial disadvantage being faced by both. For Insurance Australia Group, there are already impacts on ongoing business, with the withdrawal and transfer of policy holders to other motor vehicle insurers (and active advertising competition from these other insurers), as well as considerable cost associated with the commencement and operation of the Care & Repair centres, the rectification (or subsequent repair) of initial repairs to damaged vehicles, and share market uncertainty. For the motor vehicle smash repair industry, dominated in New South Wales by small businesses, there is a reduced ability to withstand the financial consequences of a prolonged dispute. At the same time, it is unusual for Parliament to investigate the internal system of a public company, and STAYSAFE recognises that any adverse findings on the web-based repair management system will come as a blow to Insurance Australia Group. 4.116 During this inquiry STAYSAFE noted that there were allegations and counter allegations of intimidation and inappropriate behaviour by the Motor Traders Association and Insurance Australia Group. 4.117 STAYSAFE holds that a strong and mutually respectful relationship between motor vehicle smash repairers and the motor vehicle insurance sector, productivity, technical updating, and improving skills, are the cornerstones for a successful future for the motor vehicle smash repair industry in New South Wales. 4.118 STAYSAFE calls for combined action to promote the development of better regulation, a coherent 5-10 year road map for the motor vehicle smash repair industry and the motor vehicle insurance sector, and an integrated approach to safety. 4.119 Transport infrastructure in New South Wales, particularly in rural and regional areas, makes it increasingly difficult for smash repairers to remain competitive, and that this is unlikely to improve in any significant way over the next few years. Even while the motor vehicle smash repair industry is improving productivity, more needs to be done to address the issues of recruitment and training into the smash repair industry to support technological updates as new motor vehicles, utilising new and different materials and requiring different repair methods, come into the Australian market.

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4.120 More investment needs to be made in research and development regarding safe, effective and efficient smash repairs to damaged motor vehicles. This investment must come from government (as the regulator), the motor vehicle insurance sector, and the motor vehicle smash repair industry. 4.121 The Productivity Commission (2005) felt that ongoing rationalisation in the motor vehicle smash repair industry can be expected. Most importantly, the process of rationalisation reflects general industry-wide actions by motor vehicle insurers to reduce cost, primarily as a means of enhancing shareholder returns but also to contain premiums for policy holders. Other factors affecting rationalisation in the motor vehicle smash repair industry include increased capital requirements due to changes in vehicle technology; a possible decline in the incidence and severity of motor vehicle crashes; more stringent occupational health and safety and environmental requirements, operating on smash repair businesses; and difficulties in attracting skilled labour.

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REFERENCES Allianz (2005). Submission to Productivity Commission inquiry into the smash repair industry and insurance. Anonymous (2004). Repairers claim rates are too low. From : http://www.drive.com.au/buy/Insurance/rates.aspx, accessed December 2005 Australian Competition and Consumer Commission (2002a). Smash repair industry roundtable. ACCC Briefing—July 2002. From: http://www.accc.gov.au/content/item.phtml?itemId=459350&nodeId=file400715eb58d81&fn=ACCC%20briefing%20July%202002.pdf, accessed December 2005 Australian Competition and Consumer Commission (2002b). Smash repairs. ACCC Briefing—November 2002. From: http://www.accc.gov.au/content/item.phtml?itemId=459346&nodeId=file40071589a215d&fn=ACCC, accessed December 2005 Australian Competition and Consumer Commission (2003). Discussion on the relationship between the Australian motor body/smash repair industry and the general insurance sector. Issues paper. Canberra, ACT: Australian Competition and Consumer Commission. Industry Commission, (1994), Vehicle and recreational marine craft repair and insurance industries. Report no. 43. Canberra, ACT: Industry Commission. Joint Standing Committee on Small Business (1998). The Illawarra experiment—Report on NRMA’s quality repair system. Report 1/51 of the Joint Standing Committee on Small Business. Sydney, NSW: Parliament of New South Wales. Lampe, A. (2004). Anne Lampe on excessive corporate spin. From website: http://www.crikey.com.au/articles/2004/12/06-0003.html, accessed December 2005. McEwing, F. (2005). Do we really want anti-steering? Paint & Panel, November/December, 4. Motor Traders Association (2005). Submission to the Productivity Commission inquiry into the smash repair industry and insurance. Productivity Commission (2005). Smash repairs and insurance. Inquiry Report, No. 34, 17 March 2005. Canberra, ACT: Productivity Commission. Thomas, G. (2005). Assessment of the W.R.M. Report to the Minister for Fair Trading, the Hon. Diane Beamer MP, of an independent investigation of Insurance Australia Group's web-based repair management system. Sydney, NSW: Office of Fair Trading.

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WITNESSES WHO TESTIFIED IN PUBLIC HEARINGS BEFORE THE STAYSAFE COMMITTEE FOR THE INQUIRY INTO MOTOR VEHICLE SMASH REPAIRS UNDER THE INSURANCE AUSTRALIA GROUP (NRMA INSURANCE) PREFERRED REPAIRER SCHEME Monday 5 December 2005 Mr Michael Hawker, Insurance Australia Group

Mr Rick Jackson, Insurance Australia Group

Mr Steve Wilson, Insurance Australia Group

Mr Greg Henson, St George Sutherland Shire Repairers Group

Mr Graham Moore, Mosman Smash Repairs Pty Ltd

Mr Richard Nathan, Nathans Prestige Autobody Repairs Pty Ltd

Tuesday 6 December 2005 Mr James McCall, Motor Traders Association

Mr Gregory Coli, Motor Traders Association

Mr Alan Mason, Insurance Council of Australia

Wednesday 7 December 2005 Mr James Alexander Strong, Insurance Australia Group

Mr Michael Graham Doveton Kay, AAMI

Mr Ronald William Arnold, AAMI

Mr Nicholas Scott Scofield, Allianz Australia

Ms Jennifer Maree Lambert, Allianz Australia

Mr Keith Edwin Dean, Allianz Australia

Mr Kenneth Raymond Holland, Institute of Accident Assessors

Mr Phillip Edward Marks, Institute of Accident Assessors

Mr Ronald Callaghan, Institute of Accident Assessors

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Mr Gunther Jurkschadt, Auto Parts Recyclers Association Australia

Mr Matthew John Perfrement, Auto Parts Recyclers Association Australia

Mr Gerry Raleigh, Accident Solutions

Mr Gary Thomas, consultant

Mr Anthony Alan Tarplee, Motor Vehicle Repair Industry Authority

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SUBMISSIONS RECEIVED BY THE STAYSAFE COMMITTEE FOR THE INQUIRY INTO MOTOR VEHICLE SMASH REPAIRS UNDER THE INSURANCE AUSTRALIA GROUP (NRMA INSURANCE) PREFERRED REPAIRER SCHEME NRS 001 Mr Ian Thorp, Autotex Pty Ltd NRS 002 Nat and Michael Pisani, Pisani Bros Smash NRS 003 Mr Gary Price, Technical Assessing Pty Ltd NRS 004 Mr Garry Maher, L & M Smash Repairs Pty Ltd NRS 005 Mr Ray Ibels, JP, F C Ibels & Co Pty Ltd NRS 006 Mr Darren Hawks, Emu Plains Smash Repairs Pty Ltd NRS 007 Mr Steve Bryant, Currumbin Valley Smash Repairs Pty Ltd NRS 008 Mr John Hembrow, AusARC NRS 009 Mr Colin McDonald, CF & B McDonald Smash Repairs NRS 010 Mr Darren Shipley, Shipley Smash Repairs NRS 011 Mr Trevor Blanning, Asquith Body Works Further submission NRS 011.1: Mr Trevor Blanning, Asquith Body

Works NRS 012 IN CAMERA NRS 013 Mr Gene Krawczyk, Holden Hill Crash Repairs Pty Ltd NRS 014 Mr Michael Arnold, Institute of Public Insurance Assessors NRS 015 Mr Sidney Bush, Kirrawee Motors NRS 016 Mr Dale Collins, Alpine Smash Repairs NRS 017 Mr Archie Davies, Masada Prestige Paint & Panel NRS 018 Mr Paul Orford, Maroubra Bay Garage Smash Repairs NRS 019 IN CAMERA NRS 020 IN CAMERA NRS 021 Mr Gary Talbot, C-US-FIRST Smash Repairs NRS 022 Mr Vince Costa, Craft Auto Smash Repairs NRS 023 Mr Craig Willis, Northpoint Motor Body Repairs NRS 024 Mr Jack Lambert, Roadstar Smash Repairs NRS 025 IN CAMERA Further submission NRS 025.1: IN CAMERA NRS 026 Mr Bill Lake, Bill Lake Smash Repairs Pty Ltd NRS 027 Ms Jane Castle, Total Environment Centre NRS 028 Mr Jamal Ayoubi, Allwest Auto Body Repairs NRS 029 Ms Maurise Wingate NRS 030 IN CAMERA NRS 031 Mr Craig De Pina, Express Panelbeaters NRS 032 Mr Grahame McCreath, McCreath Prestige Paint & Panel Pty Ltd NRS 033 Mr Nicholas Rose, Coastline Artarmon Pty Ltd. NRS 034 IN CAMERA NRS 035 Mr Dave De Vin, Lingane Auto Body Repairs

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NRS 036 Multinational Body Works Pty Ltd NRS 037 Mr Peter Chronis, St Marys Collision Repair Centre NRS 038 Mr George Stojanovski, Modern Smash Repairs NRS 039 Mr Jim Angelis, Angel Smash Repairs NRS 040 IN CAMERA NRS 041 Mr John Khamis, JBK Smash Repairs NRS 042 Mr Micheal Longo, Newmans Smash Repairs Pty Ltd NRS 043 Mr Ross McKenzie, As New Smash Repairs Pty Ltd NRS 044 Mr Sam Dastyari, NSW Young Labor NRS 045 Mr George Newhouse NRS 046 Mr Domenico Caruso, The Body Repair Shop NRS 047 Mr Scott McIntyre, Steve Kennedy Auto Repairs NRS 048 Mr Terry Flanagan, T R Flanagan Smash Repairs Pty Ltd NRS 049 Mr Colin Adams, Harris And Adams Hi Tech Vehicle Repair Centre NRS 050 Dr Barbara Carney, Insurance Australia Group Further submission NRS 050.1: Dr Barbara Carney, Insurance Australia

Group NRS 051 Mr Alan Marshall, Auto Parts Recyclers Association of Australia NRS 052 Mr Kelly Pearce, G & D Auto Body Shoppe NRS 053 Mr George Elmassian, J S Craig Panel Beating (NSW) Pty Ltd NRS 054 Mr Brian Cowan, St George Sutherland Shire Repairers Group, C/-

Coleman's Quality Smash Repairs NRS 055 Mr Matthew Perfrement, Just Japanese Auto Parts NRS 056 Mr Michael Mariam, M and S Smash Repairs Pty Ltd NRS 057 Mr Gary Mamic, Country North Vehicle Repairers Association NRS 058 Mr Peter Grgic, P & I Autobody Repairs NRS 059 Mr Robert Bayssari, Gordon Tyler Smash Repairs NRS 060 Mr John Walker, Embassy Smash Repairs NRS 061 Mr Stuart Sheldon and Mr Paul Boatwright, Milperra Road Smash

Repairs NRS 062 Mr Eddie Howard and Mr Goran Coric, Quality Paint & Panel Pty Ltd NRS 063 Mr Tod Sarina, Sarina Prestige Smash Repairs NRS 064 IN CAMERA NRS 065 Mr Darren Curry NRS 066 IN CAMERA NRS 067 Mr David Hurford, Fowles Auction Group NRS 068 Mr Chris Daglis, Auto Parts Recyclers Pty Ltd NRS 069 Mr Greg Henson, St George Sutherland Shire Repairers Group, C/-

Callaghans Collision Centre NRS 070 Mr James McCall, Chief Executive Officer, Motor Traders Association of

NSW Further submission NRS 070.1: Mr Gregory Coli, Motor Traders

Association of NSW NRS 071 Ms Sophie Kearns, Motor Traders Association of NSW, forwarding

submission from Mr Peter Shelley NRS 072 Mr Mark Stewart, Mark Stewart Smash Repairs Pty Ltd NRS 073 Mr Ron Callaghan JP, Institute of Accident Assessors Further submission NRS 073.1: Mr Ron Callaghan JP, Institute of

Accident Assessors

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NRS 074 IN CAMERA NRS 075 IN CAMERA NRS 076 Mr Richard Nathan, Nathans Prestige Autobody Repairs Pty Ltd NRS 077 Mr Steve Jansson, Vic's Smash Repairs NRS 078 Mr Geoff Pettett NRS 079 Mr Graham Moore, Mosman Smash Repairs Further submission NRS 079.1: Mr Graham Moore, Mosman Smash

Repairs Further submission NRS 079.2: Mr Graham Moore, Mosman Smash


Repairs Further submission NRS 079.4: Mr Jim Zappia, Mosman Smash Repairs Further submission NRS 079.5: Mr Graham Moore, Mosman Smash



Repairs NRS 080 Mr Drago Ostric, Sefton Smash Repairs Pty Ltd NRS 081 Mr John Walker, Walker Crash Repairs NRS 082 Mr Tony Maiolo, TGM Panelbeating & Spraypainting Pty Ltd NRS 083 Mr Sam Solano, A. Solano & Sons Pty Ltd NRS 084 Mr Keith Burrow, Keith Burrow Motor Body Repairs Pty Ltd NRS 085 Mr Joe Artini, Artini Crash Repairs Pty Ltd NRS 086 Ms Carol Flanagan, Auto-Quote Australia Pty Ltd NRS 087 Mr Romeo Nader, CNR Autobody NRS 088 Mr Michael Criticos, Golbert Restorations NRS 089 IN CAMERA NRS 090 Ms Selina O’Connor, AAMI NRS 091 Mr Alan Mason, Insurance Council of Australia

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Appendix A – Independent report for the Minister for Fair Trading on Insurance Australia Group's web-based repair management system—'Assessment of the W.R.M.' On Wednesday 14 December 2005, the Minister for Fair Trading, the Hon. Diane Beamer MP, forwarded a report of an independent investigation of Insurance Australia Group's web-based repair management system to STAYSAFE (Thomas, 2005). This report was made public by the Minister on Thursday 15 December 2005. The investigation was conducted by Mr Gary Thomas, an experienced licensed panel beater in the industry for just over 39 years, employed as a head teacher in automotive trades by New South Wales TAFE. The terms of reference for the investigation required Mr Thomas to provide an opinion on:

• The ability of smash repairers to submit realistic tenders based on the information available to them on the WRM [web-based repair management system].

• Whether the process for submitting variations on tenders, and any

possible resulting penalties is fair and reasonable in relation to term of reference 1.

• The effect of WRM on the quality of work that smash repairers undertake

particularly in light of the variations process.

• The role of IAG/NRMA loss assessors in the smash repair process as the sole supplier of the Scope of Works for damaged vehicles. In particular whether there is an appropriate standard of technical expertise.

• The outcome of the WRM scheme for repair when compared with existing

schemes and the previous scheme run by IAG/NRMA The Thomas report is shown below.

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Assessment of the W.R.M. __________________ Gary Thomas Dip. Teach, M.I.A.M.E. Methodology The repairers visited for this assessment were all currently using IAG’s web based repair management (WRM) system. Repairers were asked to respond to a questionnaire, and to discuss Scope of Work and images posted on WRM at the time of the visit. During the assessment care was taken to examine matters that were relevant to the terms of reference provided (Attachment A). The purpose of the assessment is to provide independent information on WRM and to isolate concerns that relate to the practical implementation of WRM. In this assessment I visited over thirty (30) Auto Body Repair workshops servicing seven IAG Care and Repair Centres and visited one IAG Care And Repair Centre (Rosebery). I assessed approximately 10 – 15 published Scopes Of Works, that is details of repair work required, all remove and refit items, repairs, paint, parts and etc required including images, at each repairer’s business premises, as well as visually inspecting a number of successfully tendered vehicles. Key points

• 80% of repairers within this assessment advised, they were not happy with the current WRM scheme, but were trying to make it work in an attempt to stay in business.

• A vast majority of images viewed, failed to adequately depict clear and precise

details of the damage, for a repairer to accurately estimate the correct method of repair or repair time.

• 80% of images viewed from a particular IAG Care & Repair Centre were blurry

containing unrecognisable detail. • Many repairers felt some assessors were not taking photos with the intent to

illustrate damage but were merely taking photos of the vehicle. • Images viewed appeared to vary in quality, from clear and precise depicting

relevant details, to images that were blurry and unrecognisable in detail.

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• Of all the images accompanying the published Scopes Of Work examined during this assessment, over 75% failed to accurately depict the full extent of damage to the vehicles.

• The assessment found that the operation and implementation of WRM varies

significantly across the Sydney Metropolitan area, inconsistencies were found in the way that the tendering adjustment factor was applied, in the level of detail provided in both the Scope of Works and accompanying images.

• 85% of the Scopes of Work posted on the WRM by assessors, did not

adequately list the detail of the damage required for the repairers to provide an informed quote (tender). This brought into question the ‘expertise’ of the assessor to accurately determine all of the details required for a Scope Of Works. For example, they were unable to consistently show the severity of damage and correct method of repair.

• The matter at issue is the grey area that existed in some Scopes of Work. For

example, in the case of one vehicle, poor images of damaged doors, not adequately depicting the damage, were posted with no other information on the Scope detailing what was required (repair or replacement). This left it up to the repairer to try and work out what is the correct method of repair without clear information on the damage on the vehicle. The Scopes of Work provided were open to such interpretation that the repairers were not confident that their competitors would be quoting on the same items or method of repair. This concern was compounded for some repairers who were not sure which method to include in the quote. Some repairers, were unsure of how ‘differences of opinion’ on the best method of repair, would be addressed in the variations process.

• A number of assessors provided additional details by using magnetic signs and

pen marking on the damage areas of the vehicles. However these additional notes and marking were limited to only 10% of the Scopes Of Work viewed on WRM.

• On many occasions, damage was missed or overlooked, including secondary

and indirect damage. (Secondary damage is behind the point of impact, caused by the pushing back of other parts or panels. Indirect damage, is damage further away from the impact point, eg. crumple zone areas).

• The majority of visited repairers, all currently using WRM, stated that in their

opinion, the Scope of Works did not highlight all the damage to the vehicles. In circumstances where scopes were attached to the poorer images, it is impossible for a repairer to complete an accurate tender on the vehicles.

• At the time of the investigation penalties were only being applied in one area.

In this one area where tendering adjustment penalties were being applied, it was causing major concern amongst repairers.

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• All repairers maintained a reasonable ‘quality repair’ to vehicles tendered on the WRM system (ie. quality to suit age and condition of vehicle).

• The quality of parts may become a factor within competitive tendering. • Customers are able to take their vehicle back to an IAG Care & Repair Centre

for post repair quality inspections at any time. IAG also informed me that vehicles are also randomly inspected by assessors for quality.

• All repairers within this assessment agreed that the previous scheme of

‘customer choice of repairer’ was the most preferred option. • All repairers within this assessment were satisfied with the previous scheme of

‘Preferred Repairer’ (using On-line Repair Management or ORM). Findings (1) The ability of Smash Repairers to submit realistic tenders based on the

information available to them on the WRM. (a) Images were assessed for their ability to depict clear detail:

• The images viewed appeared to vary in quality with a number of images being clear and precise, depicting relevant detail, with other images depicting blurry, unrecognisable detail.

• The images viewed appeared to vary greatly between Care & Repair Centres and between Assessors at the time of assessment.

• It was found that 80% of images viewed from one Care & Repair Centre were blurry with unrecognizable detail (Taren Point). However most images viewed from other Care & Repair Centres were found to be clear and precise, depicting relevant detail with good lighting and focused images.

• The images viewed while at the Rosebery Centre were clear and depicted relevant detail.

(b) Images were assessed for their ability to depict the physical damage:

• Again these images viewed vary greatly between Care & Repair Centres and between Assessors.

• A small number of images viewed of minor superficial damage depicted the required details of the damage clearly and precisely, providing ample provision for the repairer to accurately estimate a method of repair and repair time.

• However the vast majority of images – despite the clarity of pictures - viewed failed to adequately depict clear and precise details of the damage affecting the ability of a repairer to estimate the correct method of repair or repair time.

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• An accurate determination of the severity of the damage pictured could not be conducted due to images appearing to depict light reflection and reflection of surrounding objects and people.

• Images taken from various angles around the vehicle did not depict accurate details of the severity of the damage sustained.

• While damage on inner panels (secondary damage) was occasionally included in a Scope of Works, such damage was not clearly depicted in images, thus requiring an estimate on method of repair and repair time, forcing the repairer into guess work.

• Several vehicles successfully tendered by repairers were examined and compared to the Assessor’s Scope of Works along with the images published on WRM. It was found that the severity of damage on all of these vehicles was considerably more than depicted within the provided assessors Scope of Works and images. (secondary damage - beaver panels, radiator support panels, etc. Indirect damage - subframe rails, quarter panels, etc).

• Some assessors provided additional details by using reference points like rulers and badges, as well as magnetic signs and pen markings on the damaged areas of the vehicles. Assessor’s notes provided alongside images also provided additional details.

• These markings and notes are extremely helpful to the repairers when estimating damage; however these notes and markings were only limited to 10% of the scopes viewed.

• On four (4) vehicles inspected these markings were misleading as they depicted the damage as being smaller and lesser in severity then the true damage sustained.

• All images viewed while at the Rosebery Centre showed relevant damage from various angles on the vehicles.

(c) Scope of works assessed for its ability to correctly diagnose the extent and

severity of damage sustained on the vehicle:

• The Scope of Works were examined and referenced to the images and compared later to vehicles successfully tendered on.

• The Scope of Works compiled by the assessors varied from ‘extremely vague’ to clear and precise instructions, including the method of repair. When Scopes of Works were described as “vague” very little information was provided on the repair requirements, leaving it up to the repairer to guess a method of repair for the vehicle.

• It was discovered that a number of assessors had clearly judged an inaccurate method of repair for the damage sustained, forcing repairers to submit an estimate containing an incorrect method of repair. In an attempt to correct the assessor’s determined method of repair detailed within the Scope of Works, a number of repairers contacted the appropriate IAG Care & Repair Centres for clarification. On most occasions the repairers were advised to still submit a

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tender on this incorrect method of repair and if successful, to submit a variation to change method of repair at a later date. On a small number of occasions, repairers were advised to submit their tender on their desired method of repair, which was a total contradiction to the original Scope Of Works determined by the assessor.

• It was also noted that when a number of Scopes of Works could not be clearly followed by repairers and they contacted the relevant IAG Care & Repair Centres to advise of this, the Scopes Of Works were swiftly removed from tendering and the vehicle was directly allocated to repairers.

• The ability of the scope to cover the full extent of the damage to the vehicles was again extremely varied. Very few Scopes Of Works captured the full extent of the damage, the vast majority either missed damage or failed to note down damage sustained.

• The Scope of Works often required repairers to tender an estimated method of repair and/or repair time on inner panel damage without providing any images of this damage.

• The majority of visited repairers, all currently using WRM, stated that in their opinion, the Scope of Works did not highlight all the damage to the vehicles. In circumstances where scopes were attached to the poorer images, it is impossible for a repairer to complete an accurate tender on the vehicles.

• The level of details within the Scope of Works provided by the assessors varied largely form Care & Repair Centre to Care & Repair Centre across Sydney. Of all the images accompanying the Scope of Works examined during my assessment and compared to the vehicles and images, over 75% failed to accurately show the ‘full extent of damage’.

(d) Repairers within my examination advised that they were led to believe the

assessor’s published Scope of Works would contain images with all visible damage and note the correct method of repair required. For example, all remove and refit items, repairs, paint, parts and etc required.

• The inconsistency in the level of detail in images and Scopes provided by assessors is causing much confusion amongst repairers using WRM.

• The scope of works and images viewed at the Rosebery Centre were all of minor superficial damage only. The Scopes covered the damage on the vehicles satisfactorily enough for a repairer to adequately estimate a repair tender.

e) IAG allow 24-48 hours to allow repairers to tender on vehicles that are posted on

WRM. f) After a repairer has successfully tendered on a vehicle:

• The repairer is required by IAG to contact the owner of the vehicle within 24 hours.

• It is open to the repairer and the customer to negotiate a repair time. • Other repairers were instructed by assessors that commencement of repairs had

to take place within the following two (2) weeks.

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(2) Whether the process of submitting variations on tenders and any possible

resulting penalties is fair and reasonable in relation to Term of Reference 1.

• Repairers from all but one area, replied that variations outside of the scope or images were permitted and no penalties had occurred.

• Again, all but one area advised that variations within the scope were permitted at present, if the repairer could show that the image did not detail the full extent of the damage.

• At the time of this investigation, penalties for variations were only being applied in one area, but most repairers were concerned of the ‘tendering adjustment factor’ being introduced at a later date as per their contract. For example, if the repairer puts in a $300.00 variation, then that $300.00 is divided by 10 = $30.00 and this amount is added to the next 10 tenders (as listed in their contract).

• While at the Rosebery Centre, I was Informed that the “tender adjustment factor”, would apply, as of Thursday, 17th November 2005. I believe this deadline has been met.

• I was instructed that the application of penalties, are the decision of the Centre Manager.

• When the tender adjustment factor is applied, there is no forum of arbitration or appeal system.

• Within the one area where these ‘tendering adjustment penalties’ apply, it is causing major concern amongst the repairers.

• Penalties were being applied to repairers for variations which are NOT mentioned within the Scope Of Works, e.g. where Remove and Replace items are not detailed within the assessors Scope Of Works and therefore not estimated in the original tender by the repairer and the repairer is being advised that “due to their industry knowledge and experience” they should have included these items in their original tender. Therefore the ‘tender adjustment factor’ would now apply. Repairers pointed out, ”but these were not included by the assessor with he’s industry knowledge and experience”

(3) The affect of the WRM on the quality of work that Smash Repairers

undertake, particularly in the light of the variations process.

• All repairers maintained a reasonable ‘quality repair’ to vehicles tendered on the WRM. With ‘life time warranties’ given by repairers, all repairers said they have to maintain quality workmanship on these vehicles and would not lower their quality to be competitive. However a small number of repairers expressed concern that if penalties on variations were brought in, then newly discovered damage may be purposely overlooked rather than take the risk of a penalty being imposed.

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• The quality of parts may become a factor in competitive tendering, cheaper poorer quality recycled parts may be selected to lower costs.

• Repairers within this assessment stated that it can take up to one week for variations to be authorised.

• While at the Rosebery Centre, I was shown a roster of vehicles which will undertake a random after repair “quality inspection”. As well as a displayed sign for customers, to invite them, to bring their vehicles back for quality inspections at anytime.

(4) The role of the IAG/NRMA loss assessors in the smash repair process as

the sole supplier of the Scope of Works for damaged vehicles. In particular whether there is an appropriate standard of technical expertise.

• The ability of the assessor to provide a complete Scope of Works, varied greatly

from Care & Repair Centre to Care & Repair Centre and assessor to assessor. A number of Scopes Of Works were accurate and showed that the assessor displayed the ability to determine the severity of damage and the correct method of repair.

• However the vast majority (approx 85%) did not display the ability to accurately determine the full extent of damage sustained to vehicles. On many occasions damage was missed or overlooked, especially secondary and indirect damage. Also obvious signs of misalignment where not noted or highlighted for the repairers.

• With the majority of Scopes Of Works, the assessor determines the method of repair, for example, what is repaired, replaced and painted etc. Often the method put forward by the assessor is in contradiction to the method of repair later proposed by most repairers.

• Under the preferred smash repairer scheme, assessors may have been considered competent when conducting an assessment on a vehicle when provided with an estimate by a repairer, detailing the required method and cost of repairs. However the competency of assessors is now being questioned by the auto body repair industry, with the assessors now having to determine the severity of damage and the correct method of repair required.

• Assessors no longer have the luxury of being guided by a repair estimate diagnosed and written by a repairer.

• The minor damage on vehicles shown while at Rosebery, were within the expertise of the assessors, scoping these vehicles.

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(5) The outcome of the WRM scheme for repair when compared to existing schemes and the previous scheme run by IAG/ NRMA Insurance Ltd.

• All repairers agreed that the ‘customer choice’ of repairer, was the most

preferred option. Quality and customer service and how they marketed their business is very important to repairers. And like other businesses, your clientele is your ‘good will’ in selling your business.

• All were happy with the previous scheme of ‘preferred repairer’ (On-line repair management or ORM). When insured customers had the option of choosing their own repairer and their repairer did not have to compete through a tendering scheme to obtain the chance to repair their customers’ vehicle.

• Only two out of over thirty repairers attend an on-site quoting centre, to tender for work. (Most repairers within this assessment felt that being required to attend an IAG Care and Repair Centre for on-site tendering would cost them time and money because of time spent away from repair shop.)

• All repairers interviewed, stated their percentage of NRMA work prior to the WRM was between 70 – 85% of total volume.

• All state that the WRM process is costing them financially, in that a full time person is employed to appraise and tender on vehicles. The win rate of those interviewed was between 5 – 50%, with the average around 20 – 30% (therefore the ‘cost factor’ of unsuccessful tenders per repairer is 70 – 80%).

• IAG at Rosebery stated that the state average is only 2.2 tenders per vehicle.

• Each Care & Repair Centre had a different quota for the number of tenders a repairer was required to submit to continue to participate in the WRM scheme. Some repairers only want to tender on their own customers’ vehicles, but are being told they must tender when asked to respond (vehicles for repair are flagged on WRM, as ‘response required’)

• From the repairers, the number of tenders varied from 5 – 15 per day with the average of 10 – 12 per day, per workshop.

• Time spent on ‘tendering per vehicle’ varied depending on whether new or recycled parts are required. Most repairers quoted times of thirty minutes to one hour, with the average being forty to forty five minutes per tender.

• Allocated vehicles (vehicles with damage too severe for WRM or prestige vehicles still under warranty), are directly sent to repairers. This again varied from repairer and area. Some repairers were told the ratio of 25% of vehicles allocated to every 75% tendered, others were told one (1) allocated vehicle for every six (6) successfully tendered vehicles. With prestige vehicles these were allocated the approved specialised workshops.

• Some repairers had advised that they had received very little to no allocated vehicles, (seemed to be to the discretion of individual assessors).

• 80% of repairers advised that they did not like the WRM scheme but were trying to make it work in the attempt to stay in business.

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• The number of employees of WRM participants is varied between minus 20% to a rise of 20%, with only three (3) out of thirty (30) indicating the employment of apprentices in 2006. (Non-WRM repairers have dropped employee numbers from 30 – 60%).

Some comments from repairers:

• Poor images do not show damage

• Assessors need to learn how to photograph the damage correctly

• Time loss seeking good recycled parts (irate parts suppliers quoting the same part to several repairers)

• Will give six (6) to eighteen (18) months to completely reduce our work from the WRM system.

• Good system for customers who do not have a repairer of choice.

• It appears that assessors need a lot more quoting and repair diagnostic training.

• Scopes not detailing damage.

• More detail required on scopes of works.

• If scope and images are poor, will not tender.

• Need a defined cut-off point of WRM to allocated vehicles.

• Owners told repair time off scope by repairer, then time is increased to the disappointment of owners.

• Instructions given on scope ‘will polish off’, ‘brush-touch’, which is not correct.

• Assessors writing on scope of works that ‘Insured requires a loan vehicle from successful tenderer, at repairers cost?

• Need to be able to reply on ‘quality of images back to the centre’.

• Need a ‘Code Of Conduct’ (quality) for the smash repair industry.

• Unsafe and severely damaged vehicles being driven to repairers from WRM Centres.

• If scopes are accurate, WRM puts all repairers on a level playing field

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Appendix B –

Examples of educational materials produced by I-CAR (the Inter-Industry Conference On Auto Collision Repair) HOW NEW TECHNOLOGIES AFFECT PARTIAL PART REPLACEMENT (September 19, 2005) A vehicle with side impact damage is being analyzed. The B-pillar, which is made of ultra-high-strength steel, has a kink. Taking into consideration that the part is made from ultra-high-strength steel, can the part be sectioned, or does it need to be replaced at factory seams? Over the past several years, many advancements have been made in regards to the construction of full-frame and unibody vehicles. We have seen new joining methods, increased use of aluminum and advanced high-strength steels, and alternative part designs. Each of these innovations brings with them new considerations for part repairability. These new materials and construction methods may have a significant effect on your repair decisions. Joining Methods One type of OEM joining method that is gaining popularity is laser welding. Laser welding is a process that uses the heat of a laser beam to fuse two panels, typically without the use of filler metal. Some vehicle makers use laser welding in areas where gaining access to both sides of a panel joint is challenging. These areas include trunk floor-to-rear rail joints, and floor pan-to-front rail assembly joints, windshield pinchwelds, and roof panel joints (see Figure 1).

Figure 1 - These are laser welds along the A-pilllar on the 2004 Audi A8. Laser welds are used on the Audi where thin sheet aluminum attaches to extruded or cast aluminum parts.

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Because this process currently cannot be duplicated during collision repairs, the laser-welded panel is typically removed by grinding the laser welds away with a cutoff wheel, and replacing them with plug welds, slot welds, adhesives, or a combination of these processes. The use of laser-welded joints can reduce the vehicle weight by reducing the number of flanges. Laser welds can also increase the stiffness of the structure. Laser welds are also used to form tailor-welded blanks. This type of construction joins thinner gauge metal to thicker gauge metal for collision energy management purposes (see Figure 2). Tailor-welded blanks may also incorporate different alloys of the same or different thicknesses to increase the strength of an assembly without the need to add internal reinforcements.

Figure 2 - This tailor-welded blank is on the rear rail of the 2005 Volvo XC90. To maintain the integrity of the tailor-welded joint, most vehicle makers are recommending sectioning away from the laser-welded joint, leaving the laser weld intact. For example, on the 2006 Audi A3, the sectioning joint for the lower front rail is several centimeters ahead of the laser-welded factory seam. Advanced High-Strength Steel Vehicle makers are continuously looking for ways to reduce vehicle weight while maintaining or increasing part strength. To accomplish this, there is an increasing presence of advanced high-strength steel (AHSS) in vehicle construction. AHSS body panels are not necessarily lighter when compared to lower-strength steel body panels of the same size and thickness. The weight savings is accomplished by reducing the thickness of the AHSS panel. If stronger steel is used, the panel can be made thinner while maintaining the same strength of a thicker, lower-strength steel panel. Some of these types of steel include dual-phase steel (400–600 MPa), high-strength steel alloyed with boron (1500 MPa), high-strength, low-alloy steel (upward of 700

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MPa), and a number of other advanced high-strength steels. Recent encounters with some of these advanced steels have provided some unique repair challenges. It may be difficult to cut and drill. It is very difficult, if not impossible, to straighten, and also weakens when exposed to heat. Therefore, many pose the question, "Can this material be repaired or sectioned?" The answer is yes, but it is dependent on the vehicle maker’s recommendations. For example, the 2005 Volvo XC90 has B-pillar reinforcements and inner and outer lower rear body panels made from ultra-high-strength steel alloyed with boron (see Figure 3). Each of these panels can be sectioned. The rear body panels have a choice of three sectioning locations. The B-pillar reinforcement can be sectioned about 100 mm from the roof rail. Always refer to the vehicle maker‘s recommendations before attempting a sectioning procedure on AHSS panels.

Figure 3 - The 2005 Volvo XC90 has an ultra-high-strength steel B-pillar that is alloyed with boron. Volvo has specific recommendations regarding the repair of this high-strength steel part. Laminated Steel To reduce the amount of noise in the passenger compartment, some vehicle makers are adding laminated steel to their vehicle designs. Laminated steel is basically two pieces of cold-rolled steel with a layer of visco-elastic polymer sandwiched between them. Examples of vehicles that have laminated steel include the 2001 Ford Explorer Sport Trac, the 2004 Ford F-150, and the 2006 Cadillac CTS and DTS. All have laminated steel in the cowl (see Figure 4), but some vehicles may have it in the floorpan, such as the Chrysler Town and Country "STOW 'N GO" seating system. To date, there are no sectioning recommendations available for this type of material. Repair recommendations require complete replacement at factory seams. The attachment methods of laminated steel vary. The vehicle maker may recommend GMA (MIG) welding, adhesive bonding, or rivet bonding.

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Hydroformed Parts Hydroformed parts have a tubular design with no flanges. They’re formed by forcing high pressure fluid through a steel tube. The tube is inside a die, and as the tube expands from the pressure of the fluid, it takes the shape of the die and forms the part. There has been speculation that perhaps these parts cannot be sectioned. This is not the case. There are several vehicle makers that offer sectioning procedures for their hydroformed structural parts.

Figure 4 - The cowl panel of this 2006 Cadillac DTS is made from laminated steel. There are no sectioning procedures available. Several full-frame vehicles now have partial part replacement procedures from the vehicle makers for hydroformed frames. Examples include the front frame on the 2002 Oldsmobile Bravada and the upper fender rail and shotgun rail on the 2004 Dodge Durango (see Figure 5). There are also a number of other sectioning procedures available. Always follow the vehicle maker’s recommendations when sectioning any hydroformed parts. In addition to providing partial replacement guidelines for hydroformed frames, many vehicle makers have come onboard in regard to providing sectioning procedures for many of the non-hydroformed sections of the frames on their full-frame vehicles. From frame tips to rear H-sections, several vehicle makers have developed alternatives to replacing frames that have damaged areas that are unrepairable (see Figure 6). When sectioning full frames, however, make sure the welder being used has the capability of welding thicker gauge metal, and make sure to use the recommended electrode wire type and diameter. Recommended Sectioning Joints Two types of sectioning joints commonly used include the open butt joint, or butt joint with insert. If inserts are used, follow the vehicle maker’s recommendation for the insert length and attachment method. Some vehicle makers recommend that the insert be plug welded on either side of the continuous weld that closes the sectioning

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joint, while others recommend a short insert that functions as a weld backer only. Some replacement parts, such as the replacement crush cap for the GM C/K trucks and SUVs, ship the replacement part with the insert already welded into the end.

Figure 5 - The front frame assembly on this 2002 Oldsmobile Bravada is a hydroformed frame with vehicle maker sectioning procedures.

Figure 6 - DaimlerChrylser has sectioning procedures available for the hydroformed fender rail and shotgun rail. The procedure can be accessed at www.i-caronlinetraining.com. Vehicle Maker Partial Part Replacement Recommendations When making repair or replace decisions, it is recommended to follow the vehicle maker recommendations. Many of the OEM web sites can be accessed online for a nominal fee. Visit this I-CAR web page for a list of vehicle maker web links: http://www.i-car.com/html_pages/about_icar/industry_links/technical_info.html

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Some vehicle makers have specific statements about sectioning structural parts on their vehicles. For example, Honda recommends replacing parts at factory seams unless otherwise stated in a Honda body repair manual. DaimlerChrylser has a similar statement and Toyota has stated that they do not want sectioning procedures performed on their full-frame vehicles. Conclusion New construction materials and construction processes have presented unique repair challenges to the collision industry. However, many vehicle makers are providing guidelines on how to make a safe and quality repair that doesn’t affect the safety or performance of these innovative designs.

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COLLISION REPAIRS ON THE ALL-NEW VOLVO S40/V50 (January 24, 2005) The all-new Volvo S40 sedan and V50 wagon have the most advanced bodydesign in the current Volvo range. The new sedan was introduced in mid-year 2004 and replaces the S40 that was last produced in model year 2004, thus the “all-new” S40. The S40 shares a new platform with the V50 wagon. The V50 is slightly longer than the S40 with the extra length behind the rear wheels (see Figures 1 and 2).

Figure 1 - This is the Volvo S40 sedan.

Figure 2 - This is the Volvo V50 wagon. This article highlights the body design and other points of collision repair interest on the Volvo S40/V50. Protecting The Passenger Compartment These models integrate different strengths of high-strength steels. A bumper reinforcement assembly with crush initiators in the lower rail extensions and tailor-welded blank construction serve as planned deformation stages in a frontal collision.

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These, and other body engineering features, are designed to protect the passenger compartment. The first deformation stage is the front bumper rail assembly called a “crashbox.” The crashbox will absorb collision energy up to about 16 km/h (10 mph). The reinforcement outer panel is high-strength steel. The inner panel is ultra-high-strength steel alloyed with boron. There is a similarly designed crashbox on the rear. These crashboxes and the door guard beams are the only locations for ultra-high-strength steel alloyed with boron. There are no repairs allowed on either the crashboxes or the door guard beams. They are replaced as bolted-on assemblies. The crashboxes are bolted onto the rails (see Figure 3).

Figure 3 - Three bolts on each side hold the front crashbox to the front lower rails. Two high-strength steel crossmembers also play a part in diverting collision energy away from the passenger compartment. These include the lateral crossmember and a crossmember tube included as part of the instrument panel (see Figure 4). These two crossmembers form a box-like structure in the front that reduces the chance of the rails from bending inward in a frontal collision. The collision energy is transferred across the vehicle, compressing the lateral crossmember and creating tension on the crossmember tube. The compression and tension on the crossmembers offset each other, keeping the structure from bending inward (see Figure 5). Considerations For Repair Anyone who has tried to cut through ultra-high-strength steel alloyed with boron can appreciate the fact that there are no repair recommendations on the crashboxes or door guard beams. There are other indications that Volvo designers were listening to repair technicians in the field when planning the S40/V50 models.

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Figure 4 - This high-strength steel tube crosses the full width of the vehicle and is bolted to each A-pillar.

Figure 5 - The S40/V50 platform is designed for compression and tension rather than bending. Removal of the headlamps could not be easier. A single locking plate, pulled straight up by hand, releases the entire headlamp assembly (see Figure 6). The connector is disconnected and the assembly can be removed. Releasing a headlamp from earlier model sedans is a multi-step process. Removing the outer door handles, a common task during repairs, is also simple. A plastic plug on the door shell is pried off, revealing a screw (see Figure 7). The screw is turned four-to-five times to release the lock cylinder and handle. Also on the door shell, the door glass regulator is contained in a cassette that is removed as one unit (see Figure 8). There is no paper or plastic vapor barrier to remove to access the regulator. The glass is easily removed first by pulling out two rubber plugs in the cassette and loosening two bolts.

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Figure 6 - The headlamp assembly is easily removed.

Figure 7 - Behind the plug on the inner door shell is a screw that releases the lock cylinder and door handle. Any technician who has tried to remove an instrument panel alone will appreciate the special bolts shown in Figure 9. These bolts are installed in place of the top bolts. They allow the instrument panel to be pulled directly back and rest on the bolts while the remaining bolts and connectors on the panel backside are removed.

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Figure 8 - The door cassette, which contains the window regulator, is removed from the door shell.

Figure 9 - Removing an instrument panel becomes a lot easier when you can rest it on holders while you are removing bolts and connectors from the panel backside. Structural Repairs The Volvo service information includes several recommendations for partial replacement of the structural parts. The inner front lower rail service part has two optional cut lines for sectioning. Both cut locations avoid the inner reinforcement and the laser weld. There are also sectioning recommendations for the A-pillars, rocker panels, rear rails, and trunk floor. Specifications are listed in the Volvo service information.

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Advanced Restraint System The latest in restraint system technology is featured on the S40/V50. The passenger seat features an occupant classification system, which determines whether or not to deploy the passenger airbag depending on how much weight is detected in the seat. The parts of this system, including the bladder, weight sensor, and pressure sensor, are all replaced as one kit that includes the passenger seat foam. The parts are not serviced separately. There are seat position sensors at the bottom of both front seats, which also help determine the size of the occupant. The front seat belts are not only equipped with pre-tensioners, but also adaptive force limiters. These assemblies modify the seat belt force on the chest to one of three levels based on the seat position, how far the seat belt is unrolled, and the severity of the collision. As in all late-model Volvo vehicles, the S40/V50 also feature side airbags in the front seats, full-length side-impact curtain airbags on both sides, and a whiplash protection system to reduce the severity of neck injuries in a rear-end collision. Steering System Two highlights of the steering system on the S40/V50 are the adaptive collapsible steering column and the power steering pump.

Figure 10 - The electro-hydraulic power steering assembly is located just behind the front bumper rail on the right side. The S40/V50 steering column collapses at two U-joints, moving the steering wheel inward. There is also a pyrotechnic charge on the steering column that deploys a pin, allowing the steering wheel to move closer to the instrument panel. The pin deploys only if there is a driver airbag deployment and the driver seat belt is in use. If the

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steering column collapses or the pyrotechnic charge deploys, the complete column must be replaced. The power steering pump is electro-hydraulic. The hydraulic pump is driven by its own electric motor instead of the engine. This makes the power steering function more independent, allowing consistent steering efforts regardless of engine load or even engine operation. The electro-hydraulic, power-assisted steering assembly, which includes a control module, motor, pump, and fluid reservoir, is located directly behind the front bumper rail on the right side (see Figure 10). Tests have shown that the unit will likely not be damaged in a 16 km/h (10 mph) collision. Conclusion The S40/V50 is a new platform for Volvo. Repair technicians who have worked on Volvo vehicles will find some things familiar and some things new.

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Appendix C— Extracts from the minutes of the STAYSAFE Committee regarding the inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme This appendix contains relevant extracts from the minutes of STAYSAFE Committee meetings of:

• Wednesday 16 November 2005

• Monday 5 December 2005

• Tuesday 6 December 2005

• Wednesday 7 December 2005

• Monday 19 December 2005

regarding the inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme.

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No. 53/37

STAYSAFE PROCEEDINGS OF THE JOINT STANDING COMMITTEE ON ROAD SAFETY 10:00 A.M., WEDNESDAY 16 NOVEMBER 2005 AT PARLIAMENT HOUSE, SYDNEY MEMBERS PRESENT Legislative Council Legislative Assembly Mr West Mr Gibson Mr Maguire Mr Barr Mr Bartlett

Also in attendance: Mr Faulks, Manager of the Committee, and Ms Yeoh, Assistant Committee Officer.

The Chairman presiding. 1. Apologies Apologies were received from Mr Tingle, Mr Colless, Mr Souris, Ms Hay and Mr Hunter. …. 4. Inquiry into safety and the NRMA Insurance and IAG Preferred

Repairer Scheme The Chairman reported that by resolution of the Legislative Assembly the STAYSAFE Committee is to inquiry into safety and the NRMA Insurance and IAG Preferred Repairer Scheme. The terms of reference of the resolution require the Committee:

… to inquire into motor vehicle smash repairs under the Preferred Repairer Scheme operated by the NRMA and IAG Insurance, and the risk to safety arising from:


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(4) The NRMA Insurance and IAG employing unqualified smash repair assessors to photograph and help administer vehicles for repair.

The Chairman noted that the Legislative Assembly resolution was in accord with the joint resolution of the Legislative Assembly and the Legislative Council establishing the STAYSAFE Committee which states, inter alia, that as an ongoing task, the Committee is to review and report on counter measures aimed at reducing deaths, injuries, and the social and economic costs to the community arising from road accidents. The inquiry into safety and the NRMA Insurance and IAG Preferred Repairer Scheme was advertised on Saturday 22 October 2005 in the Sydney Morning Herald, Daily Telegraph, and the Australian, with a closing date for submissions on Friday 4 November 2005. Just under 100 submissions and supplementary submissions have been received. The Committee discussed possible dates for hearings regarding the inquiry into safety and the NRMA Insurance and IAG Preferred Repairer Scheme. It was agreed that possible dates could include:

• Monday 28 November 2005 • Monday 5 December 2005, and dates later in that week.

…. 7. General business … There being no further business, the Committee adjourned at 10:40 a.m.. Chairman Committee Manager

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No. 53/38

STAYSAFE PROCEEDINGS OF THE JOINT STANDING COMMITTEE ON ROAD SAFETY 10:00 A.M., MONDAY 5 DECEMBER 2005 AT PARLIAMENT HOUSE, SYDNEY MEMBERS PRESENT Legislative Council Legislative Assembly Mr Colless Mr Gibson Mr Barr

Mr Bartlett Mr Hunter

Ms Hay Mr Souris

Also in attendance: Mr Faulks, Manager of the Committee, Mr Jefferis, Senior Committee Officer, Ms Phelps, Committee Officer, and Ms Yeoh, Assistant Committee Officer.

The Chairman presiding. 1. Apologies Apologies were received from Mr West, Mr Tingle and Mr Maguire. 2. Hearing for inquiry into safety and the NRMA Insurance and IAG Preferred

Repairer Scheme The public were admitted.

Michael Hawker Insurance Australia Group

was called and sworn. The witness was examined by the Chairman and Members of the Committee. Evidence concluded, the witness withdrew.

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Ricky Jackson Insurance Australia Group

was called and sworn. The witness was examined by the Chairman and Members of the Committee. Evidence concluded, the witness withdrew. The Chairman declared that evidence would be taken in camera. 3. In-camera hearing for inquiry into safety and the NRMA

Insurance and IAG Preferred Repairer Scheme The public were excluded. … 4. Public hearing for inquiry into safety and the NRMA Insurance

and IAG Preferred Repairer Scheme The public were re-admitted.

Steve Wilson Insurance Australia Group


Mr Greg Henson St George Sutherland Shire Repairers Group


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Mr Graham Moore Mosman Smash Repairs Pty Ltd


Mr Richard Nathan Nathans Prestige Autobody Repairs Pty Ltd

was called and sworn. The witness was examined by the Chairman and Members of the Committee. Evidence concluded, the witness withdrew. The public were excluded. The Committee deliberated. 5. General business There being no further business, the Committee adjourned at 4:50 p.m.. Chairman Committee Manager

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No. 53/39

STAYSAFE PROCEEDINGS OF THE JOINT STANDING COMMITTEE ON ROAD SAFETY 10:00 A.M., TUESDAY 6 DECEMBER 2005 AT PARLIAMENT HOUSE, SYDNEY MEMBERS PRESENT Legislative Council Legislative Assembly Mr Colless Mr Gibson Mr West Mr Barr

Mr Bartlett Mr Maguire

Ms Hay Mr Souris

Also in attendance: Mr Faulks, Manager of the Committee, Ms Phelps, Committee Officer, and Ms Yeoh, Assistant Committee Officer.

The Chairman presiding. 1. Apologies Apologies were received from Mr Tingle and Mr Hunter. 2. Public hearing for inquiry into safety and the NRMA Insurance

and IAG Preferred Repairer Scheme The public were admitted.

James Laurence McCall Gregory Coli Motor Traders Association of New South Wales

were called and sworn. The witnesses were examined by the Chairman and Members of the Committee. Evidence concluded, the witnesses withdrew.

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Alan John Mason Insurance Council of Australia

was called and sworn. The witness was examined by the Chairman and Members of the Committee. Evidence concluded, the witness withdrew. The Chairman declared that evidence would be taken in camera. 3. In-camera hearing for inquiry into safety and the NRMA

Insurance and IAG Preferred Repairer Scheme The public were excluded. … 4. General business There being no further business, the Committee adjourned at 2:20 p.m.. Chairman Committee Manager

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No. 53/40

STAYSAFE PROCEEDINGS OF THE JOINT STANDING COMMITTEE ON ROAD SAFETY 10:00 A.M., WEDNESDAY 7 DECEMBER 2005 AT PARLIAMENT HOUSE, SYDNEY MEMBERS PRESENT Legislative Council Legislative Assembly Mr Colless Mr Gibson Mr West Mr Barr



The Chairman presiding. 1. Apologies Apologies were received from, Mr Tingle, Ms Hay, Mr Souris and Mr Hunter. 2. Public hearing for inquiry into safety and the NRMA Insurance

and IAG Preferred Repairer Scheme The public were admitted.

James Alexander Strong Insurance Australia Group


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Michael Graham Doveton Kay Ronald William Arnold AAMI


Nicholas Scott Scofield Jennifer Maree Lambert Keith Edwin Dean Allianz Australia


Kenneth Raymond Holland Phillip Edward Marks Ronald Callaghan Institute of Accident Assessors


Gunther Jurkschadt Matthew John Perfrement Auto Parts Recyclers Association Australia


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Gerry Raleigh Accident Solutions

was called and sworn. The witness was examined by the Chairman and Members of the Committee. The Chairman declared that additional evidence would be taken in camera. 3. In-camera hearing for inquiry into safety and the NRMA

Insurance and IAG Preferred Repairer Scheme The public were excluded. … 4. General business There being no further business, the Committee adjourned at 2:55 p.m.. Chairman Committee Manager

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No. 53/41

STAYSAFE PROCEEDINGS OF THE JOINT STANDING COMMITTEE ON ROAD SAFETY 9:00 A.M., MONDAY 19 DECEMBER 2005 AT PARLIAMENT HOUSE, SYDNEY MEMBERS PRESENT Legislative Council Legislative Assembly Mr Colless Mr Gibson Mr West Mr Barr


Ms Hay Mr Souris Mr Hunter


The Chairman presiding. 1. Apologies Apologies were received from Mr Tingle. …. 4. Consideration of Chairman's draft report: 'Repairing to a price,

not a standard: Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme and its implications for roadworthiness, crashworthiness, and road safety'

The Chairman presented the draft report: 'Repairing to a price, not a standard: Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group

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(NRMA Insurance) Preferred Repairer Scheme and its implications for roadworthiness, crashworthiness, and road safety'. The draft report was accepted as being read. The Committee proceeded to deliberate on the draft report: Chapter 1 Paras. 1.1 – 1.19: read and agreed to Chapter 2 Paras. 2.1 – 2.91, read and agreed to Chapter 3 Paras. 3.1 – 3.61, read and agreed to Chapter 4 Paras. 4.1 – 4.121: read, amended and agreed to Recommendation 1: read, amended and agreed to Recommendations 2-4: read and agreed to Recommendation 5: read, amended and agreed to Recommendations 6-7: read and agreed to Recommendations 8-9: read, amended and agreed to Recommendation 10: read and agreed to Recommendations 11: read, amended and agreed to Recommendations 12-15: read and agreed to Recommendation 16: read, amended and agreed to Recommendations 17-18: read and agreed to Recommendations 19-20: read, amended and agreed to Recommendation 22: read and agreed to Recommendation 24: read, amended and agreed to On the motion of Mr Colless, seconded Mr Hunter:

That a new recommendation be inserted regarding ‘crashworthiness auditors’. Passed unanimously. Recommendation 25: read and agreed to Recommendations 26-28: read and agreed to Recommendations 29-43: read and agreed to Recommendation 44: read, amended and agreed to On the motion of Ms Hay, seconded Mr Barr:

That the draft report: 'Repairing to a price, not a standard: Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme and its implications for roadworthiness, crashworthiness, and road safety', be read and agreed to.

Passed unanimously.

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On the motion of Ms Hay, seconded Mr Barr:

That the draft report: 'Repairing to a price, not a standard: Report of an inquiry into motor vehicle smash repairs under the Insurance Australia Group (NRMA Insurance) Preferred Repairer Scheme and its implications for roadworthiness, crashworthiness, and road safety' be accepted as a report of the STAYSAFE Committee, and that it be signed by the Chairman and presented to the House.

Passed unanimously. On the motion of Ms Hay, seconded Mr Barr:

That the Chairman and Committee Manager be permitted to correct any stylistic, typographical and grammatical errors in the report.

Passed unanimously. …. 6. General business … There being no further business, the Committee adjourned at 10:40 a.m.. Chairman Committee Manager

Documents

STAYSAFE 66 - NRMA Insurance motor vehicle smash repairs.d....Group-approved smash repairers have access to the bid process, and a further filter is imposed by limiting the bids to