MSOs must find a partner—not a bully—in their insurer interactions
We as repairers know better than anyone that our industry is unique in that almost every repair job comes with a variation of two customers: the vehicle owner and an insurer. Each wants a quality repair, but they often have a different perspective of what that is. Since the insurer is typically paying most of the cost they are far more concerned over the price. Thankfully we have insurers, lest the vehicle owner would often assume the role of containing cost.
This dynamic has had more influence on our repair operations over the years than arguably any other single factor. The introduction of Direct Repair Programs (DRP’s) in the 1980s and 1990s had a monumental effect on the repair industry. The insurers leveraged their ability to refer customers to get cost concessions and additional administrative services provided from repairers. As the number of programs has grown, as well as the insurers’ use of their influence, many repairers have built their businesses through DRP relationships. Over the years, insurers have used their increased influence over shops by continually adding more responsibilities and requirements to their programs. For the most part, repairers have accepted these, even sometimes to the surprise of insurers, in the interest of perpetuating and increasing their referral dependence. Fast forward to today and we see that many insurers have dramatically cut their claim handling staff and passed many responsibilities to repairers. We as repairers have accepted terms such as no mark up on towing, free storage, glass discounts, parts discounts, bottom line discounts, financial penalties for not hitting self-managed program goals, free total loss administration and handling, photographic documentation, prioritization of repairs, accommodating catastrophe teams, sharing of parts invoices, alternative part searches and purchases and more. Labor rates in the 1970s were the same or similar to mechanical rates and today they are far less, no doubt influenced by insurers and DRPs.
DRPs have become like a drug addiction. We are so dependent upon them we continue to pay more and more to have them. We feel like we can’t get away. Ending a DRP is frightening in terms of the potential loss of business. To a large extent, we have turned over much of our own ability to gain customers to the insurers. They have had the influence and we as repairers have allowed and supported that.
Are we at a tipping point?
I pose this question to you. Are we at a tipping point? Have we finally gotten to a point where some repairers say "no" to the increasing demands of some DRPs? Are there other ways to get customers to consider our shops without the influence of an insurer? Can we afford to select which insurers we wish to have a DRP relationship with and who we don’t?
Based on what I hear from some repairers, I believe this could be an emerging trend. Don’t get me wrong, I am not an anti-insurer, anti-DRP revolutionary. But I am reporting what I see and I believe it healthy that we periodically consider our business models in light of current industry trends.
Partners
Some years ago, there was an insurer expert presenting at NACE. At the time, more and more shops were referring to insurers as their "partners,” meaning through their DRP relationships. Talking to repairers in the room, this speaker said, “Insurers are NOT your partners! They need you and you need them. But they are NOT your partners.” That has always stuck with me. I believe that insurer/repairer relationships can have some of the attributes of a partnership. Good partners care for each other and want what is best for their partner. Partners think in terms of a long-term relationship, instead of simply using and discarding others. Partners treat each other with respect and consideration. Partners want each other to thrive and succeed. They want the best for each other. It’s a give and take relationship. Insurers and repairers have different goals and needs and risks. In some cases where one gains the other loses. Therefore, they cannot be complete partners. But there are so many things that they can do in harmony and can have many of the attributes of partnership.
Unfortunately, in too many cases insurers behave in a dominant fashion over repairers. More like a master/servant relationship. When one party is harsh, dominant, arrogant, using and uncaring for the other, the relationship is frankly the opposite of a partnership. Bullies don’t make good partners. I am not talking about all insurers. But unfortunately, there are a few who at the shop level behave like bullies. In an increasingly sensitive society, it may seem hard to comprehend, but it is true. We as employers have the responsibility to provide good working environments for our staff. When considering which insurers we wish to have formal relationships with I would suggest that bullies should go to the bottom of the list.
What does the data say?
I communicated with Susanna Gotsch, Director, Industry Analyst, CCC. She is a master of the immense data CCC accumulates and is truly a student of the industry with great insight on trends. When I asked about insurers and relationships with repairers, the following was her response.
“Auto insurance claim frequency has been trending downward, but the cost of insurance claims continues to rise – for full year 2018 both collision and property damage losses per ISS Fast Track the average paid claim was up nearly 5 percent, while the average paid claim for bodily injury losses were up about 3 percent. So it’s safe to say there remains a lot of pressure on insurance carriers from a loss cost perspective. The private passenger auto market remains extremely competitive, and market share continues to shift, with some gaining share at the expense of others. We also know that shops are under a lot of pressure to make investments in training and tooling to ensure they can repair today’s vehicle which we know has become increasingly complex.
“When we look at the method of inspection for the appraisal E01 (estimate of record) we have seen a shift over the last several years. DRP share of MOI was 41 percent in CY2013, but fell to 37.4 percent by CY2018.
“When combined with Open Shop (demand estimate from consumer shop of choice) share and the share of service center (where appraisal written by insurance staff at a body shop), total percent of appraisals ‘written at the shop’ actually grew from 48 percent in CY2013 to 49.2 percent in CY2018 (only 0.2 percent increase for service center, remainder for Open Shop). In terms of the actual number of shops participating in DRPs, we have not necessarily seen any decline, but have seen an increase in shops participating in both OE certified networks and in the Open Shop program.”
I find the MOI statistic particularly interesting. It’s a nearly 10 percent drop in the DRP share. To me that is an indicator of diminishing value of DRPs. The customer referrals from the insurers, which drive MOI for the shop, are by far the most valuable part of the DRP relationship. I think most repairers would agree that if there were no referrals they would not choose to be part of a DRP, especially considering the immense administrative responsibilities and pricing concessions. Open Shop is not a DRP scenario, instead just an enhanced relationship in terms of expediting the estimate/supplement process. It doesn’t include referrals nor all the obligations of a DRP. And of course, the service center scenario is not a DRP either, and similarly doesn’t come with the same administrative responsibilities and not necessarily the same pricing concessions.
It’s interesting that Susanna brought up OE Certification. Recently Ford Motor Company publically acknowledged a survey they performed. They stated that they surveyed a large number of customers who had recently experienced a vehicle collision and repair. They asked, “What was the most important reason in selecting a collision repair shop?” Here are the results:
1. Certified by my vehicle manufacturer — 52 percent
2. Recommended by friend/family — 21 percent
3. Recommended by my insurance company — 20 percent
4. Geographically convenient for me — 7 percent
Could this survey be distorted because it was the vehicle manufacturer performed it? I don’t know. But I do know that CSI data that I have seen lately indicates a very appreciable increase in the percentage of customers who chose a shop based on vehicle manufacturer certification. There are also some indications that people, especially younger generations, are inclined to include online searches for customer ratings of businesses. There is also an increased inclination to check with others in their social circle before making a shop choice. In other words, there are indications that an increasing number of people are not simply relying on the insurance company’s recommendations before making their shop choice.
Going forward
Anecdotally I know of a number of shops who have reduced the number of their DRP relationships. Is this of any significance? Is it the start of a trend? Is it because of increased pressure from insurers, no doubt due to their increasing pressures from competition and rising costs? Is it simply because of good economic conditions giving shops more courage to risk loosing insurer referrals?
How about the future? Vehicle manufacturers are flexing their muscles. Their influence on our industry is increasing, primarily due to our increased dependence upon them for repair information and parts because of increasingly sophisticated technologies. They understand their increasing risks of litigation from new technology liabilities. They have concluded that better collision repair experiences increases brand loyalty and are taking steps to accomplish that. During a recent webinar Rob Johnston, Ford Motor Company’s Global Collision Marketing Mgr., said, “We think we will be the referral source, not DRP’s. We’ve said that before,… I think some kind of like look at us funny, but we believe that. Ford knows its technology, strategy, connectivity, and consumer wants. I just tell people, ‘Let’s do this thing together’.”
Many vehicle manufacturers are taking more control of their certification programs and they are increasing the shop performance requirements. AND many are taking over the first notice of loss (FNOL). It’s just starting to happen so it is too soon to know what the impact will be. But if it does have a significant impact, it will be another powerful reason for shops to lessen their dependence upon DRPs.
Will DRPs become less prevalent? Will some insurers compensate by becoming better partners to repairers? Will vehicle manufacturer certification programs become the new DRP? Will shops simply become more independent relying on themselves for new business?
Stay tuned. Its an exciting time to be in the collision repair business!
