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Letter to the Editor

Insurer’s Fickleness Fuels Fury

American Family’s second recent switch to a different estimating system has shops seeing red.

Darrell Amberson said his local American Family Insur-ance supervisor and personnel have always been fair and reasonable - but he was very unhappy about a recent decision made by their superiors in the company.

"I am extremely disappointed in the upper management of American Family who have not taken the repairers' interest into consideration when they made a decision that affects us so directly," said Amberson, president of the six-shop Lehman's Garage chain based in Bloomington, Minnesota. "They're leaning on us to be efficient, and yet through some of their business decisions, they are doing things that cause an inefficiency for us."

Amberson is hardly alone in his feelings about American Family, the nation's 16th largest property and casualty insurer (operating in 18 states). The company this fall told the 2,700 shops participating in its "Customer Repair Program" (CRP) that they must use the Audatex (formerly ADP) estimating system. Part of what makes the requirement so galling to some of these shops is that it comes just about three years after American Family required CRP shops to switch from ADP to the Mitchell estimating system.

For Chad Eldridge of Majestic Auto Body in Idaho Falls, Idaho, that would mean paying out $422 a month for each of the seven months left on the 3-year contract he signed with Mitchell when American Family made the switch from ADP. That's nearly $3,000, he said, for an estimating system that he would no longer be using.

Amberson has it even worse. Three of his six shops participate in American Family's direct repair program; two of those shops have two years left on a Mitchell contract, and one has four years left.

And pouring salt in the wounds of shop owners like Amberson and Eldridge is the agreement Solera has offered CRP shops. Among the key terms: a 5-year length of contract, hardly palatable given American Family's recent fickleness in terms of estimating system of choice. (Note: See page 11 for a modification.)

It is an issue that, based on phone calls and feedback INSIGHT has received in recent weeks from shops and industry associations, is quickly boiling to the top of many shop's growing frustrations with some direct repair programs.

"I will tell you that in my opinion this is not acceptable," Ron Pyle, president and chief staff executive of the Auto-motive Service Association (ASA), said. "Some information systems providers have made it clear that they are marketing their services to the insurer, not the shop. While this may be the most efficient short-term sales model for the provider, the financial gain may be short-lived. Where is the incentive to improve the product in the real world repair environment if research and development is driven solely by insurer requirements?"

"SCRS is in strong opposition to insurers forcing or mandating repairers to perform business in a certain manner, including requiring certain vendors," Dan Risley, executive director of the Society of Collision Repair Specialists, said. "SCRS has been in contact with both Audatex and American Family to express our members' and the industry's concerns. We will continue to communicate with both organizations with the thought of facilitating change."

Indeed, several sources told INSIGHT that behind-the-scenes conversations are taking place over the issue. Representatives of Mitchell, Solera (the parent company of Audatex) and American Family, however, all declined or did not respond to requests for interviews for this article.

There are, however, a number of interesting facets to the issue. First, of course, is whether there's actually even a need for an insurer to require shops to use a particular estimating system. On this, there is almost unanimous agreement.

"In today's environment, mandating a specific estimatics vendor is a business issue, not a technical issue," Fred Iantorno, executive director of Collision Industry Electronic Commerce Association (CIECA), said. "In fact, whenever an insurer 'switches' from one estimatics vendor to another, they prove that their systems can 'talk' to either one. CIECA has developed and continues to develop data standards that allow communication between different vendors' systems."

So what led to the American Family switch from ADP to Mitchell to Audatex? In a Solera press release, Dan Cunningham, auto operations director for American Family, cited his company's commitment to customer service.

"Proper technology solutions, combined with customer-focused employees, help us meet that commitment by streamlining service-delivery methods and providing us meaningful data we can use to take our performance to an even higher level," Cunningham said in the release.

Others point to changes in personnel at the estimating providers as perhaps tied to the change. Former insurance company executive Ed Schrenk was working for Mitchell in 2003 and reportedly negotiated the Mitchell-American Family agreement. Schrenk, along with Mitchell executive Tony Aquila, left Mitchell at the end of 2004. Aquila formed Solera a few months later, bringing Schrenk on board. Solera began managing American Family's CRP, and early this year acquired ADP's Claims Service Group and the renamed Audatex estimating system.

But, of course, for collision repairers, such behind-the-scenes issues are of far less concern than the reality of deciding what to do with multi-year estimating system contracts.

Amberson said he believes the responsible thing would have been for American Family and Solera to have negotiated some sort of cancellation fee with Mitchell for CRP shops. He and several other shops INSIGHT interviewed said representatives of Mitchell were at least looking into whether estimating system payments due under the contract could be applied for other Mitchell products. Amberson, for example, subscribes to Mitchell's printed estimating guides.

But the Solera contract itself is just as troubling to a number of CRP shops INSIGHT spoke with. The 5-year agreement requires an "implementation fee" of nearly $700, and monthly charges for a single-user that in some cases are $100 or more higher than the shop's current Mitchell agreement. Amberson said his contract included an addendum that enables him to get out of the contract if American Family drops his company from its CRP. There is no such out in the contract, however, if he decides to drop American Family or - of even more concern to some shops - if American Family switches estimating system providers again.

Some of the CRP shops INSIGHT spoke with said they had been told the change would be coming but would probably be six months or even a year out. All, however, said they ultimately had only a period of a few weeks at most to make both a decision and the estimating system switch.

One Cleveland, Ohio, shop owner who asked that his name not be used said he was still struggling with the decision. A CRP shop for about two years, he said his shop does 5-7 American Family jobs a month - hardly enough to support the investment, he said, but also, given the economy in his area, work he'd hate to see go away. Like many shop owners, he believes the amount of work the program brings his way could very well increase soon.

For shop owner Eldridge in Idaho, however, the numbers do not add up when he compared them to costs associated with other direct repair programs in which his company participates.

"We're not going to sign it," he said of the Solera contract. "We will not be continuing our relationship with American Family. Based on the number of claims we get, it doesn't make economic sense for us to sign this contract."

He said in his shop's first year on American Family's CRP, he averaged 3.4 vehicles a month. For the first nine months of this year, that average rose to 5.75 vehicles.

"Let's even say the growth is steady at that rate," Eldridge said. "I'm clear into the fourth year of the contract before they get up to around 12-15 cars a month. We do 15-18 cars a month for Farmers Insurance, and that's what we signed a CCC [estimating system] contract based on. And that was for even less money [per month to CCC], $100 a month less."

For Amberson, the choice is also easy if not pleasant. The Wisconsin-based American Family has significantly more market share in Amberson's state of Minnesota than in Eldridge's Idaho.

"It is one of our bigger insurance accounts," Amberson said. "At the end of the day, we're confronted with the decision: Do you maintain the relationship and bite the bullet and pay it, or do you drop it? Dollars- and cents-wise, it's worth it for us to pay it."

That analysis doesn't make what he views as unnecessary costs any easier to swallow, however.

"They're increasing our costs while expecting us to find cost reductions," Amberson said of American Family. "They're sending us two different messages: 'Do it cheaper, faster, better. But by the way, we're going to throw up some roadblocks that cause you to have an increased cost of operation.' That really disappoints and frustrates me. In fact, I think it's terribly short-sighted on their part."   o

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