APCO, short for the Automobile Protection Corp., is a
little-known company whose field is automotive service insurance and whose
goal is to market and administer contracts that cover both automobile
warranties and service contracts. Headquartered in Atlanta, Georgia, the
company was launched in 1984 and was acquired by Ford in 1999 for $165
million. Its contracts are actually insurance policies that cover the
costs of repairing vehicles—contracts that dealers offer when customers
purchase a vehicle. Although some dealers insure for repairs themselves,
usually these contracts are actually offered by insurance companies in the
name of the dealers, and they are usually sold through the dealers.
APCO is
not a dealer, a service organization, or an insurer but instead arranges
for warranting and servicing insurance with various insurance companies.
It then markets these policies as service contracts or warranties through
the automobile dealers. Once these contracts are sold to the vehicle
purchasers, APCO administers them through the dealers. It also handles
private-label service contracts for partners who finance and sell their
own contracts and then engage APCO to administer them. Its private-label
partners include such well-known companies as Allstate, American Honda
Finance, Banc One, Manhein Auto Auctions, Mazda USA, and Volvo Canada.
Although
APCO had only $8 million in sales in 1989, its fifth year, by the year
2000, its sales had grown to $165 million, and sales were expected to grow
9 to 10 percent in 2001. In the year 2000 APCO had about 1,200
dealer–customers in the United States. About 2 percent of all extended
automobile service contracts sold in the United States are sold through
dealers. This leaves a huge potential market for APCO to expand into as
well as into markets in Canada and Europe. APCO’s main competitors are
vehicle manufacturers, many of which also offer factory-backed warranties
although at a higher price.APCO now has a major problem,
one that many companies would love to have—a massive expansion of
customers that has already occurred and is likely to continue. APCO
experienced a dramatic upsurge in sales, increasing more than 20 times in
only 11 years. The result is that both dealer–customer applications for
its policies and the submission of repair claims have become almost
unmanageable as well as extremely costly. A significant element of that
problem is that APCO issues and administers hundreds of different policies
to thousands of policyholders, each of which is complex. Different dealers
offer different types and amounts of service in those contracts, and all
customers must select the level and type of service they will pay for when
they purchase the contracts. APCO faces many of the same problems with the
thousands of private-label contracts it administers.APCO’s work is highly document
intensive and time consuming. All of this time and manual work is
inefficient and makes the process very costly. The first step in the
process is for the company to design and create many different documents,
one for each type of contract the dealers require. Given the hundreds of
different dealer contracts and all their possible options, this is
extremely complex. Currently, APCO minimizes the number of contracts it
must support by creating a large number of generic contracts that, when
issued to the auto purchaser, must be adjusted both to each specific
dealer and to each customer. These adjustments are done in the contract’s
declaration section, where the dealer records which other contract
sections apply to a specific customer’s contract and which do not,
depending on what the dealer wants to offer and what specific coverage the
customer has agreed to pay for. Once the dealer has filled out the
declaration section, it must be approved by APCO, and only after that can
it be issued to the auto purchaser. With the current system, this
whole process is very slow and costly. After a dealer fills out the
declaration section, it is mailed to APCO where the data are manually
entered into APCO’s computers. Next the computer processes the
application, after which it is forwarded to the underwriters where it is
manually entered into the underwriters’ computers. It is then approved or
rejected and mailed back to the dealer. Finally, assuming the document has
been approved, the customer must return to sign it. The whole process
usually takes between five and ten days to be completed.Being heavily manual
and requiring the data to be entered several times, the process is also
quite error prone, requiring many corrections and resulting in many
improper contract applications. For instance, between one-half and
three-quarters of the applications received by APCO under the current
system are rejected because required information is missing. This adds to
the expense and the wasted time. In addition, the errors and the slowness
of approval seriously damage APCO’s relations with its customers—the
dealers—as well as the dealers’ relations with their customers—the
automobile purchasers. The same problems exist when private-label
(partner) vehicle customers decide to sign an APCO contract. Claims processing uses
systems similar to the contract systems, and they are also time consuming,
error-prone, and expensive. Such expensive and time-consuming processes
seriously interfere with APCO’s ability to retain current customers and to
acquire new customers. In fact, the cost and time for contract creation
and approval, along with claims administration, have caused the company
almost to lose control over both processes. Unless a way is found to
better manage it all, expanding further into the United States and into
oreign markets will only greatly increase the problems, creating even more
difficulties for APCO’s and the dealers’ customers. That is the problem
APCO faces, and something must be done. At the time the customer buys
the automobile, APCO would “ultimately like the customer to leave the
dealership with the [APCO] contract in hand,” explained Brian Kohrman,
APCO’s MIS director. With a proper system, “We’d be able to do approval
and denial almost immediately,” he said, “and ultimately fire the contract
right back to the dealership and have them print [it] out and have it
signed, right there.” Dan Walsh, APCO’s vice president and creative
director, believes that, with the right package, APCO “can start providing
customers with coverage information that’s more specific to whatever they
purchased. It becomes more personalized and gives the customer more
accurate information.” Automobile dealers maintain that
the buying experience must become friendlier because today’s shoppers are
too startled and even frightened when they first see the vehicle sticker
price. As a result dealers are searching for ways to reduce the tensions
and fears throughout the entire sales process, including warrantees and
servicing. Moreover, servicing is extremely important to dealers for
another reason—it is very profitable. Dealers usually make more profit
from servicing than from vehicle sales. Almost all service customers have
purchased their vehicles from that dealer, and dealers must find ways to
sign them up as service customers and then to hold on to them. Auto
industry service retention rates are currently at or below 30 percent when
the vehicle is under warranty and fall even further after the warranty
expires. Making the whole service contract process friendlier and quicker
is one way to help gain more service customers because it should result in
the sale of more of these contracts.APCO’s existing information
systems store most of their data in old-fashioned flat files rather than
in more modern relational database management systems. As a result, in
several steps each contract document, along with its data and other key
pieces of information, must be transmitted to the next application where
it has to be reformatted for that application. For several steps the data
must be reentered manually into the next system. Contracts and paper
reports are physically handed to the APCO underwriters.Although the creation
of each contract document requires the approval of the compliance
department, in reality contract design and creation should be the
responsibility of compliance. APCO’s systems run on IBM RS/6000
workstations using the UNIX operating system, Windows NT for the network
operating system, and Microsoft SQL Server as the database management
software. APCO’s client workstations use the Microsoft Windows operating
system along with Office desktop productivity tools and the Internet
Explorer Web browser. Although APCO does use some modern software
packages, such as an Adobe PageMaker package to create the contract forms,
its systems are based primarily on homegrown pieces of software.
The
company wants to automate its entire application process to speed up
everything for both APCO and its customers and to eliminate much of the
reliance on paper documents. For instance if a new, more modern system
were running, according to Kohrman, compliance will need to “extract the
information as easily as possible, without a lot of IT overhead,” an
improvement that can be achieved if APCO begins to use a relational DBMS.
APCO has
moved to solve this problem by issuing a Request for Proposal (RFP) for
the first of a series of changes that its systems require. Its goal is to
create for APCO and its customers a Web-based system for the creation and
approval of contracts and for the administration of vehicle servicing. The
system must simplify and speed up the business processes in order to
support the planned growth of the company, increase customer service, and
reduce costs. The first step is to create a comprehensive electronic
document-management (or content-management) system. The company wants the
final content-management system to be highly automated so it can handle
the whole process from the creation of all documents to the handling of an
automobile purchaser’s application for the insurance to final approval.
The new system must decrease the amount of content APCO must handle by
replacing its method of storing a separate document for each program and
level of coverage. The new system should enable specific contracts to be
assembled from many stored components, some of which will be unique to
that particular document. However, most, if not all, of the components of
the documents will be shared with many other contracts. The system will
have to collect all the required components according to the rules for
that particular program and state requirements.APCO is wondering how the Web
could be used to speed up the whole process and provide a new channel for
enrolling and servicing customers and whether Internet technology could
help it lower its (and dealers’) costs. Kohrman’s goal is to have the
customers of the dealers leave the dealers’ premises not only with the
automobile they have just purchased but also with a warranty and/or
service contract signed and in hand.
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