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State Farm Electronic Parts-Ordering Initiative Leads the Way for Auto Insurers

The public interest concerns of insurers increase on the procurement process is debatable, but the magnitude of potential savings for insurers is not.

State Farm is leading the way to greater control of the auto repair procurement process with its announcement of a new electronic parts-ordering initiative, reports Aite Group's Stephen Applebaum.

Applebaum sees this as an inevitable development, built upon earlier efforts to automate how insurance carrier deal with auto repair suppliers. It's inevitable that carriers should seek more influence on this aspect of claims processing that amounts to about $10 billion of cost annually.

This increased involvement will raise public questions about carriers' influence, Applebaum cautions:

Once the technology-enabled applications can support an all-inclusive electronic parts procurement process and be efficiently integrated with existing estimating, shop management software, and claims workflows, the remaining obstacles -- which are decidedly thorny -- will include defining and sizing the economic benefit; how savings, if any, will be shared among supply chain participants; and whether state and federal regulatory agencies -- and the ever-watchful plaintiff bar -- will find the practice to be in the best interests of the stakeholders (e.g., repairers, suppliers, and policyholders).

However, those debates work out, carrier unquestionably have much to gain from the potential results of this application of information technology: each percentage point of cost-efficiency improvement represents about $100 million dollars, Applebaum notes.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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