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Courtesy cars: Why the insurers have got it wrong

For years, insurers have focused on offering drivers the cheapest premiums as a way of winning business. But a new report suggests they should really be offering better services. A survey of 300 drivers across the UK found that just 33% think price is the most important factor when buying motor insurance while 25% are unhappy with the services they receive. Their biggest complaint is about courtesy cars – usually the lack of one.

Professor Merlin Stone, of Bristol Business School who published the report, says: “The messages drivers receive from insurers revolve around cost and how much money people can save by switching companies. However, this survey shows that policy holders want to hear about customer service.”

And this customer service rears its head when the driver is involved in a crash. Courtesy cars were found to be an emotive issue. Research showed 91% of drivers wanted a guaranteed replacement vehicle delivered to them whenever it was required.

And 56% thought the provision of a replacement vehicle of a similar model to their own was important. “A claimant's top priority after an accident is the provision of a replacement vehicle but only 40% of them were provided with a car while their own was being repaired,” says the report. “Of this figure, 45% are provided with a replacement vehicle of an inferior model.”

With insurers pressuring bodyshops to provide courtesy cars free of charge, some drivers feel they are being given an unsatisfactory service. One driver was unhappy after being given a Ford Focus as a replacement for his BMW 3-series Touring.

He told the report: “You pay your premium to cover you if you claim, so the only time you really use the service is if you claim, then it needs to be spot on, as that is the only time you get to know how good your insurer is.”

Once a customer has claimed, their priorities change so price is no longer the most vital element when choosing an insurer. The prevailing attitude ceases to be the cheapest price whatever the service level. It moves towards the highest level of service at an affordable price.

Professor Stone says providing an equivalent replacement car can improve the customer's attitude towards an insurance company. Sometimes it can make the difference between a renewal and a lost customer. For insurers offering the option of a higher quality replacement car, the impact on the renewal rate could be enormous. Fifty per cent of drivers offered a car better than their own were more likely to choose that company as their next insurer.

Stone is calling on repairers to get tough with insurers and for the insurers to stop selling on price. “Customers expect a standard package of benefits that gives clear guarantees in terms of how they will be treated. Our report shows that people will be prepared to pay a little more for these.

He believes insurers need to examine how they generate loyalty, perhaps by creating a two-tier system of service that provides long-standing customers with rewards.

“This report is good news for bodyshops. It gives them the evidence they need to negotiate new terms with insurers over the provision of courtesy cars,” Stone says. And he urges bodyshops that receive complaints about the standard of courtesy cars to ask the customer to go direct to the insurer.

Some insurers are already working on new initiatives to address the issue of courtesy cars by offering a replacement vehicle of equal value to improve customer retention and boost loyalty.

Rural Insurance is working with Enterprise Rent-A-Car to provide product called Flex-e-Hire. This allows bodyshops working with Rural to source a courtesy vehicle through Enterprise and means its customers get access to a C-segment replacement vehicle for 21 days a year if their own vehicle is off the road because of theft, fire, damage or loss.

Lance Harvey, Rural Insurance managing director, says: “Our clients can be sure that whatever the damage claim they can remain mobile in comfort without being shoe-horned into a tiny courtesy vehicle.”

For bodyshops, the thorny issue of courtesy cars looks set cause problems. The very nature of the industry means two-thirds of body repair work occurs in the five-month period between November and March with 35% of repair demand spread over the remaining seven months of the year.

Most bodyshop courtesy car contracts are for 12 months, which means they must have sufficient courtesy cars to fulfil demand during the peak winter period, but are then forced to carry this same overhead burden for the rest of the year when demand turns down during the lean summer months.

Robert Macnab, author of the Car Body Repair Market Report, says: “Bodyshops need flexible courtesy car contracts either of six-month duration or they should operate a minimum fleet based on the average monthly repair volume, topped up by flexible rental packages to meet the peak winter demand.”

Currently courtesy cars are a fixed annual or monthly overhead when bodyshops really need them into a variable or semi-variable cost that fluctuates in line with changes in repair demand,” says Macnab. Bodyshop overheads - including courtesy cars, free collection and delivery of customers' cars plus the non-productive staff requirement needed to administer theses free services – account for 30% of the average repair cost.

“You don't have to be a rocket scientist to work out that if bodyshops could reduce this overhead cost burden, they would be much more profitable,” Macnab says. There are no official figures for the number of courtesy cars being used by bodyshops. Experts say that the mix of insurance work in small bodyshops is low while large bodyshops are almost 100% insurance work. The UK's 1,480 franchised have access to their own dedicated courtesy cars.

Industry experts estimate the number of courtesy cars on the road could range from between 55,000 to 70,000. Sewells research consultant Chris Oakham reckons it costs just under £4,000 a year to run a small 1.1-litre car as a courtesy vehicle.

But as any bodyshops manager knows there are further costs including insurance cover, petrol costs, customising, traffic tickets and repairing minor damage that could add an extra £1,000 to the yearly outgoings.

Matt Lawson, vice-president of rental for Enterprise Rent-A-Car, suggests one way to reduce cost is to reduce the fleet size and use daily rental schemes during peak season. “Another way would be for the bodyshop to share the cost with the parts department.” So what is the future for bodyshop courtesy cars? Well unless insurers start paying for this 'free' service, bodyshops will have to take serious steps to reduce the effect of the enormous cost burden involved. Some costs can be avoided if bodyshops install appropriate systems to monitor and manage utilisation. Only by doing this can control be exerted.

But it the end, it will mean customers continue to be offered budget cars to replace their executive ones. And that will continue to result in widespread dissatisfaction.

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