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Letter to the Editor

A View from the Middle

Mid-sized insurers discuss their views on direct repair programs, non-OEM parts,insurer-owned shops, and more.

When you look at the list of the Top 125 auto insurers in the U.S., ranked by market share, a clear break occurs not far down the list. Not surprisingly, State Farm tops the list with nearly 20 percent market share, followed by Allstate with about half that (10.5 percent). Progressive has recently nudged past Zurich Insurance Group (Farmers) although each has about 5.5 percent market share.

But beyond that point on the list, none of the other 121 insurers reaches even a 5 percent market share level. But given that these 121 insurers combined control almost 59 percent of the market, their plans, goals and business practices can have a big impact on the collision repair industry.

Here's a look at what three of these mid-level insurers are saying about their relationships with shops, non-OEM parts and other industry issues:

While the trend has been for more insurers to develop direct repair programs, GEICO is actually stepping back somewhat from its program.

"We had the program the way everyone else has had it: send the car to the shop, the shop writes the estimate, gets the repairs done and sends us the bill," said Bill Mayer, assistant vice president of claims for GEICO, a subsidiary of Berkshire Hathaway, the fifth largest auto insurers in the U.S. with about 4.5 percent market share (just above Nationwide). "We're looking at it now that we want our staff to write that estimate. We still want to refer as many people as we can to our direct repairers, but we're putting adjusters back in those shops to run the drive-in there. It's just a different approach. Our CEO has said no one loves our customers better than we do; we want to be the ones that touch them. As you know, GEICO sells over the telephone. We don't have too many agents out there. So the only face-to-face interaction any one of GEICO's customers has with a GEICO person is usually when they have a claim and an adjuster looks at their car."

Mayer said shops used as drive-ins for the insurer are chosen by a supervisor on a local basis.

"If you'd like to get involved with the program, I would invite [the supervisor] over to your shop and show them around," Mayer said. "Make sure you have a nice-looking shop, first off. I've seen some shops out there where you wouldn't want to send anybody. So it should first be clean and attractive. I would also take the supervisor around back and show them your work, your quality. Show them you do R&I the moldings, for example, that you don't ask for it and then not do it."

Ohio Casualty, No. 56 on the list of Top 125 insurers, also has pulled back from its direct repair program.

"We tried it. We couldn't manage it. So we quit," said Phil Horst, auto physical damage manager for Ohio Casualty. "Now we are looking at some type of managed program, doing a little experimenting with that, where someone else would manage it for us. Other than in a couple of states, our company is a mile wide and an inch deep. We just can't staff a reinspection program and do it properly. We can't manage it. So we got out of that DRP business."

That said, he still sees the need for shops and insurers to work in partnership.

"We need to get together and cut our costs together," he said. "How that shift will work and how it will happen, I don't know. But there's got to be some movement in that direction. We both have to get our costs down to stay competitive. You've got to make money, we've got to make money."

Michael Lloyd, auto claims manager for California Casualty, which ranks almost in the middle of the Top 125 in-surers, said his company does have a DRP which doesn't ask for any labor rate discounts. He said his company asks if vehicle owners have a shop in mind; if they don't, the insurer explains its direct repair program, but if they do, the direct repair program isn't pushed.

All three agreed that insurers could probably do a better job of sharing information with shop owners about how their shop compares with others in terms of meeting the insurers' needs. But, they said, privacy issues and at times their own lack of data prevents that.

"In some cases, I can't get industry averages to even know how I'm comparing," Horst said.

"We're not that great in getting the numbers ourselves right now," Mayer concurred. "But if we have them, we want to share them with you. If you're a GEICO shop and your person is not telling you how you're doing, grab the guy by the collar, sit him down and tell him, 'Talk to me, I need to know, I want to know what's going on.' We should be able to tell you how you're doing at least [among shops] within the state even if not within the same city. We may not want to tell you exactly how you're doing against your competition within the city because it may only be you and another guy if we only have two shops in your city. But we could tell you on a state basis."

None of the three foresee other insurers owning collision repair shops, nor are they overly optimistic that it will become a significant competitive advantage for Allstate.

"It's a specialized business," Horst said of collision repair. "A body shop can't run an insurance company and we can't run a body shop."

"We had a relationship with Sterling [Collision Centers], and within seven days after [Allstate acquired the company], we cut our relationship with Sterling," Mayer said. "We moved out of their shops. We said we don't want to do business with our competitors. My personal opinion is I don't think you're going to see too many insurance companies owning body shops. I do think you'll see more and more looking to establish relationships certainly with the larger consolidators because they cover more areas. But I think they'll also be willing to forge relationships with a single-shop owner in a city."

None of the three insurers had a lot to say about the non-OEM parts issue, although for different reasons. Neither California Casualty nor Ohio Casualty currently call for the use of non-OEM sheet metal parts. GEICO, does, but Mayer said, "Unfortunately I'm not at liberty to really talk about aftermarket parts simply because we do have pending litigation around the country."

The three insurers were asked for their thoughts on the role government is or could play within the industry, such as through shop licensing, the California Bureau of Automotive Repair (BAR) crackdown on fraud and perceived fraud, and the new Illinois legislation that makes it illegal for a shop to knowingly underwrite estimates as is sometimes required under some direct repair programs.

"They're basically over-regulating the industry, in my opinion," Lloyd said of the BAR. "They treat a body shop like it's a widget shop, like everything's always the same. It's ridiculous the documentation and things they require the shops to do in order to do things properly in their view…. It's very labor intensive for the shops. Eventually, that [cost] is going to have to be passed on if it stays the way that it is."

Horst compared the idea of shop licensing to that of the licensing required of adjusters in some states. He said such licensing is often little more than sending an annual fee to get a paper license - with no testing or ongoing training requirements - something he believes the industry should avoid.

Mayer said shops in highly regulated states such as Illinois and California have to make it clear to the insurers they work with that they can't, for example, leave blend time off initial estimates if they know blending will be required.

"I would tell the company that they're asking you to break the law and you do not want to do that and you're going to put the items on the estimate," he said.

"All of this is one reason you have to support your associations and the industry as a whole," Lloyd said. "You have to figure out a way to self-regulate. You don't want the government to do it for you. If you can prove that you can do it yourself, and if you have an association that can show that to legislatures, they'll listen to you. You've got to have someone there to support you when this legislation or regulation is brought forth, so that something can be done before it's passed. My personal opinion is there are people writing legislation that don't have a clue about the collision industry or the insurance industry."

All three companies say they have seen accident frequency decrease and the percentage of vehicles declared total losses rise - trends they don't see changing given such factors as improved safety systems on vehicles, the expense of airbag replacement, and the rise in diminished value claims. They say whether shops choose to participate in DRPs or not, traditional marketing is going to become crucial in a tight repair market.

"I think you're going to have to be the best of the best to survive because I think we're going to see a decrease in shops," Lloyd predicted.   o

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