As a car rental operator — or any solvent business owner — you need to be on a constant hunt for new revenue streams. If you’re an off-airport car rental operator, you’ve most likely considered the insurance replacement market, but dismissed it due to the dominance of one major brand. You are correct; Enterprise Rent-A-Car does dominate the market, and Hertz is making inroads. But that doesn’t mean you can’t gain revenue from this business segment.
Auto Rental News spoke with two car rental companies that have successfully exploited the insurance replacement market for their thoughts on breaking in. We also gained perspectives from two insurance agents and a body shop operations manager with firsthand experience in this niche of the business.
UNDERSTANDING THE PROCESS
The first step is to understand the insurance claims process, which does not always happen the same way.
When an insurance client gets into an accident, the insured has two options. One is to generate the claim directly through the insurance company’s centralized claims center, where a claims adjuster will open the file. The adjuster will direct the insured to a preferred local collision center and can also set up the rental immediately and electronically with the preferred car rental provider, a national brand. When the client gets to the collision center, he or she will likely find a rental office conveniently located on-site.
The other option is for insurance clients to go through their insurance agent to file a claim. In this case, the insurance agent might similarly direct the client to one of the larger collision centers and thus a national car rental brand. Or the agent might instead offer a local, family-owned body shop to the claimant. In either case, the agent could choose to recommend an independent car rental company that he or she — or the body shop — has a relationship with.
In any of these permutations, the claimant has every right to choose a body shop and a car rental provider, though it’s easy to see how the transaction, being handled smoothly by a third party, would deter them from doing so. And the insurance companies are happy with the system.
“As long as insurance companies are getting what they need from the contractually set rates, ease of reservations and ease of the direct billing, they have no incentive to change that standard procedure and take on the hassles of establishing relationships with more [car rental] providers,” says Brady Krueger, who is not only the co-owner of a property and casualty insurance firm; he’s also a Hertz Local Edition operator.
“We insurance agents like the current arrangements as well,” Krueger continues. “We still get involved in a lot of our auto claims for one reason or another, but not having to deal with any one particular part because it’s already taken care of saves us time and allows us to concentrate on more lucrative things.”
Michael Wallen, a Farmers Insurance agent serving greater Los Angeles, concurs. “When someone files a claim with me, I can’t tell him which body shop to choose, but we direct them based on contractual things such as being able to guarantee the work of the body shop,” he says. “If [a rental company] wanted to interfere with that established relationship, it wouldn’t be at my level.”
Nonetheless, Wallen admits he’s never considered suggesting a non-preferred car rental supplier to a client because he hasn’t been marketed to by an independent rental company. “My deal as a broker, I want to make sure you’re happy,” Wallen says. “So if [an independent RAC] does the rental, or Enterprise does the rental, I don’t really care. For me, I’d rather go to the small guy. But that small guy better do the job. One mistake and I’m calling Enterprise.”
Wallen says that the lack of direct electronic connectivity between the insurance company and car rental company is not impossible to overcome. One differentiator would be in the customer service. “For [the small car rental companies] to get the business, they have to go above and beyond big business,” he says. “But they can do it.”
ABOVE AND BEYOND
Nick Mariano, owner of a Priceless Rent-A-Car franchise serving Utica, N.Y., admits that it is almost impossible to gain business from the larger collision centers. But for those accident claims that are generated through the insurance agent — about half the time for the insurance agents he deals with — he has had success. Mariano is on a constant direct marketing push, even employing a dedicated marketing person, “which is somewhat unheard of for a rental car company in Utica, New York,” he says.
Mariano thinks that part of his success is due to his location, because the major rental brands don’t concentrate their fleet in small-town Utica. Therefore, there is spill-off business to be had when the majors run out of cars in the heavy accident months. In this vein, he takes advantage of the push to “shop local,” which is reflected in his Yellow Pages ad.
To Wallen’s point, Mariano lives the “above and beyond” motto. Insurance agents aren’t afraid to call him on a Sunday to ask him to pick up a client for a rental, he says.
Surprisingly, Mariano bills the old-fashioned way, with a phone call to the claims agent and then a bill by email or fax. He says his insurance agents aren’t bothered by his non-technological process. Instead, he plays up the personal connection. His employees’ average tenure with the company is eight years — a counterpoint to the continual personnel transfers at the corporate brands. “People realize that they’re dealing with the same people all the time and that goes a long way,” he says.
Mariano doesn’t feel the need to get on an electronic system just yet, though he realizes it will be necessary at some point. “But even when that happens, there will still be the need for face-to-face rapport, and they will still want to use Priceless,” he contends.
McKenzie Spalding, director of operations for Choice Auto Rental serving Minneapolis/St. Paul, points out that national car rental companies’ agreements are not with body shops, but instead with insurance companies. Therefore, Choice has decided to cultivate its relationships with the body shops. “That’s where we compete and compete well,” she says.
Choice Auto Rental has been serving the insurance replacement market exclusively for close to 20 years and has gained preferred provider status with a few collision multi-shop operators and many other smaller collision centers. “Each shop likes it done differently,” says Spalding. “The best key to servicing them is to understand that it’s not a cookie-cutter business.”
Spalding suggests a visit to the body shops to find out about their rental processes: Is the rental company on time for the customer? Is there a streamlined billing process for the body shop and the customer? Does the rental vehicle meet the customer’s expectations? Is the total rental process efficient? Is the customer on the road in a matter of minutes?
Spalding recommends getting to know the collision center’s front office employees, who are involved firsthand in the rental process and can judge good and bad service.
Spalding admits that it isn’t easy to compete with the national players. But Choice has overcome this in a few ways. Spalding says the fact that Choice handles only replacement rentals is a key selling point, since body shops know they won’t be up against a potential local leisure rental of the same car.
Choice also operates a towing service, which allows a potential customer who has been in an accident to request a tow to a preferred collision center while having the replacement rental vehicle delivered simultaneously.
Choice maintains those client relationships by staying in constant communication as well as through customer appreciation events such as summer barbecues at the collision centers. Choice also stays top of mind with insurance agents by co-sponsoring with body shops continuing education classes that insurance agents must take. The classes are great networking opportunities, Spalding says.
Choice solves the electronic connectivity issue through its rental car software provider, TSD. TSD’s EDiCAR program offers similar electronic connectivity and ease of use as Enterprise’s ARMS (Automated Rental Management System) program. Bluebird Auto Rental System’s flagship RentWorks program also offers this type of connectivity.
A SEAMLESS TRANSACTION
With seven locations in the Minneapolis/St. Paul area, LaMettry’s Collision & Mechanical fits in size between the independent body shops and the corporate-owned collision centers. LaMettry’s works with Enterprise, Hertz and Choice. Choice has an office inside one of LaMettry’s centers, while Enterprise exists in another location.
Denise Koukal, LaMettry’s director of operations, says body shops see it as smart business to have more than one rental car provider to be sure they can always service the customer in a timely fashion. “We need to know that when it’s the middle of the winter in Minnesota, we are going to be able to get a rental car,” she says.
About half of LaMettry’s car rentals are generated through the insurance company while the other half are made by the repair customer directly, says Koukal.
Koukal says that roughly 25% of the repairs are paid for by the car owner, and out of the owner-paid business, about 50% need a rental. With insurance companies not involved in this case, this is an opportunity for an independent RAC to gain more business. As a preferred provider for LaMettry’s, Choice sweetens this deal with special rates for the repair client paying out of pocket.
For the LaMettry’s locations without an in-house car rental company, Koukal says 50% of the rentals are handled by the rental company picking up clients at the body shops and bringing them back to the rental office. For the other 50%, the rental company will deliver the car to the client.
LaMettry’s doesn’t generally deal with the billing for the rental car, which is separate from the body shop bill. The body shop only gets involved if there is a delay in the repair or if it’s going to exceed the number of days approved by the insurance company, Koukal says.
For LaMettry’s, punctuality is the first concern, followed by the cost to the customer on self-paid rentals, the availability of vehicles and the ability to meet the customer at the body shop location. Koukal says Choice services LaMettry’s well through employee longevity, constant communication and follow up, and prompt, attentive customer service.
“It’s important that everything is seamless and easy for us,” Koukal says. “The rental car company is a reflection of the repair process. If that rental transaction doesn’t go well, a lot of times it is perceived that the repair process didn’t go well.”
But Is It Lucrative?
On first glance, typical insurance replacement rental rates don’t seem to leave much room for profit. Our car rental operators shed light on the bigger picture:
- According to data from Enterprise, national rental lengths for insurance replacements averaged about 10.8 days in 2012. That’s about three times the average length of a leisure rental, which improves utilization and minimizes costs associated with turning a rental vehicle.
- Rental rates for collision repair customers paying out of pocket are higher than the insurance companies’ contracted rates.
- Standard procedure is to bill on calendar days, not 24-hour increments. Therefore, a rental that starts at 9 a.m. on a Monday and ends at 9 a.m. on a Tuesday is considered two billable days.
- Saturday and Sunday count as billable days.
- The insurance replacement customer drives far fewer miles than the leisure customer.
- There are far fewer accident claims in replacement vehicles, which are being driven more cautiously by people who have just been in an accident. Furthermore, they are already covered by personal insurance should a claim arise.