No one can refute the importance of discussing high-profile issues such as terrorism and hurricane claims, but the reality is that up to 68 percent of every claim dollar paid by insurers goes towards auto claims, a trend that can only go up due to technical innovations and increased safety features. Given that high percentage, it is in the best interests of the auto collision and repair industry and insurers to focus on solidifying a good working relationship with each other.
The relationship between insurers and collision repair shops is an important one because they are both serving the customer, and customer service is one area where both industries strive to excel. The issues that exist between repair shop and insurer can be delicate, however, since everyone is working to improve that bottom line. At the end of the day, insurers and repair shops have to work together harmoniously if they are going to streamline the repair process for the customer — and themselves.
The Washington Metropolitan Auto Body Association recently hosted a roundtable discussion to address some of the issues between insurers and the collision repair industry. Some of the questions that the association asked insurers focused on the topics of suppressed labor rates, direct repair programs, and the relationship between insurers and repair shops. Jordan Hendler, executive director of the association, commented on the essence of the discussion.
"We are appreciative to have the insurers explain practices at a corporate level, versus hearing different things all over the nation about practices in specific areas," she said. "It is very helpful to repairers to hear answers to their questions from someone that can speak to the corporate policy that hasn't been handed down through five generations of management. That is the real benefit — understanding what insurers expect and in the same way explain what we expect, too."
Labor Rates and Pricing
Suppressed labor rates is an issue that the collision repair industry sees as one of the most pressing. Fair compensation is a fragile topic in any service industry, but for repairers, it's complicated by the wide range in how much rates can vary in a given market.
"A lot of times, a suppressed rate comes from the insurer trying to control costs," said Hendler. "But sometimes it's unfair to the repairer because they are not actually using rates of repairers that are not under a contractual agreement, as in a direct repair program."
One of the challenges that associations like Hendler's face is educating repairers on appropriate charges and common business practices. "Some repair businesses are frustrated because they recognize the difference in rates throughout the industry, and some businesses don't know the difference and just think that this is just the nature of the business," she said.
State Farm has implemented one solution for keeping the insurer in repairers' good graces. "The repairers who are part of our program can go to a web site we provide and update their pricing information at any time," said Dick Luedke, spokesman for State Farm. "We use that to determine what we call the 'prevailing competitive price,' which repairers set themselves in each market. There is no time limit on when they need to update the information, and it's easy for them to do that."
Erie Insurance approaches the issue with a similar perspective, but arrives at a different result based on the market. "We do not require shops to provide labor rate discounts," said Jim Brown, assistant vice president and manager of the material damage department for Erie. "Generally speaking, Erie expects that the natural market will adjust over time regarding body shop pricing so as to remain adequate and competitive. We seek to simply track what is fair, reasonable, and customary in the market for quality repairs."
But how are labor rates across the industry established? Hendler contends that sometimes insurers arbitrarily establish a rate in a certain market without any statistical evidence to back it up.
"Insurers sometimes use data that is compiled from contractual relationships, like a direct repair program environment, which could suppress the labor rate for those who don't have a contractual relationship," she said.
Allstate Insurance nearly echoes the response of Erie and State Farm concerning the issue of suppressed labor rates. "We pay competitive labor rates, which are driven by the marketplace," said Mike Siemienas, spokesman for the company. "We make sure we are updated on the information for the markets. It is the responsibility of the repair shop to ensure that they have the appropriate equipment and qualified technicians."
Direct Repair Programs
Although insurers have requirements in place to ensure the quality of repairs that their go-to shops perform, the customer ultimately has the final choice in where they would like to have their vehicles fixed. Insurers agree that when a customer makes a claim on a vehicle that needs repair, they cannot be coaxed into using the company's direct repair program. However, if the customer wants the repair to be guaranteed, some insurers will recommend using one of their preferred shops.
"The difference between a customer going to one of our direct repair shops compared to one that's not in the program is that the repair is guaranteed for as long as they own the car," said Siemienas.
He went on explain why insurance companies like to point their customers toward their direct repair programs.
"If a customer calls with a claim and asks for our recommendation, we can recommend a repair shop in their area that is a part of our program, but if they have a shop in mind that they have gone to for years, that's their prerogative," he said. "We want to make sure that any shop we recommend meets our standards and that we are confident in sending our customers there, knowing that they will have a good experience. If they are not in our program, we can't control their certifications."
It would seem that the collision repair industry would view the recent popularity of direct repair programs as unfair, in that they are likely to give larger, well-known shops the lion's share of the business in a given market. But insurers often have a rigorous application process before shops are selected to be part of their program, and for good reason: to ensure a high level of customer service.
"I would not say that direct repair programs are unfair, because some businesses use that as their model and they don't mind settling for less money because they think they are getting consistent business out of that relationship," said Hendler. "Repairers should have the ability to make money for what they do and charge for what they have performed. One of the biggest problems we have is educating the repairers on what they can and cannot charge for or what common business practices are, because most of them don't know their business enough to argue effectively."
Choosing the shops that are eligible for an insurer's direct repair program is no easy task. Their due diligence process varies, but exists to find shops that match the level of quality that fits each insurer.
"We work with the shops to reach an agreement so that we can get the cars repaired. It is advantageous for shops that are in the program because it gives them a consistent flow of work volume," said Siemienas.
The Compliance Factor
Another issue that shows up under the microscope when researching this relationship. Is there a clear advantage for DRP shops that do business with insurers versus non-DRP shops? The jury is still out on that one, since insurers seem to be making every effort to make the repair process a smooth one for all the interested parties, while attempting to maintain a standard of quality and customer service. For instance, Erie Insurance employs a thorough application and selection process for their preferred shops.
"If a shop has an interest in being considered for participation in our direct repair program, Erie uses a questionnaire to gather detailed information about the shop," said Brown. "Part of our review is compliance with the Collision Industry Conference's standard criteria. In most cases, Erie inspects the shop, reviews input from our adjusters working with those shops, and reviews our re-inspection findings."
State Farm and Allstate also have requirements for shops to measure efficiency, quality repair, and competitive pricing.
"Shops have to go through an application process to qualify for participation as an Allstate Pro Shop by meeting a minimal equipment requirement to facilitate a quality repair, which is the Collision Industry Conference's minimal equivalent requirement for a "Class A" collision repair facility," said Siemienas. "Allstate also requires continuing education in its selected program for participating shops"
Moving forward, the repair industry needs to work on ramping up their operations in several areas, and it is clear the shops that want to participate in insurers' direct repair programs need to unite under a universal standard in the areas that insurers look for in a repair shop.
"There is such a disparity between classes of shops and types of business models in shops that lead to some of the problems that we face, it is somewhat self-inflicted," said Hendler.
In order for repair facilities to compete on an equal playing field for insurers' business, traits like efficiency, quality, and competitive pricing should be the focus of every business model, no matter the type or size of the shop.
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