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Letter to the Editor

DRP Disillusionment

Is it time to re-evaluate the shop - insurer direct repair program partnerships?

The bloom, as they say, may be off the rose.

Even just a few years ago, it wasn't difficult to find collision repairers who talked - genuinely - about their 'partnerships' with insurers; who saw direct repair programs as a chance to get back to repairing cars with fewer delays and insurer involvement; and who viewed insurer discounts as a small "marketing" price to pay in exchange for an expected steady flow of work.

Today, it is becoming increasingly difficult to find repairers who don't view all but a very few DRPs as one-sided agreements giving insurers far more control over their business than drive-through estimating and insurer reinspections ever did.

"I feel like a whore anymore to the insurance industry," one California shop owner recently told INSIGHT. "I don't feel like I'm in control any longer. I don't believe, based on what I'm told on a daily basis, that I know how to fix cars properly, or how to run these operations."

This from a man who outwardly seems a model of success in the industry. He has been in the business in the San Francisco Bay Area for 28 years, and his company produces nearly $3 million (down from its peak of $3.6 million) in annual sales out of a 12,000-square-foot facility.

What has happened? Over the coming months, INSIGHT will be looking at a number of trends related - directly or more indirectly - to direct repair programs in an effort to determine if it is a good model for repair businesses, and where DRPs are likely to be going in the coming months and years.

Struggling to follow guidelines

To begin, we felt it was important to gauge how collision repairers are viewing DRPs as they operate today. We found it somewhat surprising that the California shop owner quoted above actually seemed to represent the majority view.

"I've been a Farmers [DRP] shop for nine or ten years," one shop owner in the Pacific Northwest - who didn't even want his home state listed - said. "Of the 13 shops our [Farmers'] coordinator calls on, I was always in the top first or second spot every year. Right now, we've dropped down to No. 5 or No. 6 out of 13 because I will not fix the cars in such a manner that I will stay [at the top of the list]. I don't believe it is in the best interest of my business or my long-term relationship with my customer. So I'm struggling to try to remain within their guidelines."

Among the key concerns of the shop owner is the recent requirement that Farmers' DRP shops use the CCC estimating system - and the degree of control the shop owner believes that gives Farmers over that system.

"I'm not a conspiracy theorist, but I really believe you're going to see times in the databases changing drastically in order to meet insurance companies' demands," he said.

He cites as an example the issue of whether a plastic bumper cover is painted off the car. It should always be to be done properly, he said, but Farmers wants him to indicate that they are painted on the car so that the estimating system automatically deducts four-tenths overlap.

Similarly, Farmers has indicated that on average no more than 20 percent (down from 25 percent) of a repair estimate is to be accounted for by new, non-discounted OEM parts.

"The coordinator in our area last spring tried to lower that to 15 percent, but I told him you can't do it," the shop owner said. "One brand new vehicle for which there are no used or aftermarket parts available screws up all your numbers."

Estimate auditors, he said, then use guides of used or aftermarket parts that are often out-of-date.

"They find parts that no longer exist," he said. "Last week, they audited a file and found parts [they wanted me to use] that had already been sold for over 90 days. They were gone. We ended up making five phone calls back and forth between the wrecking yard that supposedly had them and our coordinator to get it straightened out."

This shop owner is not entirely soured on the DRP concept. Of the seven or eight with which his shop is involved, he really only has a problem with two. Much as it was in the old days with insurer estimators and re-inspectors, the fairness of the program is based largely on the quality of the local personnel. But at the same time, he does not feel he can just chuck out the bum programs when they account for 20 to 25 percent of his business.

"We've been with Farmers for a long time, but we're actually approaching the point - we've been busy enough lately - that we may need to be removed from their program," he said. "Twenty percent of our work comes from them, but 90 percent of our frustration comes from them. The only thing we've been hanging on for is that something would happen and they would change."

Changing industry standards

Another California shop owner said it is not just one or two companies that are the problem - it's that he (and many other shop owners) allowed DRPs to gain too much control over his business.

His company started out in the specialty automobile business, and only in the mid-1980s did he go "hook line and sinker after the collision industry," including joining multiple DRPs.

"We saw it at the time, as I think as many in the industry did, as the best avenue for shops - at least in the short term," he said. "In the longer term, I think the jury is now in, and it's turning out to not be so great for us."

His area was among those hardest hit by the collapse of the Internet stock bubble; the area experienced a 30 percent drop in collision repair car counts.

"Here we are today living proof that the promise of insurance industry direct repair programs flooding you with cars doesn't work," he said. "In the down times, these programs kill you.

"I don't want to say we went into this blind," the shop owner admitted. "We knew probably in 1995 that the DRP thing long-term would probably not be good for us. But we sure loved the late 1990s. It spoiled us so much. This is when shops were getting bigger and people were opening multiple locations. I almost did it myself."

It was during that period that he did away with the detailing and other services his company offered as added services and revenue-generators, trying to devote every square inch of his facility to collision repair.

"We also ended up with front-end people who don't know how to sell," he said. "They're processors and order-takers. They really don't know how to write estimates the way we used to. They really don't know how to fix cars properly. They know what an insurance company defines as a proper repair. And I'm not saying that the insurance company is trying to make substandard repairs, but they are changing the definition of 'standard'."

Even for those "willing to play the game," he said, the work generated through DRPs is tenuous at best.

"You do one thing to upset the insurer, and there's five people lined up to take your spot," he said.

This shop owner, in what seems to be a growing trend, is reexamining the value that DRPs bring to his business. He is realizing that location and promotion are still critical. He sees that he needs front-end staff that can write and sell effectively. And he is realizing he may need to offer higher-margin and less insurer-controlled services, such as motorcycle repair or high-end upholstery work.

"We're evaluating, 'Gee, maybe it would make more sense from a business standpoint to become specialized again,'" the shop owner said. "We have to get back to having work coming from sources other than the insurance company. It doesn't mean you can't do the insurance work. You simply need to also have dealers supporting you, the public supporting you. I'm looking at a job and saying, 'If I were totally out of the DRP game, I could write my own ticket on this and I'd get paid.' There's something to be said for: Do we need to push $3-$10 million a year at 3-5 percent, or should we do $1.5 million a year at 15-18 percent? At least it would be more fun."

On the other hand

Some insurers, most notably State Farm, continue, according to many shop owners, to demonstrate that partnership relationships based on shared goals and mutual respect do indeed work in the real world. Collision repair facility managers who perform volume repairs for State Farm customers often comment on the almost complete lack of tension involved and they use the word "trust" regularly.

If shop and insurer cannot trust each other, why are they partnering?

Look before you leap

There are many well-run, profitable collision repair facilities in the U.S. that are involved in one or more DRP, and there are many just as successful shops that have chosen to stay away from insurer direct repair programs.

Whatever path a particular shop takes should not be chosen without careful evaluation of its impact on the shop’s bottom line. Before signing on for an insurer’s DRP, a shop owner must do a cost study to determine if the work will be profitable. Program guidelines and requirements must be examined to make sure that they can be implemented. Continuous tracking of repair volume and profitability for each individual DRP must be on-going.

Gauging future trends

In future issues, watch for more on the perceived link - real or otherwise - between DRPs and the estimating system providers, and on how shops, insurers and consumers are viewing DRPs and the trends that those viewpoints portend.   o

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