The auto industry is such a vast market (estimated at $700 billion worldwide), that automobile owners will always represent substantial market demand for insurance risk products and claims to be processed. There are two huge markets for CollisionSyzygy to harvest: personal and commercial lines of insurance. Within those two massive lines of business fall the many segmented markets, from vehicle manufacturers, fleet leasing, banks and lending institutions, and even the vendors (who supply the parts to fix the vehicles), to government at all levels.
Competitors for the market all seem to agree that technology, which includes advanced software and Internet gateways, is the key to capturing and processing this high volume business. The savings that result for insurance carriers is the attraction that is building the industry. Those firms that can rapidly develop and host the technologies needed to enhance profits for the insurance companies and new-entrant banks and lending institutions will prevail as the industry leaders. CollisionSyzygy is positioned, in this regard, to be the premier provider of generic services.
CollisionSyzygy positions itself as a service provider to insurance companies, auto repair shops, and auto salvage firms. The company focuses its market offerings on these segments because they are believed to be the most receptive to CSI's value proposition. In the future, another customer segment, which includes banks and other lending institutions, will be targeted to increase the revenue stream.
The obvious place to begin target marketing is where such marketing can effectively assist in building the services platform that can be employed to enter other market segments later on. CollisionSyzygy, Inc. is pursuing the expansion of its body shop network to take advantage of insurance company claims which are geographically positioned on a national basis. This, in turn, will attract more insurance company accounts. Currently, the insurance industry is being segmented as Personal Casualty and Business Casualty. CollisionSyzygy will concentrate on the Personal Casualty side at this time. As it expands the number of insurance company accounts that see it as a resource for Personal Casualty, CSI is only a step away from convincing these same accounts to utilize its services on the commercial Business Casualty side. The ground that has already been covered in order to acquire personal casualty accounts does not need to be travelled a second time in capturing the commercial side accounts.
The salvage market segment is born from a need to dispose of non-repairable vehicles on behalf of the insurance company.
These three market segments need to be expanded to perfect the services platform and increase the financial resources of CollisionSyzygy. Using technology-based claims processing services will make it easier for CSI to enter additional market segments and to more efficiently process the business that arises from it, making CSI more profitable and reliable in the delivery of its services than its competitors.
Banks, other lending institutions, and leasing market segments will have great need to process claims on vehicles that they finance. They will not want to increase operating overhead to process these claims internally and will look to the TPA to handle claims on a cost-efficient basis.
Vehicle manufacturers will have a need to settle claims on damaged vehicles, very similar to the Fleet Leasing market segment.
Many of the vendors used in the claims settlement process become an excellent market segment to capture and involve in the process. Revenues can be generated for CollisionSyzygy in making referrals to these "outside vendors." Examples include glass vendors, aftermarket and used parts vendors, and mobile services.
Finally, a vast market to handle claims for Government agencies could prove very profitable for CollisionSyzygy.
In designing and creating its concept, CollisionSyzygy has focused on what needs are satisfied by the offering of its services to each of its target markets. Here is a brief look at each segment and what CollisionSyzygy offers.
Repair Facilities. Since CollisionSyzygy brokers the insurance company's claim to a member repair facility, the repair shop benefits from a steady stream of referrals without the need to spend money on its own marketing and advertising program. This increases revenues and profits.
Salvage. To reduce the costs of settling a claim, the insurance company must sell non-repairable vehicles. This is a very specialized marketplace that requires that many potential buyers be identified and the best price accepted. This process must be swiftly conducted in order to further reduce the the insurer's costs of vehicle storage. CSIs network of foreign buyers, salvage companies, private parties, and used parts companies can satisfy this need. Add the Internet as a public auction system, and you deeply magnify the ability of finding a buyer rapidly who will pay the highest possible price.
Insurance Company. The use of CollisionSyzygy offers numerous benefits that cannot be ignored by the insurance company client:
Fleet Leasing, Banks/Lending Institutions, and Vehicle Manufacturers. In addition to many of the benefits mentioned above, these market segments benefit from outsourcing vehicle inspections and repairs on vehicles that are self-insured.
Traditional insurance distribution has generally consisted of either independent or captive agents distributing insurance products and assisting the insurance company in servicing product claims. While this model is still predominant, increasing pressure is changing the direction of the claims processing business. A trend towards outsourcing the process to TPAs is eliminating the extra cost associated with sales commissions and in-house claims processing. Hence, the birth of the Direct Response industry seems very healthy and long lived. It is this latter approach that defines the vision of CollisionSyzygy.
According to A.M. Best and Company, an insurance company directory and ratings service, in 1995, there were over 3,350 property and casualty insurers in the United States. Annual premium collected by these companies is $270 billion. Premiums collection is growing at three percent annually. Approximately 47%, or $126 billion, is written for automobile insurance.
Each year, an average of 11% of automobile and light truck policyholders file claims on 150 million vehicles. In 1994, the insurance industry paid $23.6 billion to repair shop facilities, another $13 billion was paid for total loss claims, and $40 billion was paid for personal injury claims.
In 1996, the costs of the claims administration process was over $12 billion. Claims processing expense and claims payment expense amounted to 78.3 cents of every premium dollar collected by insurers in 1996. At present, the claims outsourcing marketplace is estimated to be $3 billion.
In a world of ever-increasing specialization, caused by the need to minimize costs, the industry is positioned to take its fair share of this huge insurance market and the enormous revenue dollars available. In the past, large insurance companies maintained sizeable resources and staff to process claims in-house. It is becoming obvious to the profit and loss statements of most insurance carriers, both large and small, that outsourcing the claims activity can produce greater profits to the bottom line. Yet, the conversion of internal processing departments to outsourcing to direct response companies, like CollisionSyzygy, has only begun. Only 12% of the U.S. auto market is serviced by direct response companies. This is expected to grow to nearly 20% by 2005.
The rapidly changing automobile insurance marketplace is experiencing price constraints as a result of increasing competition and regulatory activity. At the same time, policyholders are demanding ever-higher levels of customer service. Competitive pressures and resistance by policyholders and regulators to premium increases are causing insurance companies to focus on cost management.
The insurance industry's focus on cost management has been accompanied by an increasing recognition that it is far easier and more cost effective to retain an existing policyholder than to attract a new customer away from a competitor. Dissatisfaction with the claims handling process is cited frequently as a cause of policy non-renewal.
Automobile insurers need to increase consumer satisfaction through a faster, more efficient claims handling procedure. This has led many property and casualty insurers to use third party administrators to provide certain functions or services that the insurers historically performed in-house. This allows the insurance carrier to focus on core competencies, reduce costs, and avoid the significant investment associated with developing, installing, operating, and maintaining information management and automation systems.
Recent U.S. government legislation has further opened the market by allowing the banking industry to enter the insurance industry for the first time.
Insurance companies selling directly to policyholders are reducing sales commission costs by not having to compensate agents or brokers. This puts pressure on the pricing of policies to consumers, making it harder for insurers who use a sales distribution force to compete. By reducing claims processing costs, those companies using a sales force can compete more effectively with those who use direct sales channels.
In order for smaller insurance companies to compete with larger insurers, they need to achieve economies of scale resulting from large volume. The expense of setting up automated systems, processes, and the hiring and training of specialized personnel to handle claims processing, on a lower volume of claims, is prohibitive. By pooling the claims of many smaller insurance carriers, the third party administrator can provide the smaller company with the economies of scale to compete with larger insurers.
New market opportunities can be more readily sought by insurers who outsource the infrastructure that would otherwise need to be built internally to support the claims processing of these new markets.
Deregulation has allowed non-traditional, or "virtual" insurance companies to enter the property and casualty (P&C) marketplace. Examples are banks, credit unions, and other financial services companies who are underwriting P&C insurance. These new market entrants generally do not have policy and claims administration infrastructure or expertise in place and are natural candidates for outsourcing. This allows these virtual companies to concentrate resources and existing expertise on the core marketing, underwriting, and other financial aspects of the P&C insurance business.
Risk distribution often requires insurance companies to discontinue selling new policies in a particular market area in which they are over-concentrated. Rather than service this business internally, these policies are often outsourced for administration and claims processing until the concentration of policies diminishes or the book of business is sold to another carrier.
The real future growth of the industry has only begun to occur. Demographics will play a significant role. The baby boomer generation totals approximately 78 million people, and are approaching the age of 50. They are the largest single component of demand trickling through to the industry. They are a mature market with sizeable disposable income. Traditionally, this group has remained loyal to the larger insurance companies, who use internal claims processing. Examples of these companies are State Farm and Allstate.
The offspring of the baby boomers, the boomlets, is nearly as large a market as the boomers. The future growth of the industry will rely on the boomlets, a higher risk group who are now reaching driving age. They do not remain loyal to the traditional, large insurance carrier model and will channel their business through the medium and small insurance carriers, thus, companies. This generation will shop and bank through the Internet 24 hours per day, 7 days per week. This is where the banking and financial service industry will concentrate its marketing efforts, increasing the need for outsourcing services.
A.M. Best and Company performed a study indicating that the ten largest insured catastrophes occurred since 1989. Hurricane Hugo occurred in 1989, Hurricane Andrew in 1992, and the Northridge earthquake in 1994. Insurance carriers are decreasing their exposure in areas prone to natural disasters. New demand created by insurers leaving markets is absorbed by reinsurers and new market entrants who have not made major infrastructure investments and will not likely wish to do so. Claims outsourcing is very attractive to these new entrants and will enable them, as already mentioned, to enter new markets without incurring substantial fixed infrastructure costs.
The primary participants in the industry are large national firms involved in information delivery systems to many aspects of business. As such, few can be called "specialists" in the industry. CollisionSyzygy offers only one line of business - generic claims processing. While not the largest firm in the industry, CollisionSyzygy's focus and concentration will continue to develop its market presence and reputation as the firm that insurance carrier's will contact when a claim needs to be processed.
Body repair facilities will appreciate the fact that only CollisionSyzygy has a territorial program that preempts the need for marketing efforts (and costs) to acquire business. Not only does this save the costs of marketing, but it increases revenues because marketing time is transferred to body repair time. CSI is the one firm that is unifying the various information reporting "languages" so that claim reporting can be interpreted whether its source is ADP, Mitchell or CCC. Not all of CSI's steady technological developments have been noticed in the marketplace yet. But, its persistent and disciplined approach to building innovations with substance will make it a market leader in the very near future.
There are a number of competitors in the industry. Notwithstanding the possibility of future mergers and consolidations, none currently pose a serious threat to CollisionSyzygy. This is because none have mastered all facets of service delivery to the extent CSI has reached.
CCC Information Systems, Inc. is a national organization and provides the biggest threat to the industry due to its service approach to all three insurance company markets and is actively seeking bank entrants and new upstarts. CCC does have a network of certified repair shops. However, unlike CollisionSyzygy who, through its brokerage services provides business directly to its body shops, CCC's network must spend time and resources to market to the insurance carriers for the business they receive. Furthermore, CCC claim information is limited to the CCC platform. CollisionSyzygy can operate all three information platforms as mentioned earlier.
ADP is also a national firm which specializes primarily in repair estimating systems. Through its Claims Solutions Group, ADP offers automated collision estimating systems, a total loss valuation database, property loss estimating systems, electronic management reports, medical claims review software, and business management systems to the property and casualty insurance, automotive recycling, and collision repair industries.
Crawford & Company is an international provider of third party administrator services, concentrating on traditional claims and appraisal services to the property and casualty industry. Its services include claims management, loss adjustment, health care management, risk management services, class action administration, and risk information services. Crawford & Company is based in Atlanta and has approximately 10,000 employees worldwide, operating over 700 offices in 65 countries. The corporation's shares are publicly traded on the New York Stock Exchange under the symbols CRD.A and CRD.B.
Gallagher Bassett is another national firm serving primarily as a third-party administrator. Again, they have no program nor a program to deal with salvage.
INSpire Insurance Solutions is another third-party administrator. It does not have a salvage disposal program.
Carstation.com was founded in October, 1998 in San Francisco, California. Thus far, it has focused on parts ordering by its network of body shops. Its primary success has been its ability to raise large sums of capital from investors.
Acar.net (Automotive Care & Repair Network) is a "virtual" provider with a network of body shops. It does not have an program nor is its network even managed by Acar.
Copart is a third party administrator offering an online salvage auction. Currently, its fees are much higher than CollisionSyzygy's. Further, where CSI's sales are nearly instantaneous, Copart's sales take extra time to clear. Copart Salvage Auto Auctions, founded in 1982, provides vehicle suppliers, primarily insurance companies, with a capability to sell salvage vehicles through auctions, principally to licensed dismantlers, rebuilders and used vehicle dealers. Salvage vehicles are either damaged vehicles deemed a total loss for insurance or business purposes or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. Copart generates revenues primarily from auction fees paid by vehicle suppliers and vehicle buyers as well as related fees for services such as towing and storage. Copart currently operates 72 facilities in 35 states. The company is listed on the NASDAQ with the symbol CPRT.
What makes CollisionSyzygy, Inc. so different from its competitors is the scope of its services and the technology used to deliver those services.
With the dawn of the Internet, CollisionSyzygy promises to be the first program to offer its services using a secure environment on the Internet!
The Direct Response (DR) industry has already captured over 12% of the United States auto insurance market, with considerable growth yet to come. By 2005, it is estimated that this distribution presence will grow to over 20%. The DR market has vast, open space far beyond the borders of personal line automobile insurance. The market for commercial insurance customers is also a target.
Large property and casualty insurers are scurrying towards DR distribution in an effort to remain competitive in pricing insurance products. These carriers simply cannot ignore the economy of scale caused by channeling claims in a more cost-efficient manner. Hence, the competition from DR is actually causing the DR marketplace to grow as traditional distribution insurance carriers re-think and re-tool their claims and product distribution processes.
In 1996, the U.S. federal government revised banking legislation that allowed this industry sector to enter the insurance business and become serious competitors. Both the banking and insurance industries view financial risk management products as prime investment opportunities. Rather than competing brutally against each other, some banks and insurance companies have consolidated assets to form huge conglomerates capable of harvesting the burgeoning demand for financial products that can manage risk or accumulate wealth. The $751 billion merger of Citigroup and Travelers Insurance is a prime example of such a union.
Large leasing companies have both the need and positioning to develop DR businesses that can be offered to the insurance industry. Since an auto leasing company needs to handle its own claims, it can extend that service as a business to other entities requiring the same service. Hertz Claim Management is a national provider of claims management services, having began as an in-house claim operation to manage its own auto fleet. Today, it has eight claim centers throughout the United States with revenues of $34 million.
Most of the competition, however, consists of dedicated firms attempting to gain market share through different approaches. Most firms are regional in scope, with a few national, and even fewer international firms as participants. Crawford and Company is international in scope with a concentration in the United States. Annual revenues exceed $600 million.
The most aggressive of the participants is CCC Information Services, Inc. whose target is to capture all size insurance companies through its software sales. CCC is attempting to make smaller, upstart companies reliant on its systems to prevent such companies from growing and developing in-house claims programs. Success in its approach could suggest total market domination in the Direct Response industry.