Atilla Oksay, Assistant General Secretary at the Insurance Association of Turkey, and Member of BoD at OSEM – Automobile Spare Part and Service Certification Center, which was founded to help the automobile claims departments of insurance companies manage their costs in spare part and service certification and contribute to their service quality – says: “A control on the costs of spare parts will help us calculate insurance premiums more accurately.”
Could you tell us OSEM’s story of origination? Why did insurance market need such an initiative?
As of the end of 2015, share of auto insurance in total underwritten premiums stands at 45 percent. We face serious problems in traffic insurance lines. And we cannot solve those problems only by increasing premiums; we also have to control the costs. In 2013, we decided to initiate a project within the scope of auto insurance line under the roof of the Association. We worked with international consulting companies and determined 4 main categories. We detected that the largest problem results from jurisdictional decisions regarding bodily harm; and conducted a project to standardize the calculation of compensations for bodily harm claims. We worked towards building a fraud modelling, and examined the direct compensation system practiced in some countries for more efficient cost management and improved service quality. Finally, we decided to start a project with the aim of controlling repair costs and increase service quality of spare parts, therefore improving the perception of repair-shops and services contracted by the insurance market.
Competition Authority published a communiqué on using equivalent parts in 2005; however, no legal arrangements have been made since then. All around the world, insurance companies can use equivalent spare parts. Without certification, those parts can also be regarded as under the counter products, or products made in Far East. It is not enough to certify the spare part; as the problems encountered in contracted technical services can be attributed to the insurance market. This creates a major perception and reputation problem for the insurance market. OSEM’s purpose of foundation is to resolve this reputation problem, to certify that the spare parts used by insurance companies are equal to the originals, and to prove that technical services that work with insurance companies have the capable labor-force and know-how to repair the vehicles. OSEM was founded to control and decrease the costs of insurance market, and to change the perception and reputation of its quality. Within the scope of this project, we examined which parts of vehicles were the most frequently changed in case of accidents. A control on the costs of spare parts will help us calculate insurance premiums more accurately and see our future more clearly. However, it is not enough to certify the spare parts and use equivalent parts; we should also prove that repair centers using those spare parts have a certain level of standard. All these requirements are why we have founded OSEM.
What was Association’s work plan during the foundation of OSEM? What was your observation on the models and sample countries examined during your work?
Within the scope of this project, we worked with an international consulting company. Moreover, we founded a project team composed of Association employees and market representatives. We shared our detections with the market and progressed according to their feedbacks. We analyzed the solutions applied around the world; and saw that Spain, United Kingdom and USA have gone a long way in spare part certification and even founded companies for this purpose. Companies operating in equivalent spare parts and service certification in those countries were founded by the insurance market, being a market that uses spare parts most frequently. Those structures have been shaped over time as research centers rather than classical certification institutions. When we examined the situation in Turkey, we saw that if an original spare part costs 100 TL, an unbranded original spare part costs 70 TL, and a certified equivalent part costs 40 TL. It indicates that equivalent spare parts bring a cost advantage of 60 percent. After this examination, our final target was to certify the equivalent part and the repair shop. We conducted a survey regarding repair shops; and we discussed with stakeholders, namely repair shops, companies importing the spare parts and certification institutions. We observed that 3 different models we examined had adopted different operational mechanisms, and analyzed which one could be utilized in Turkey. First phase of our project included the analysis of similar practices in other countries, discussions with stakeholders and creation of a model for Turkey; while the second phase focused on examining the requirements for the realization of that model.
In what structural and functional ways does OSEM differ from similar practices in other countries?
Operationally, OSEM does not differ from models we took as examples. Logically, we share the same targets. One of the models I mentioned, has made the investments for research centers themselves. The English model has its own laboratory, but works with a certification center. The model in USA, where automotive industry is highly improved, does this job with only 5 people. The institution only determines standards, and certification is completely outsourced. They work with a certification company that owns a lab; where tests are conducted according to pre-determined standards and equivalent spare parts are certified. It does not suffice to just certify the spare part; but the certified parts should also be monitored to prevent fraud.
Our model has been designed in a way similar to the one in USA. We have a team of 3 people at the moment. Due to the relevant legislation, we are not allowed to provide certification for 1.5 years. According to the circular issued by the Undersecretariat of Treasury, Turkish Standards Institution is the only authorized institution to provide certification in this field. We are currently working on creating the necessary structure to give certification after the end of 1.5 years. We are in contact with those 3 foreign companies to transfer their know-how. In addition, we have been creating a spare part monitoring system. We are ambitious; we will be using a far more advanced technology in spare part monitoring than those countries. We will create a claims management module. We began service certification and during our launching event, we gave certificates to two repair centers that successfully passed their audits.
How will this application benefit Turkish insurance market and vehicle repair centers?
During repairs, damaged parts are repaired. If it is not possible to repair a spare part, it is replaced by an original or equivalent part. Repairs are done in authorized and private repair centers. There is a serious difference of cost between original parts and equivalent parts. A vehicle consists of nearly 5 thousand parts. The parts we focus on are in the body group, the most frequently damaged parts of a vehicle in an accident: bonnet/hood, bumper and lightning parts. These account for 29 percent of total spare part pool, and 56 percent of total costs. When we begin using equivalent spare parts as a result of this project, we will gain a cost advantage of 15-20 percent. To contribute to the perception and opinion regarding the spare parts, we wanted this responsibility to be undertaken by companies founded by our Association on behalf of insurance market, rather than insurance companies. As OSEM, we are responsible to determine whether a spare part is equivalent or not. We will guarantee that the insurance market uses certified and properly tested spare parts equivalent to the originals. This application will provide an advantage to policyholders in terms of reducing their future premium payments.
There are 68 thousand repair shops in Turkey. 2 thousand 500 of them are authorized technical services, 4 thousand 500 of them are private technical services; while the rest are ordinary repair shops that can offer a limited range of services. Our research indicates that 96 percent of authorized technical services already own a certificate of quality. But only 3 percent of 4 thousand 500 hundred private services that the market can work with are certified. That is where we are targeting. We will make sure that technical services working with the insurance market comply with a certain level of standards. Of course, we welcome all repair shops and centers that would like to get certified by OSEM.
What advantages will this project bring to vehicle owners and policyholders? Do you believe it will improve public trust in the insurance market?
Our major target is to enhance the trust in insurance market and to prevent certain accusations that are not based on objective statistics. Our automobile insurance project is an integrated project. When you use quality parts and raise the level of standards of services to a certain level, you will naturally gain cost advantage and create a positive perception. If you can prevent fraud, serve your own policyholders with direct compensation system, and ensure the standards of calculation for bodily harm compensations; first and foremost beneficiary will be consumers. Reduction of costs will reflect on insurance premiums, provide benefits for the insurance market and improve its reputation. All stakeholders including the automotive industry will win and be happier.
What will your strategy be in the certification of technical services? Is it possible to create a roadmap to address the expectations of insurance companies from repair services?
Technical services are supervised by Türk Loydu Foundation on behalf of OSEM. Türk Loydu Foundation has prepared a quality standards document for repair services called OSEM SS 10001, all rights of which belong to OSEM. In general, we base our standards on manpower and equipment required to fix a vehicle rather than physical conditions. We have observed that the main theme in service standards is the same in other countries. We accept applications electronically, and services can apply over OSEM’s website www.osemas.com.tr. After the application process, Türk Loydu Foundation visits the applying service on behalf of OSEM by sending an auditor from its own pool of auditors. If the auditor does not detect any major deficiencies, the application is submitted to the Türk Loydu Foundation’s Audit Committee with the statement that the service is compliant with OSEM standards. After that, technical committee prepares a certificate which will be valid for 3 years and delivers it to the applicant. We continue to perform scheduled and unscheduled audits for 3 years. If the service maintains its standards and wants to keep its certificate, they can apply for renewal after the end of 3 years. Individuals can also check the validity of OSEM certificates over OSEM’s website.
What are the differences between original spare parts, original spare parts without logo, certified equivalent spare part and uncertified equivalent spare parts?
Original spare parts are parts used in the manufacturing and assembly of a vehicle which are manufactured according to the production standards of the automotive company. Unbranded original spare part does not actually exist in automotive literature; such concepts have occurred due to the market realities of Turkey. Normally, automotive manufacturer contracts with a spare part manufacturer and describes the standards of its order. Spare part manufacturer stamps both its own and automotive manufacturer’s logo on the spare part on the production line; that is called branded original spare part. The spare part produced on the same production line with the same standards but only stamped by the spare part manufacturer’s logo is called unbranded spare part. Equivalent spare part is manufactured according to the standards of the automotive manufacturer, and it is documented by the spare part manufacturer. Those parts are certified by an institution to prove that they bear the same functions as the original spare parts after certain processes even if the producer does not know the exact standards. Uncertified spare parts are not certified, and are only produced according to national standards.
Does OSEM plan to organize trainings for vehicle repair services?
All of the 3 companies we examined as examples offer services other than certification services. One of those services is training. We are currently preparing training modules intended for repair centers regarding repair techniques and service standards.
What are OSEM’s short and medium term targets?
Our short term target is to initiate the equivalent spare part monitoring system. We aim to monitor spare parts certified not only by the Turkish Standards Institute, but also all other parts sold in Turkey and certified in accordance with the communiqué issued by the Undersecretariat of Treasury. With this system, insurance companies will provide equivalent spare parts recorded in their database, and policyholders can monitor whether the spare parts attached to their vehicles are equivalent or not. We plan to improve service certification as well. In the medium term, we intend to initiate equivalent spare part certification and prepare electronic spare part manual. We aim to prepare accident scenarios and create a claims management module for the whole market. In the long run, we will walk towards constituting a structure that can provide all manner of services, improve the standards, conduct R & D activities, and develop tests.
