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Letter to the Editor
This article originally appeared in the March, 1999 Issue of INSIGHT
©1999 Collision Repair Industry INSIGHTAll Rights Reserved
Erie Drops Non-OE Parts-Memo to DRP Shops Outlines New Policy
State Farm Select Service Program Test Begins Feb. 1
Collision Repairers Sue Over New Jersey Auto Reform
INSIGHT Study Shows Collision Repair Claim Severity Growth Faster than Inflation
TrendLine Survey Shows Increase in Satisfaction with Both Jobbers and Paint Reps
Allstate and GEICO Targets of Non-OE Parts Lawsuit
INDUSTRY UPDATE
Erie Insurance announced to its DRP facilities February 2 that it will no longer specify most non-OE parts on repairs to their insureds’ vehicles. The memo, from James Brown, manager of material damage for Erie corporate claims, states, “Effective immediately, on new assignments, for both Erie Staff Adjusters and DRP Shops, the Erie has decided to no longer specify on repair estimates aftermarket hoods, fenders, doors, trunk lids, rear panels, quarter panels and bumper reinforcement bars, regardless of CAPA certification.”
According to the memo, the only instance where these parts can be specified is when the insured requests them to keep their vehicle from becoming a total loss, or where new and used OE parts are no longer available. Erie’s change in policy only affects those parts listed. Aftermarket bumper covers, headlamp or tail lamp assemblies could still be used.
The memo mentions the recent Consumer Reports article on non-OE sheet metal stating, “Regardless of the merits of various conclusions presented by Consumer Reports, the Erie is a company that listens to its customers. They have spoken. We have made the decision to deal with this divisive and controversial issue in this way.”
Shops are advised that if any of Erie’s prior customers have questions regarding the usage of non-OE parts they should be directed to the local claims office. On Wednesday, INSIGHT reported on two recent suits against Allstate and GEICO concerning their specification of non-OE sheet metal. Erie appears to want to avoid facing similar suits.
Reports from repairers indicate that several appraisers have mentioned receiving similar memos from other second-tier insurance companies. o
State Farm Mutual, the nation’s largest auto insurer, will begin testing a new program designed to provide an even higher level of crash repair service to its customers.
The State Farm Select Service program will be tested in limited areas near Chicago and Detroit starting Feb. 1. Sterling Autobody Centers, based in Natick, MA, has been selected to participate in the initial test of this program. Sterling, formerly known as CarQuarters, operates 30 facilities in six states — Florida, Georgia, Illinois, Michigan, Pennsylvania and Texas.
As part of its agreement with State Farm, Sterling promises to provide:
- a limited lifetime written repair guarantee for as long as the customer owns the vehicle.
- pickup of the damaged vehicle and delivery of the customer’s repaired vehicle, if requested by the customer, within a 30-mile radius. l assistance with arrangement for car rental services.
- a guaranteed completion date for repairs.
- professional cleaning of the vehicle prior to delivery to the customer.
In a press release announcing the program, Bill Hardt, assistant vice president of auto property claims for State Farm states, “Because of a high volume of business and specialization by their technicians, Sterling promises its shops can deliver competitively priced, high-quality repairs in a shorter period of time.”
Hardt continues, “If this improved efficiency helps insurers reduce the overall cost of handling claims without compromising quality, then it should also help them keep insurance coverage affordable.”
Hardt stressed that State Farm’s other repair programs will continue to be available to customers in the test areas. These include Service First, in which a participating shop prepares the vehicle repair estimate, and traditional service center operations, in which the company prepares estimates for customers.
“Selected State Farm agents in the test areas will offer the Select Service program as an option to customers who ask for help in finding a shop,” Hardt said. “In no way will the customer be directed to the Select Service shop. As is always the case with State Farm, the choice of shops is the customer’s.”
After a six-month test period, State Farm will evaluate the program to determine whether it will be expanded to other areas.
“It’s much too early for us to predict where the program might go or how extensive it could be if we decide to expand,” Hardt emphasized. “We need to see how this test works out before we get into those kinds of decisions.”
(Editor’s Note: INSIGHT wonders if other insurers using Sterling as a direct repair facility will receive the same level of service provided to State Farm under this program.)o
The February 2 Bergen Record, a NJ newspaper, reports that six collision repair facility owners filed suit February 1 to stop New Jersey’s new auto insurance reform from taking effect next month.
Under the new laws, if an insured takes his vehicle to a non-DRP repair facility, and the price of repairs exceeds what insurers would pay, the consumer must pay the difference.
The repair facility operators join three other groups, primarily medical care providers and trial lawyers, also filing suit to stop the implementation of the regulations. Repairers are focusing on the possibility that the quality of repairs will suffer under the new regulations, specifically highlighting insurer’s use of non-OE parts and the recent Consumer Reports article.
The Bergen Record reports: The suit by the body shop owners focuses attention on a common practice employed by many auto insurers — to allow the use of so-called after-market, or non-brand-name parts not made by the original manufacturer, to repair damaged cars. After-market parts can cost 20 percent to 65 percent less than the manufacturer’s original parts, but most body shop owners insist they are inferior. Insurers for the most part say the parts are safe and can help control car repair costs. But there has been little crash testing done on after-market parts. The National Highway Traffic Safety Administration, which crash-tests new cars, has never tested replacement parts. In an article in the February issue of Consumer Reports, the magazine installed after-market bumpers and fenders on test cars and found that they did not fit properly and offered poor low-speed crash protection. Vesley says shops that use original manufacturer’s parts will not be able to meet the price of those that use generic replacement parts. He says consumers will not want to pay the difference in price for the premium original parts, forcing more use of the after-market parts. But John Tiene, executive director of the Insurance Council of New Jersey, an insurance trade group, said some insurers already mandate the use of after-market parts when practical. Insurers in New Jersey differ on their policy regarding the parts. Charles Taylor, a spokesman for the State Farm Indemnity Co., the state’s second-largest insurer, says the firm’s current policy will continue: Consumers who insist on original manufacturer’s parts will have to pay the difference between those and the cheaper after-market parts. But the Allstate New Jersey Insurance Co., the state’s largest auto insurer, will continue to offer consumers a choice. Spokeswoman Maureen Sullivan says the company pays the full repair bill for motorists, regardless of whether after-market or original manufacturer’s parts are used.
Repairers complained the overall poor quality of non-OE parts gained new momentum with the publishing by Consumer Reports of a review in their February issue that blasts CAPA-certified parts’ fit, finish and low-speed impact protection.
(Editor’s Note: See the feature article on CAPA and non-OE Parts on the cover of this issue.)
A Collision Repair Industry INSIGHT analysis of collision repair claims severity figures from the National Association of Independent Insurers shows that severity figures for collision repair claims have increased at 18.76 percent above inflation from 1988-1998. This represents an annual growth rate of 3.75 percent over the rate of inflation during the period.
As the chart on page 7 shows, the average collision claim severity, the cost of the claim not including loss adjustment expense, grew from $1370 in 1998 to an estimated $2227 in 1998 in actual dollars. This represents a 62.54 percent increase over the ten year period, or a 12.51 percent average annual increase. Taking inflation into account, using the U.S. Consumer Price Index (CPI) as a gauge, the average collision claim grew 18.76 percent over the same period.
Most of the growth has occurred since 1992. Between 1988 and 1991, the average claim actually declined to $1288 on an inflation-adjusted basis.
The latest TrendLine Survey, appearing on page 8, shows an overall increase in the level of satisfaction for both local jobbers and paint companies’ local representatives since our last survey in 1997.
Jobbers achieved an overall score of 4.46 this year versus 4.28 in 1997 on a scale of 1-5 with 5 being an excellent rating. As the chart shows, the number of facilities ranking their jobber excellent jumped from 51.4 percent in 1997 to 57.5 percent in this survey- an increase of 6.1 points.
Paint company representatives had an overall score of 4.23 this year versus 3.98 in 1997. The number of repair facilities ranking their paint rep as excellent was 51.3 percent this year versus 48 percent in 1997- an increase of 3.3 points.
INSIGHT believes that this trend is due to the fact that major new paint technologies have not been introduced during the period, allowing both reps and jobbers to focus on customer satisfaction versus technical support on new products.
The number of repair facilities reporting they switched paint brands during the preceding 12 months increased in this survey to 13 percent versus 10.2 percent in 1997’s survey. It is important to note that just 8 percent of shops responding to the 1997 survey indicated they anticipated changing brands within the next 12 months- five percent lower than those that actually reported switching. Is the increased level of competition among paint suppliers the reason behind the level of brand switching that has occurred? Manufacturers looking to grow their sales dollars in a market that is leveling off in volume are seeking market share. To do so, they are resorting to financial incentives for prospective shops.
INSIGHT believes that, though financial incentives may influence what brand a facility switches to, satisfaction is the key factor in a shop’s consideration to switch. Consider the following: Below average rankings of paint reps, a ranking of 1 or 2 on the survey, equal 5.7 percent in this month’s survey- a fact that should not be overlooked considering 5 percent of facilities responding to this month’s survey reported they anticipate changing brands within the next 12 months.
In 1997’s survey, 14.9 percent of facilities ranked their paint reps performance below average by giving a ranking of either 1 or 2 on the survey. This month’s survey reported that 13 percent of facilities changed brands during the preceding 12 months, much of that time covered by the 12 month anticipation question of the 1997 survey.
INSIGHT believes this close correlation between a shop’s anticipation of switching and their satisfaction with their current paint rep is too close to ignore.
Allstate and GEICO found themselves targets of lawsuits claiming both companies defraud consumers by compelling auto repair shops to use imitation parts when repairing vehicles owned by GEICO and Allstate policyholders.
Both suits, filed Jan. 27 in Arizona’s Maricopa County Superior Court, seek class action status, claiming the companies’ actions constitute a breach of contract with customers. GEICO and Allstate policies state that repairs will be made using parts that restore vehicles to pre-crash physical condition and cash value.
The lawsuit against GEICO claims the insurer also violated the Arizona consumer fraud act, insurance codes, and RICO laws by forcing body shops and other repair facilities to use imitation parts without disclosing that estimates were based on use of the cheaper imitation parts.
According to the lawsuits, both insurers require repair shops to use parts manufactured by third parties that are not authorized, sanctioned or made by vehicle manufacturers. The suit claims that these imitation parts do not restore a car to original cash value, diminish its resale value, jeopardize the manufacturer’s warranty and threaten the car’s structural integrity.
(Editor’s Note: State Farm is also involved in a non-OE parts lawsuit. For more information on this and non-OE parts issues in general, see the feature article beginning on the cover of this issue.)
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©1999 Collision Repair Industry INSIGHT
All Rights Reserved
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