Running a Shop Insurers+DRPs Trends+Analysis Operations News

American Family Requests Reduced Labor Rates

Order Reprints
American-Family-Requests-Reduced-Labor-Rates.jpg

American Family Insurance has issued a request to shops involved in its Certified Repair Program (CRP)—the company’s direct repair network—to reduce labor rates for customer-pay jobs.

The recommendation has caused some repairers to feel that the insurer has overstepped its boundaries in terms of putting unwarranted cost-cutting pressure on shops.

American Family distributed a letter, written by American Family’s CRP administrator Phil Shaw, over the summer to each of the 1,200 shops nationwide affiliated with its CRP. In the letter, Shaw detailed the request.

“It will be our expectation that our CRP partners will charge American Family customers that are paying for their vehicle repairs out of pocket no more than the existing labor rates charged to American Family,” Shaw wrote. “This expectation does not extend to discounts being provided to American Family on OEM parts, LKQ markup or off the final bill, although we would certainly welcome the gesture if you are able to pass along the additional discounts to our non-claims customers.”

The goal of the initiative—which officially took effect June 15—is to provide additional value to policyholders by helping clients work with quality shops that won’t overcharge.

“One way we can do this is by helping our customers feel secure that they are obtaining a high quality repair at a fair price when they are paying for their vehicle damage repairs out of pocket,” the letter stated.

But some repairers aren’t pleased with the cost-reducing request. Brett Bailey, president of A&B CARSTAR Body Shop Inc. based in Kansas City, Mo., says American Family overstepped its boundaries with this request because insurance carriers have no right dictating specific labor rates for customer-pay jobs.

“I was blown away when I saw this letter,” Bailey says. “I never thought we would be asked to give the same labor rate to every customer even when it’s customer-pay.”

Shaw, however, says the labor rate request had shops’ best interests in mind, too. The request is meant to promote and benefit its CRP network by sending additional job referrals to those facilities when customers are making their own decisions on where to go.

“Even though American Family is not able to pay for the repairs, we still have access to our network of CRP shops that provide high quality repairs and excellent customer service,” Shaw says.

Bailey says he has been involved with American Family’s CRP for roughly 20 years and has always had a beneficial relationship with the company. Still, he doesn’t plan to comply with the request.

“There is concern because numerous insurers have continued to try and control labor rates in different fashions. I think there is an attempt to control labor rates by all insurance carriers to a certain degree,” Bailey says, noting American Family’s latest request is another example of a problem that shops shouldn’t stand for. “The growing concern is the multitude of ways that labor rates are being controlled, held down and manipulated.”

Bailey charges two different labor rates at each of his five shop locations, one for direct repair partners and another for customer-pay work that’s about $4 per hour higher. Labor rates will remain where they’ve always been because lowering the customer-pay rate could negatively impact the company’s financial performance, Bailey says. Customer-pay work comprises 27 percent of his repair orders and 15 percent of total sales for the $14 million operation.

Bailey says shops have to stand firm on profit centers to survive due to rising overhead costs for several areas of business. He suggests shops simply shouldn’t comply if these types of situations continue to happen in the future with any other insurance company.

“Nothing in business is getting cheaper—information providers, benefits or insurance—so we can’t expect our labor rates or sales rates to decline. The math just doesn’t work,” Bailey says. “If this continues to be an ongoing issue in the industry, shops need to either stand up and voice their opinion or support industry associations to make sure their voice is being heard.”

In addition, Bailey says it would be an administrative headache to manage and regulate different labor rates for every customer who walks through the door.

Shaw says American Family has received very little pushback from the repair community. Only one shop has directly told the company that it will not comply.

“We have discussed the policy with multiple shop partners who agreed this policy is mutually beneficial and fair,” Shaw says.

Shaw asserts that the request is a recommendation, not a mandate, and shops are “on the honor system” to comply.

So far, Bailey says there haven’t been any consequences as a result of his decision.

Recommended Products

2018 Industry Survey: KPI

2017 FenderBender KPI Survey: Complete Report

Related Articles

NABR, Ray Gunder Launch Real-Time Labor Rate Survey

Report: Number of uninsured motorists rises to 16.1 percent

Mitchell Report Outlines Prices of Repair Parts, Labor Rates

You must login or register in order to post a comment.