Suncorp repairers move fraught with problems, claims industry

The move, which will see Suncorp's national insurance brand AAMI switch to a two-quote competitive tendering system from July 1, has caused consternation among the industry's representative groups, the Motor Traders' Associations.

One of the peak bodies, the MTA of NSW, says the attempt to drive down costs by sourcing volume discounts on parts and labour could put at risk the quality and safety of the repairs to be done.

The MTA's chief executive, James McCall, also raised concerns that the system would encourage smash repairers to undercut each other by such an extent that the work would prove uneconomic for Suncorp in the long-term.

"Repairers will quote low on the job and as a result they could take short cuts," Mr McCall told BusinessDay. "Repairs that then have been done very shoddily will have to be repaired so that a job that initially cost $3000 to $4000 could cost another $6000 [to fix up]."

Not only would the long-term bill be more expensive - therefore completely undermining Suncorp's aims - but it could also make vehicles "unsafe", he said.

His comments echo the controversy that embroiled the attempts by NRMA Insurance, owned by Suncorp's main rival Insurance Australia Group, to squeeze the costs of its car repairers in 2006 and 2007.

Its internet-based bidding system using company-selected smash repairers led to a revolt within the industry. It also caused consternation among NRMA customers who were required to drive long distances to centres which had tendered the lowest for the work.

As well as suffering major damage to its brand, NRMA lost millions of dollars of business before it dropped the system.

Suncorp, which spends $1.5 billion repairing 500,000 cars a year, says it is seeking to avoid what happened to IAG by "building partnerships" with the industry - a move that has been praised by Mr MCall who readily gives the company credit for its negotiating approach.

A similar tendering system operates in Britain. It was set up by Suncorp's recently appointed chief, Patrick Snowball, when he worked for the British insurer Aviva.

"In terms of what we're doing in Australia, I think you'll find it is different to the NRMA scheme," Mr Snowball told a company briefing to investors 10 days ago.

Describing the MTA and other state bodies as "key stakeholders" in the new system, Mark Milliner, the head of Suncorp's personal insurance business that includes the AAMI, GIO and Suncorp brands, said it was essential for the group to work with the industry.

"The interesting thing from their [the MTA's] perspective was what we would do around choice of repairer as opposed to processes per se," said Mr Milliner.

"They think it was a good idea for us to consolidate but they really want us to retain choice of repairer. Obviously our multiple brands give us this ability, which didn't exist before [and] didn't exist with NRMA. GIO and Suncorp can have that choice of repairer. We'll charge appropriately for it and they're very happy with where we are."

Mr Milliner said there was no intention of cutting out industry bodies from the negotiations over its plans for AAMI. "It's important that we continue to talk to them," he said.

Analysts have praised the efforts to streamline the operations of Suncorp's car and home insurance businesses, including its plans to cut costs, but have raised doubts how effective the move might be.

Referring to the new vehicle claims system, Citigroup said in a note to clients: "In theory, this works and sounds great. However, in reality, several problems have been observed in the past when others have attempted to do this."