A change in the traditional estimating process could save time and money for both shops and insurers
Ask Bill Edleman if his shop, Big E Auto Rebuild in Seattle, has found effective ways to reduce the number of supplements it must process, and Edleman does something fairly unusual: He credits an insurer for pushing a positive change in his business.
"We have to give Farmers Insurance some credit there, for wanting us to tear these vehicles down up-front to prepare the estimate," says Edleman, whose 17-employee-shop participates in the Farmer's direct repair program. "Sometimes that's not always convenient. But they have convinced me over time that it's absolutely the most efficient way to do it. Supple-ments are a giant waste of everyone's time."
Edleman is hardly alone in his assessment about supplements. A 2007 study by Mitchell International found that supplements, regardless of what necessitates them, can add an average of 1.5 days to the cycle time for a repair.
Although supplements are always likely to be part of the process on at least some jobs, some shops and insurers are working to find ways to reduce the frequency of supplements. Getting more shops and insurers on board, they say, will require a widespread understanding of the costs for both sides that processing supplements generates and more awareness of how the need for supplements can be reduced.Calculating the costs
Starting last year, the Collision Industry Conference (CIC) Business Management Committee set its sights on documenting not only the causes and costs of supplements, but also to create a model for reducing the need for them.
Mike Quinn, CEO of Arizona-based 911 Collision Centers, which this year opened its eighth location, co-chairs the CIC committee and said that no one in the industry will likely be surprised at the committee's list of the primary causes for supplements:
- Vehicle design and complexity play a role as the speed of change in technology increases.
- Both insurers and repairers face a shortage of qualified staff.
- Mistrust between insurers, repairers and consumers has led to systems and practices that practically necessitate supplements.
- The estimating databases frequently have outdated parts prices or incorrect parts numbers.
- Insurers ask shops to write visible damage only.
- Processes are not standardized from shop to shop or insurer to insurer.
But perhaps the biggest and most avoidable cause of supplements, Quinn said, is that initial or preliminary estimates – whether written by shop or insurer – are not a complete repair plan.
"I think 'preliminary estimates' should be struck from our industry some day," Quinn says.
Though the industry might agree on the causes of supplements, most might be surprised at the actual costs to produce and process one. That may be hard to pin down precisely, but the committee's best estimate is $737.50 per repair.
"We're not proposing that every supplement costs $737.50," Quinn is careful to point out as he shares a detailed breakdown of those costs. "But we did a lot of research. A lot of insurers gave us input; repairers and vendors gave us input. What I am proposing is that there is a lot of waste."
The $737 estimated price tag includes about $239 in hard costs for the shop: time for the estimator to review the vehicle at the technician's stall, prepare the supplement and contact the insurer; time to make a subsequent parts order and reconcile the second invoice; time for additional communication with the customer; and lost production time for the technician.
The insurer takes an even bigger hit, according to the committee's estimate: $400 in added costs for adjuster labor, costs associated with issuing supplemental payment, and added rental vehicle costs.
And that supplement may even cost the vendors involved about $100, because of additional delivery or parts return costs.
And all that, Quinn points out, presumes there's only one supplement on the job. It also does not include any costs incurred by the customer, nor the possible loss of that consumer (by the shop or insurer) because of dissatisfaction with the process.
The new system
Whether the actual costs of supplements is higher or lower, few would argue they are insignificant. The committee next turned its attention to developing "an industry-accepted best practice to reduce supplements," starting with a flow chart showing the traditional way work is processed in the industry.Under the "complete repair plan" system the committee is proposing, the same sorts of tasks are completed, but more of it is done up front.
The shop, for example, confirms insurance coverage for the damage, secures repair authorization, and explains the process to the customer (sets their expectations).
The vehicle is dropped off, with the customer receiving a target delivery date within 24 hours.
Initial photos are taken, and within hours, the vehicle is thoroughly torn down (some use the terms "methodically disassembled" or "blueprinted"), including detrimming of blend panels, in order to create a complete parts list and repair plan.
The parts order is "scrubbed" using the VIN by the parts supplier, and availability and pricing are confirmed. Quinn suggests that shops could actually pit multiple parts suppliers against each other on jobs, with the understanding that the vendor offering the fastest, most complete fill time is selected for that job.
At that point, the appraisal can be locked, the customer can be provided an accurate delivery date, and repairs can proceed with none of the delays caused by the supplement approval process and multiple parts orders.
The results
Though the committee's "best practices" for this process are still a work-in-progress, the "complete repair plan" is not just theoretical for some shop owners, including Quinn. It's a process he said is being used for about half of the business at his shops.
The benefit of the plan, he says, is the faster turnaround time, fewer missed target delivery dates, less time spent moving cars around in the shop (and indeed, fewer cars in the shop at any one time because work on vehicles isn't being halted midway through).
"The cars that do go through that process fly through here," says Steve Sturken, owner of Sturken Auto Body in San Jose, Calif. "No supplements, no parts delays, no headaches, exceeding customer expectations, you name it."
"To me, it works very well, and it's been a plus for us to do," agrees Gil Grieve, owner of Concours Body Shop in Reno, Nev. "Our cycle times are better because when the car hits the stall, we're ready for them. And we have fewer cars torn down at one time."
There are challenges shifting to this type of system. Some state laws require customers be provided with a preliminary estimate.
Patty McConnell of Old Dominion Collision Repair Center in Eugene, Ore., said it requires a different mindset for shop employees.
"Technicians traditionally see a car out in the lot and think, 'That's mine,' and get started on it whether it's ready to go or not," she says. "Reducing supplements requires getting techs to understand they don't touch the vehicle until it's been completely torn down and a sheet has been completely written on it and parts are ordered and here."
Grieve also said having a technician teardown vehicles that others will reassemble requires some adjustment.
Perhaps most importantly, reducing supplements through blueprinting requires convincing insurers to try something that for now is still out of the ordinary. McConnell said some insurers still intent on measuring how quickly an initial estimate is uploaded after a vehicle arrives, don't see the overall cycle time advantages the up front "blueprinting" offers. But insurer perceptions may be changing, she said.
"Two of our three main DRPs love it," she says. "For one of them, it's just what they wanted, so they were really excited when they found out we were doing this. We can eat through work really, really well when we're doing the system the way it needs to be done. It really makes a difference in cycle time."
Not surprisingly, that's an appealing prospect to insurers. A regional claims manager for AIG earlier this year said a drop of one day in average rental car use saves the company $2.9 million. Every phone call to an adjuster, he said, brings with it an average cost of $17. So fewer supplements and delays are something insurers will support.
Insurers may, however, resist such a system unless they are sure proper images of the vehicle are taken prior to teardown so they have what they need to address issues of comparative negligence and bodily injury negotiations. Insurers also may be concerned that shops' teardown of total loss vehicles may result in loss of salvage value.
As part of its effort to address such concerns and get the new process more widely accepted by insurers, the CIC Business Management Committee in recent months sent a letter to the top 25 auto insurers in the country urging them to consider the potential benefits of the "complete repair plan."
"I've seen insurers drive change in our industry," David McCreight, co-chairman of the CIC Business Management Committee, says. "I believe if this idea is embraced by the insurance industry, it will move forward."
In the meantime, Quinn suggests that shops begin working with first just one insurer, explaining how the process will reduce supplements, improve cycle time, and in some situations may even reduce severity. Make sure, they say, you make the process as transparent to the insurer as you can, making it clear they can "come in any time and see" what you are doing. Once you have one insurer on board and work out the details of the system within your shop, Quinn said, you can show other insurers how it's working.
Quinn and others using the system said they truly believe the industry will gradually shift away from supplements on nearly every job to this sort of complete repair plan system.
"Once we follow it, we can all save money, reduce stress, and improve customer satisfaction and retention" Quinn says.