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smash repairs-04-10-05

smash repairs-04-10-05

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Published by Core Research

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Published by: Core Research on Jan 09, 2009
Copyright:Attribution Non-commercial

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05/09/2014

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Economic Issues Associated with
Preferred Smash Repair Schemes in
Victoria
A Report on behalf of Consumer Affairs Victoria
Joshua Gans

The analysis here represents the views of CoRE Research Pty Ltd (ACN 096 869 760) and should not be construed as those of Consumer Affairs Victoria.

DRAFT ONLY
5th October, 2004
Contents
Page
1
Background................................................. 2
2
What are Preferred Schemes?..................... 3
3
Economic I ssues in Smash Repairs.............. 5
3.1
Smash Repairs without Insurance.................. 5
3.2
What do insurers provide?............................. 7
3.3
Summary................................................... 9
4
Evaluating Preferred Repairer Schemes.... 10
4.1
No preferred repairers................................ 10
4.2
Rationale for Preferred Repair Schemes........ 11
4.3
Consequences of Preferred Repairer Schemes 12
4.4
Claims Against Insurers.............................. 13
5
Conclusion................................................. 16
6
References................................................ 17
October, 2004
i
Section1
Background
1
Background

The Productivity Commission is presently conducting an \u201cInquiry into the Commercial Relationship between the Smash Repair Industry and the Insurance Industry.\u201d This inquiry is specifically concerned with insurance company policies that designate some repairs as \u2018preferred,\u2019 and that those policies direct consumers towards those repairers and away from others. This concern relates to the dealings of insurance companies with repairers and whether these schemes unduly restrict consumer choice.

To facilitate a submission to this inquiry, the Victorian Government has set up an Interdepartmental Committee spanning the Departments of the Premier, Treasury and Finance, and Innovation, Industry and Regional Development, and Consumer Affairs Victoria. As part of this process, CoRE Research has been engaged to provide a report that reviews preferred repairer schemes and assesses their potential competitive and consumer impact.

The report proceeds as follows. In Section 2, I consider the preferred repair schemes and their nature. Section 3 then examines economic issues associated with the smash repair industry and, in particular, potential market failures that may arise from information asymmetries between repairers and consumers. Section 4 then turns to examine the competitive consequences of the preferred schemes themselves. A final section concludes.

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