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December 2001 Issue of INSIGHT

The Changing Face of DRP

Five trends seen as widespread use of direct repair programs begins its second decade

Jon Osborn laughs when he's asked about Progressive's Concierge program in which his shop has participated this fall.

"It makes me think of a twist on that old Oldsmobile ad slogan: This is not your father's DRP," said Osborn, a second-generation east coast shop owner who spoke with INSIGHT about the Progressive program on the condition that neither his real name nor even the state his business is located in be revealed. (The program is being tested in four markets in Virginia, Ohio, Pennsylvania and Florida.)

"My dad was a reluctant participant in DRPs," Osborn said. "Me, I've always seen them as an opportunity, probably because it was clear by the time I got involved in the industry 11 years ago that they were here to stay. There's obviously some things I'm not wild about with this Progressive deal, but [Progressive] seems like a real mover in the insurance industry; it’s offering something appealing to people - especially young people - that other insurers aren't. I felt that getting in on this from the beginning, maybe helping shape it some, was sort of like getting in on the ground floor of something that's really going to grow."

Osborn's comments echo what others are saying about DRPs in general: That a sense of change is in the air. This month, INSIGHT offers a summary of five trends in DRPs that either are occurring - or appear about to be. Some are more apparent than others, but all could have significant impact on the industry.

Trend 1: The percentage of claims run through DRPs is increasing.

This trend probably comes as no surprise to anyone. As recently as 1996, claims handled through DRPs amounted to only about eight percent of all insurance-paid repair work. Within two years, that figure had more than doubled to 20 percent and is expected to be about 34 percent this year.

Few are expecting a slowdown let alone a reversal of this trend. INSIGHT sees little to disagree with predictions that by no later than 2004 the balance will tip, with more than half of collision repair work going through direct repair channels.

Trend 2: The downward pressures on severity are building.

"Farmers just told us yesterday that we were going to be 'graded' on the percentage of our alternative parts usage," an Oregon shop owner who has participated in Farmers' COD program for eight years said. "For a long time, Farmers ran one of the best programs, in my opinion, because it didn't seem to be all about the money. That's definitely changing. They haven't even commented on the CSI data we've been providing after they made it a requirement 18 months ago. I talked to one COD shop who's never started tracking that, and they haven't said a word to him about it. But they're really looking at costs."

Again, this trend isn't surprising to anyone who has watched investment returns fall and insurer combined loss ratios climb. As INSIGHT reported last month, combined ratios now hover at 1.14, up from 1.07 of recent years.

"Three years ago, it was all about customer service, CSI, retention, treating that customer right," CARSTAR'S Roger Wright said. "Today, it's once again all about loss cost and severity."

Efforts to cut severity result in the cost-containment trends with which shops are all too familiar - but also generally lead to more dramatic changes as insurers become more open to the next big idea that will turn things around. DRPs were the solution insurers latched onto in the late 1980s and early 1990s; Progressive's Concierge program and Allstate's acquisition of Sterling are evidence that more changes are coming.

Trend 3: The role of the agent is changing.

Once a shop was participating in a DRP, making it pay off didn't used to be all that complicated: Keep yourself front and center in the minds of the local insurance agents, the people who take claims calls directly from vehicle owners and refer them to shops participating the program.

But as INSIGHT has documented, those first notice of loss calls are not going through agents but through centralized call centers - and the rush from insurers to operate these call centers is on (see Trend No. 5).

"To me, this is the scariest change in DRPs, because even though I'm on an insurer's DRP, when I called their call center and gave them my zip code, they were referring me to shops in other zip codes before they finally got down to my shop's name," one west coast shop owner said.

Certainly for shops in DRPs for direct writers (insurers that sell only by phone and website, not through agents) and increasingly for those on direct repair programs shifting claims calls away from agents, reaching up higher in the claims hierarchy will become a crucial part of the marketing process.

Trend 4: The way DRP relationships are formed is changing.

Just as customer referrals are moving out of the local arena, insurer-shop relationships are being established more and more on a regional or national level. Consolidators able to handle significant volume in multiple markets can often offer a value proposition higher up the claims chain of command than a single location repair operation can.

Other entities are working to establish networks of independent shops in order to market that network to insurers. In the U.K., for example, Akzo Nobel created a separate company that established call centers to take first notice of loss calls for insurers, make claims assignments to shops in its program, and offer the insurer central billing. DuPont and ICI offer similar services in some European countries. Are paint companies planning similar efforts in the U.S.?

"We see that as something in which shops will be more interested in future years," a U.S. representative of one paint company said.

As PPG began running ads in consumer magazines this fall touting its CertifiedFirst network of shops, LYNX Services (a subsidiary of PPG) announced that in 2002 it would move beyond glass claims management into collision repair claims management.

"Participating body shops will have access to repair work from multiple insurers, and consumers without a preference will be given a choice of participating body shops to complete their repairs," a LYNX press release states.

On the glass side, LYNX processes first notice of loss calls, schedules repairs, performs audits, and manages warranty claims. PPG says that while there may be overlap between LYNX and CertifiedFirst, there won't be "an exclusive agreement between the two."

Trend 5: The lines between insurer and repairer are becoming fuzzier.

Ask consumers who fixed their cars after accidents and their answers might not be as cut-and-dried as they once were. They may say Sterling Collision Center, without realizing their insurer's subsidiary, Allstate Non-insurance Holdings, Inc., owns the 40-shop chain. Or they might say Caliber Collision Centers, not realizing a California insurer has a $30 million investment in the 62-shop chain. Or they might say Progressive Insurance fixed their cars and not have a clue what shop did the actual work.

Virtually everyone in the industry is familiar by now with the Progressive Concierge program, which essentially does away with shop-to-customer contact. The vehicle owner turns the car over to Progressive, which prepares an estimate and calls a participating shop. The shop picks up the car, repairs it and returns it for Progressive to deliver to the customer.

Shops participating in the program are tight-lipped, saying part of the agreement with Progressive is that they are not allowed to disclose the terms of the agreement. But for the consumer hell-bent on convenience and not overly concerned about how their insurer's interests may differ from their own, what's not to like about the program?

It may actually be the insurer, however, who determines that the program has its downsides.

"For Progressive, there is no 'they' or 'them' now, if a customer is unhappy about something having to do with the repair of their car," one industry observer said. "Progressive, to the consumer, is repairing the car, so it's Progressive that customers will be unhappy with, not a shop. Progressive won't have anyone to point at but themselves."

A regional manager with another large insurer also admitted that its increasing micro-managing of the procedures followed by shops under its direct repair program is beginning to make him uncomfortable.

"The whole idea to me of DRPs was that we watch the dollars, not the nickel and dimes," the manager said. "Now we seem to be going down the same path the medical side of the insurance industry did, and the public has said they don't like doctors and insurers being too intertwined. I don't think this is a trend that will be good for shops or insurers."

That question - whether any of these five trends in DRPs are positive or negative for the various players in the collision industry - is one that will likely be the focus of debate as the industry prepares for another new year.   o

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