CCC expects AI-based estimating tool use by shops to grow in popularity
CCC Intelligent Solutions reported a “strong” Q2 on Thursday and provided some details on the rollout of its AI products.
Total revenue for Q2 was $260 million, up 12% year-over-year (YoY), which exceeded the company’s guidance range. Adjusted EBITDA was $108 million, also ahead of the guidance range.
“In Q2, several top 10 insurers contracted for multiple AI-enabled auto physical damage, or APD, solutions that extend our photo AI capabilities beyond estimating to include earlier stages of claim handling, as well as later stages, such as audit and review,” said Gitesh Ramamurthy, CCC’s chairman and CEO, during the Q2 earnings call.
“These solutions have, for example, cut the time to identify a total loss in half, resulting in millions of dollars of annual impact with the potential to improve that time and impact even further. This is a win-win-win. Insurers avoid unnecessary fees, repair facilities free a place for their repairable vehicles, and consumers get faster and more satisfying claims resolution.”
He added that CCC is also seeing AI streamline the back-and-forth between insurers and repair facilities over supplements.
“Over 60% of estimates now have a supplement, or in many cases, multiple supplements,” Ramamurthy said. “This is a byproduct of the growing complexity in our industry. This is a major pain point for both insurers and repairs. Our AI-based solution can help expedite this process, and in some cases, auto-approve these changes for an insurer’s guidelines, significantly reducing cycle time and manual effort.”
Moving forward, Ramamurthy said he thinks visual AI-based estimating tools will be used more, based on a leading MSO using Mobile Jumpstart to prepare over 95% of their estimates.
“We view this as a leading indicator for adoption in the industry and an example of how our most sophisticated clients are leveraging our AI-based tools to improve operating efficiency and setting the pace of innovation for the industry overall,” he said. “Another example is a continued adoption of Build Sheets, our accuracy-enhancing part selection tool, which is now being used at over 5,000 repair facilities. This represents a nearly 20% penetration of our repair facility client base in just one year after launch in July.”
Regarding the financial state of the company, CCC’s Chief Financial Officer Brian Herb said adjusted operating expenses in Q2 were $108 million, up 13% YoY, including the acquisition of Evolution IQ.
CCC expects 10-12% growth YoY in Q3, he said.
Herb noted that while claims were down 8% in Q2, 80% of CCC’s revenue is subscription-based, which isn’t moving with volumes.
“About 20% is transactional,” he said. “That does fluctuate with volumes. Overall, the claim volumes don’t have a material impact on the growth rate… What we’re factoring in for the second half, and which was in the previous position, is that one point of drag continues in the second half of the year. So kind of what we’re seeing playing out through the balance of the year.”
During the Q&A portion of the call, a JPMorgan analyst asked how long CCC expects the claims weakness cycle to last beyond 2025, and if there’s anything unique about the current cycle compared to past periods of weakness.
“When you look at our data, we see a disconnect between underlying accident frequency and filed claims,” Ramamurthy said. “Based on our view of this, that’s why we believe this is cyclical. The difference between this cycle and previous cycles is that premiums have been up 50% since March 2020. We’ve not seen a cycle in the last 2o-plus years where over a short period of time insurance premiums went up 50%.
“What our customers are seeing is a lot of consumers are adjusting their behavior by increasing deductibles, reducing coverage on older vehicles, and avoiding filing non-essential claims to prevent hikes in premiums… Repair costs are starting to moderate… premium increases are also starting to moderate, and so that’s really what we’ve started to see over the last couple of quarters. The underlying delta is really filed claims versus the underlying frequency of accidents.”
A Stifel analyst asked what the reasons are behind the claims volume decline, adding if CCC thinks it’s coming from ADAS proliferating through the car parc rather than solely because of economic challenges.
“Our fundamental belief is that this is the underlying frequency of claims,” Ramamurthy said. “We have not seen a material change because every car of every type goes through our platform in one way, shape, or form, and what we believe is a very fundamental difference between accident frequency and claims being filed for economic reasons, that we think is the fundamental cause.”
He added that there is a lot of third-party data that supports that view as well, but didn’t specify what data or by whom.
Images
Featured image: CCC’s 2018 SEMA Show booth (RDN file photo)