Industry Association Execs Weigh in on DRPs

Sept. 1, 2007
Industry association execs weigh in on DRPs, steering, overcapacity — and more

Industry associations are vital in the collision-repair field — they can help clear legislative roadblocks, provide industry oversight and standards, and generally be the strong, concerted voice of their members. The industry’s relationship with insurance companies, meanwhile, is one of the highest-profile and most important issues for autobody shops across the nation, so FenderBender approached the top executives of three prominent industry associations for their take on several insurance-related questions — as well as other key topics affecting their shop-owner members.

The executives who responded to FenderBender’s questions, which were prepared with other industry experts’ help, were Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS); Norbert Zaenglein, founder of the newly formed National Collision Industry Alliance (NCIA); and Ron Pyle, president of the Automotive Service Association (ASA). Their answers are provided verbatim below.

Since there is an outcry in the industry about the alleged abuse of today’s DRP programs, what specifically are you doing to help your members in this area? What steps have you taken — or will you take — to make today’s DRPs ‘all inclusive’ rather than insurance criteria selected?

Dan Risley: Unfortunately, the alleged abuses are not specific to DRP programs. Non-DRP repair facilities are being confronted with many of the same challenges. That said, SCRS has not taken any steps to ensure DRPs are all-inclusive. DRPs are not for everyone. We have board members on both sides of that equation, which is a healthy situation for the association, and our membership, in terms of representing their views. SCRS has taken steps to address the alleged abuses, and we’ve had an ongoing dialogue with many of the top 10 carriers’ executive management to educate them on the industry’s concerns, as well as seek measures to address them. Moreover, we’ve met with the Property Casualty Insurers of America, which represents hundreds of insurers. To date, our approach to the industry’s concerns has been broad-based, although we look to have a more narrow scope in the next several months.

Norbert Zaenglein: DRP relationships are becoming riskier propositions, and the promise of steady work referrals from insurers is ultimately going to diminish. Insurers are developing models that will allow them to select shops by measuring shop ‘performance’ in real time. So if Shop A has better cycle time, higher alternative parts usage or lower repair cost than Shop B, Shop A will receive priority referrals.

This process will change the nature of the DRP relationship, making it a riskier proposition because insurers will ultimately weigh cost considerations above all else. Quality will become a secondary factor.
The solution to this problem is to restore a free-market competition — and to enforce specific state laws and regulations that hold insurers accountable for quality of repair, reimbursements and claims handling practices. The collision repair industry can continue on its present course, get laws introduced, address estimating issues, develop repair definitions and lobby their senators. If, however, state insurance laws are not enforced, then the industry will continue to spin its wheels and wonder why it is not getting anywhere.

Ron Pyle: We make sure members understand the contractual agreement that they enter into. They should be aware of all ramifications of entering into that arrangement and should carefully consider it. About 85 percent of our member shops are involved in one DRP or another, and we certainly take it seriously.

Our position is that all DRP programs should be open to any qualified shop, and we’ve had meetings over the past couple years with insurers as they develop their programs. We’ve made sure we express our opinion and take a firm position when we believe there’s a non-productive practice. The result is that some insurers have taken a hard look at their practice and evaluated whether it’s working for them.

Steering has become a huge topic of concern, with many states beginning to adopt stricter anti-steering laws. However, tracking and reporting violations continues to be a problem. What steps do you recommend that repair facilities should take in reporting infractions, and how should they follow up?

Risley: What we’ve seen over the past couple years from our state affiliate associations is relationship building and networking with their insurance commissioner, Department of Insurance and legislators. This is key because without those relationships, you can’t educate them on the issues present in your state. I would recommend that repairers continue this trend because there is tremendous value in doing so, and it doesn’t cost much. It’s an investment of time and consistency. Those states that have been actively engaged have seen positive results.

What we’ve seen over the past couple years is relationship building and networking with insurance commissioners, departments of INSURANCE and legislatures.— Dan Risley

Zaenglein: In light of the diminishing predictability of DRP work, steering will become a decisive factor for all shops, especially DRPs. Shop survival will increasingly depend on the shop’s ability to market and target consumers independently. NCIA has already developed a number of posters that deal with steering and other critical industry issues. The posters can be printed from the NCIA web site.

Pyle: We think steering is a bad practice, and we are behind any kind of statutes that support that position. This is a consumer issue; the consumer is the one who will have to understand they’re being steered and speak up if they don’t want to be. Our primary outreach here is one of education as to how and where to direct consumers and what their recourse should be. We believe the real shame of the industry is that there are a lot of steering statutes on the books, but they’re not being enforced. If a repair facility wants to report infractions, we recommend that they contact the state attorney general or their Department of Insurance. We encourage them to pursue it.

There is an overcapacity/low volume challenge in the industry right now, and we hear that we will see attrition continue in the coming months and years. What can you do to help save many middle-of-the-market shops that will probably be the ones closing?

Risley: I don’t think there is anything that SCRS or any other association can do that will save a repair facility from going out of business. The fact is that newer model vehicles are changing the way vehicles are repaired. Significant investment in tooling, equipment, and training will not only become the norm, but a requirement if you want to repair many of today’s vehicles. The evolution of today’s vehicle is going to drive many repairers out of business because they will not be able to properly repair the vehicle without first making significant capital investments, which isn’t specific to middle of the market shops.

Zaenglein: To answer that, you first have to question the fundamental assumption of what economic factors are responsible for creating this ‘overcapacity.’ Insurer influence on the collision repair industry has created a kind of “Twilight Zone” economics, where economic realities become twisted and distorted. The overcapacity needs to be corrected by holding insurers accountable to provide the coverage promised in the policy and in accordance with state insurance regulations.

If state regulatory agencies were to actively enforce the unfair claims settlement practices regulations, then you might not have an overcapacity. I think a large part of the ‘overcapacity’ has been artificially created through insurer manipulation of the market. NCIA plans to actively promote the enforcement of state laws, to hold insurers and state regulators accountable so that consumers receive the coverage promised in the policy.

Pyle: I don’t know that size is necessarily the criteria for survival, I think it’s more about good business management skills. Over the years, we’ve been known for providing more management education than any other association. It’s not just about managing the shop, but having the proper skills, like being put in touch with the latest technology. I’m really pleased, too, about our ongoing relationship with I-CAR, especially as I-CAR has become more visible. We’re able to provide more technical and management training than ever before.

There are many changes occurring in the manufacture of vehicles and in the collision industry itself — various metals, for example, sometimes present timely training challenges to both the repair industry and the insurance industry. Where do you see the industry going in the near future, and what do you feel you have to offer to help the industry adapt?

Risley: The use of these various exotic metals is going to continue to increase. The cars are stronger and lighter, making for more fuel efficiency and safer vehicles. SCRS, in conjunction with the CIC Database Task Force, has been actively working with the OEMs and information providers to include that information in the estimating database.

In order to be effective, SCRS has to take a two-pronged approach. First is working with the OEMs to identify the metals, as well as whether there are specific repair or replacement procedures for that part. Second is educating that industry in terms of specific repair or replacement.

Zaenglein: Mandates to improve fuel efficiency, emissions and performance are placing significant challenges on vehicle manufacturers who are scrambling to find lightweight solutions. And the autobody/chassis is a prime target for weight reduction. The quest for fuel savings and performance will result in greater use of lightweight materials, including aluminum, magnesium and other high-strength, low-weight alloys. But you also have to look beyond metals. You are going to see the development of new and alternative materials that are not based on metallurgy.

Web-based training is going to dominate the education and re-education process for repairers. I can also see product manufacturers conducting more in-shop training. The role of NCIA is to offer forward-looking business intelligence that can accurately predict trends and directions so that shops can plan for tomorrow’s challenges.

Pyle: We understand that our ability to repair vehicles depends on understanding how they are made. Part of our responsibility is to have relationships with OEMs, so we can address issues like service information, new materials information, and repair issues. For example, for the past several months we’ve been contacting each individual OEM to determine how we can have a productive information flow and provide feedback about how their vehicles are perceived, such as whether they’re easy to repair or not. That’s been met with a favorable response; they appreciate that outreach.

Associations do many things for repair facilities that are unseen. What one thing in 2006 or so far this year are you the most proud of accomplishing that assisted the members of your associations, and how did it benefit them?

Risley: Our participation in the CIC Database Taskforce is something that people have read about, but I’m fairly certain most repairers don’t realize the impact this group has had and continues to have. Having all three national associations working together has been effective, as it relates to addressing issues with the three information providers.

The end result of our efforts doesn’t just benefit our respective members, but the entire industry as it relates to database accuracy, disclosure of changes in the database, refinishing of bumpers, panel bonding of welded-on components and substrate identification, just to name a few.

Zaenglein: The collision repair business is unique in terms of the individuals who are very passionate about the industry. Some of these individuals have gone through extraordinary measures to restore a measure of fairness into the collision repair process. Where NCIA differs from other associations is that it strives to eliminate the time-consuming administrative tasks that hinder organizational effectiveness.
We are in an era of rapid and constant change. By the time committees agree on a solution, the nature of the problem will already have changed. NCIA is a new model, a fast, efficient model that takes full advantage of technology to effect change quickly.

Where NCIA differs from other associations is that it strives to eliminate the time-consuming administrative tasks that hinder organizational effectiveness.
— Norbert Zaenglein

Pyle: I think most of the things we do are pretty visible. What may not be as apparent, though, is interaction with just about every single collision repair association, doing education outreach and having members serving on just about every volunteer board of directors in the industry. That means ASA policies and views are being considered at just about every level of the collision repair industry. We’re on the CIC Database Taskforce, and CIC Committee. One of the most recent is representation on the NASTF Collision Committee, which is relatively new, but will be influential.

Associations are sometimes handcuffed by anti-trust laws from doing things for their members that the associations know in their hearts they should do. What makes you get up in the morning and continue the fight for your members when some have opinions that in the end must go unsupported by your association?

Risley: Anti-trust creates parameters in which we need to work but has never prevented us from moving forward. What makes me get up in the morning is my desire to make this industry a better place. My parents owned a repair facility in Chicago since I was old enough to push a broom. Having spent a good deal of my childhood there, I’ve gotten to know the people in this industry very well, and in many cases, they are like an extended family. SCRS provides me and the board of directors with a unique opportunity to help shape and drive the industry in a positive direction.

Zaenglein: Antitrust laws prohibit uncompetitive conduct such as boycotts, and those laws are important. But, antitrust laws are ultimately designed to protect consumers from artificially high prices or low quality of goods or workmanship.

What the collision industry needs to realize is that the business of insurance is unlike other private enterprises, and those differences give rise to certain unique considerations and latitude in analyzing insurer conduct, including reimbursements. Without strict adherence to state laws, claimants will not receive the benefits promised in the insurance policy. NCIA is committed to make repairers aware of all pertinent state insurance laws and regulations to protect consumers from unsafe and substandard repairs.

ASA's greatest concern with regard to anti-trust issues relates to the insurer's exemption provided by the McCarran-Ferguson Act.
— Ron Pyle

Pyle: This is an easy one. Getting up is motivated by the fact that we’re member-driven, we’re not a top-down organization. ASA’s greatest concern with regard to anti-trust issues relates to the insurer’s exemption provided by the McCarran-Ferguson Act. ASA supports the repeal of McCarran-Ferguson as sponsored by Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.). As insurer regulatory policy reforms are considered, this repeal should be at the top of the list. It’s not the complete answer to improving the insurer-repairer-consumer relationship, but it is a major step in the right direction. There’s a lot to do, and we don’t get to the point where we’re satisfied with everything that’s going on — we keep pushing to make the industry better.

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