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Letter to the Editor

Select Service Begins to Roll

State Farm makes some changes and prepares to introduce the new Select Service program company-wide.

Let the roll-out begin.

State Farm announced last month that the new Select Service program it has been testing in several states will be rolled out company-wide - with some modifications - beginning now and continuing zone-by-zone through 2007.

Though the insurer isn't releasing a more detailed schedule for when the new agreement will be implemented in which areas, sources tell INSIGHT that northern states will probably be among the first to see the new agreement, prior to the busy winter season in those areas.

Because most of State Farm's zones include multiple states and major markets, the roll-out also may not include an entire zone all at once. The insurer tends to give zone managers a fair amount of leeway in conducting such roll-outs based on the needs and staffing resources of the zones, but foresees the program being in place nationwide (and in the three Canadian provinces where State Farm writes policies) by the end of 2007. State Farm has said zone management will contact collision repairers when roll-out begins in their areas.

The new Select Service agreement will differ not only from the old one (launched in 2001 and open only to multi-location collision repair businesses) but even from the one used in the test markets in parts of four states (California, Michigan, Illinois and Indiana) for about six months this year.

Here's what shops can expect to see in the newly-revised agreement:

Fleet rates taken off the table

Among the most talked-about provisions of the Select Service agreement in the test markets was the so-called "most favored" status it required. Participating shops were required to provide State Farm with the best parts discounts and lowest labor rates it offered (in any combination) to any other customers.

Among the questions raised in the test markets was whether discounts a shop may offer a fleet customer must also be extended to State Farm. Though it reportedly was not a unanimous decision among State Farm executives, the new Select Service agreement will make it clear that pricing for State Farm must match that offered to any other insurer, leaving fleet pricing out of the equation.

Multi-shop loophole closed

Not long into the test it became clear that some multi-location collision repair businesses had come up with what they saw as a solution to the State Farm demand for an equal or better deal offered under other DRP agreements. A five-location collision repairer, for example, might sign up three of its locations for Select Service at one set of rates, while channeling any DRP work for other carriers at lower rates to its other two locations. It could thus say it was offering State Farm the best discounts offered at those three locations, while still keeping deeper discounted DRP work at the other two.

The new agreement closes what State Farm views as this type of loophole by requiring multi-location shop owners to list all of the repair facilities that they own and have control over on the Select Service agreement.

Free pick-up and delivery now “within reason”

The test agreement left the requirement for free pick-up and delivery of customer vehicles (at customer request) pretty open. The new agreement will subtly narrow that by saying such free pick-up and delivery is only required within "a reasonable distance." State Farm will continue to pay for towing of non-drivable vehicles.

Warranty process clarified

The test and revised Select Service agreement requires participating shops to provide a written national workmanship warranty for as long as the customer owns the vehicle. The revised agreement, sources say, makes it more clear that a participating shop will have an opportunity to address any warranty issues (presuming the customer is still in the area) prior to that warranty work being handled (and billed for) by another Select Service provider.

Below-deductible claims now in the program

A vehicle-owner with a $1,000 deductible and $900 in damage will now still be told about the Select Service program by State Farm and offered the names of some participating shops if they have not already chosen one. Previously, a State Farm source said, vehicle owners in such situations were not told about the program.

Performance reports now required - and may cost the shop

Under the new Select Service program, shops are supposed to receive from the information providers a regular report on their performance in the program based on several cycle time and other measurements in comparison with others in their market.

"I'm not going to tell you what those numbers should be," George Avery, a State Farm claims consultant and one of the architects of the new program, has said. "I'm just going to tell where you are compared to the industry. We did it in a way that nobody else gets your individual data, but you can see where you are and where your market area is, so you can decide how competitive you are in the market place."

Shops involved in the test markets - and State Farm sources - say there still appear to be some bugs in this reporting system.

But one change in the Select Service agreement spells out that participating shops are required to obtain these reports. INSIGHT is looking into what the information providers may likely be charging for the reports, because they will not necessarily be free.

One thing that has not changed from the Select Service test markets is that not every shop that wants the program will be welcomed. Some current Service First shops will be dropped when the Select Service program rolls out in their areas, a decision that Avery said will be made by local State Farm claims management "based on either performance or capacity and business needs."

"The repair industry has said, 'Look, you really need to tailor the number of repair facilities you have in a market associated with your capacity needs,'" Avery said. "They told us we had too many. And we are not doing a very good job getting out and visiting with you with [your performance] numbers. So we've agreed that to manage the program, maybe we need to reduce. And if we reduce, we need to look at the top performers."

State Farm says the number or percentage of shops being dropped varies by market. Sources say the thinning under the test has been heavier in California than in the Midwest markets, for example.

What is also unclear is how much impact in terms of shop volume that being on or off the new program will have. In an admittedly non-comprehensive survey, INSIGHT called about two dozen shops in three test markets and found only two shops that said the level of State Farm work they had seen over the past three months was up or down significantly.

Both were shops with annual sales in the $750,000 to $1 million range. One had been turned down for the Select Service and said State Farm work had dropped about 25 percent compared to the preceding three months and to the same period last year.

The second shop, which did sign the Select Service agreement had seen a 20 percent increase in State Farm work. The shop had previously had two other DRP agreements. It raised its rates successfully with one to avoid having to give State Farm the lower rates, but did lose the other, smaller DRP. The increase in State Farm work, the shop owner said, more than made up for the loss of the one DRP, although he's a little uncomfortable with the percentage of his overall business that is now State Farm work.

The more than 20 other shops with which INSIGHT spoke - a combination of larger and smaller collision repair businesses, all of which were Service First participants but almost evenly split among those on and off the new Select Service program - reported little or no change in their level of State Farm work since the new program began in February.

It is something INSIGHT will be following with larger scale surveys in the months ahead as the new Select Service rolls out. But for now it seems that shops expecting a big uptick in work by getting on the new program may be disappointed - and insurers expecting shops to discount their work to State Farm rather than raise their rates to other insurers may be surprised.   o

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