Break the 80-20 rule before it breaks us

Jan. 1, 2020
Without a legitimate, timely independent rate survey being performed and audited, an entire market area is being held to prices that have not changed to reflect adjustments for inflation and increased costs and that don't ensure a sustainable future
The need for shops to stand up and get involved in the industry has never been greater. The percentage of shop owners that actually are members of their state or local trade associations is typically disappointing. I, at times, often wonder if everything in life revolves around the 80-20 rule — which when applied to the collision repair industry states that 20 percent of industry members step up while 80 percent sit and watch from the sidelines.

There are three key issues in the collision repair industry: customer steering, labor rate suppression and database abuse. There are specific steps the 80 percent of shops sitting on the sidelines can take to resolve these issues.

Issue 1: Customer steering

For some shops, customer steering is their business model, which makes it difficult for them to view it objectively. What is steering? Insurers certainly have a right to explain their programs to their customers, but at what point does the explanation become an attempt to persuade the customer with phrases or expressions that can create doubt in the customer's ability to make a choice?

Most of us agree that when customers state their desire to take their vehicles to a specific repair facility, or if asked for a preference and one is given, then all attempts by the insurer to change this decision should stop immediately. How do we monitor this interchange to prevent steering? Most of the time, when steering does occur, the shop(s) being "steered away from" never know it happened.

Issue 2: Labor rate suppression

Labor rate suppression has taken on a new meaning within the last few years. Rate surveys are "doctored" with rates from business agreements on volume pricing. Even if you are not part of a direct repair program, you become subject to rates set by other shops that agree with them to keep their doors open or with an expectation of a high volume of work coming their way. This is not legitimate market pricing — it is minimum pricing.

In most market areas, shops are "told" what they can charge instead of setting their own rates that allow them to operate their businesses as they see best. Without a legitimate, timely independent rate survey being performed and audited on a regular basis, an entire market area is being held to prices that have not changed to reflect adjustments for inflation and increased costs and that don't ensure a sustainable future for businesses.

Issue 3: Database abuse

Database abuse has grown to a new level of ugliness. In many markets insurers just ignore the "rules" and decide when they wish to use the estimating systems in the proper manner and when they won't. The abuse getting the most press is the "blend within panel" deduction. The abuse certainly doesn't stop there.

In the last few years a term with no possible validation has entered the debate when insurers decide if an operation performed by a repairer is included or not in a repair — "prevailing market practices."

How can an estimator or adjuster say, "Yes, I agree, it is not an included operation, but we don't pay for it, since no one else charges for it," or "it is not a prevailing market practice in your area?" Have you ever had them say, "Why don't you get all the other shop owners together and agree to charge for it ... then I can pay for it?"

The solutions

For customer steering, ask all of your customers if insurers attempted to redirect them to another shop. Document these accounts and provide them to your state political action groups. If you haven't noticed, steering battles are being won in many states across the country. Anti-steering legislation is being well received due the media attention on improperly repaired vehicles and on consumers being coerced into going to a preferred shop. Support your state action groups working with consumer groups to add to or strengthen your present laws and regulations.

For labor rate suppression, support independent market surveys in your area. Many state action groups are working to perform these surveys on a county-by-county basis each year. Use these surveys to establish true market rates (and practices) in place of the invalid surveys performed by insurers that are not audited or validated. In addition, get help when needed to understand your business costs and how to ensure a sustainable business future.

Finally, for database abuse, note that many state action groups have successfully won initial battles to use the estimating manuals as written, not selectively. Don't forget that we also must ensure databases are accurate and a true reflection of what's required to perform repairs. In the past it was very difficult to get resolution for a "request to review" from any of the three information providers. Now there is a new system everyone in the industry can embrace, the Database Enhanced Gateway, www.degweb.org.

This project is by far one of the most important initiatives the national associations have brought to fruition for the industry. Let's use it.

You can't afford to keep sitting on the sidelines allowing 20 percent of shops to do all the work. Even if you simply don't have time to get involved, you still can support industry associations monetarily. All of the efforts and victories being won today come from grassroots efforts. We've got right on our side. We've scored legislative victories because we're trying to do the right thing for customers. We all have a vested interest and commitment to ensure a bright future for all collision repair shops.

About the Author

Tony Passwater

Tony Passwater, president of AEII, has been in the collision industry since 1972. AEII is an international consulting, training and system development organization founded in 1986. Tony has worked with collision shop owners worldwide and developed computer solution software programs, training seminars, and on-site consulting services for many of the top organizations. He is also a founding partner in Quality Assurance Systems International, QASI, the leading organization for process improvement in the collision industry through ISO international standards and certification.

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