Advice from up North - BodyShop Business

Advice from up North

When the press release hit my e-mail, I could hardly believe my eyes. The headline read, “Allstate Insurance Drops Parts Discount Demand; Paint Reimbursement Up.” Huh? What? Was I dreaming? Then I read further on: “The Year 2008 has just barely started when Allstate Insurance forwarded a note to its PRO preferred shops in southern Ontario…”

Ah hah! That explained it. It seemed to me at the time that an insurance company doing the same thing in the United States would be as believable as someone inventing a magic drive-thru garage that you could send a wrecked vehicle through and, with no techs touching it, end up with a perfect vehicle returned to pre-loss condition on the other side.

My next thought was, OK, what’s the secret here? What did these Canadian collision repairers do to make Allstate bend? Are market conditions more favorable to body shops in Canada than they are currently in our country? Or did they just collectively decide they just weren’t going to put up with inadequate compensation anymore?

To get to the bottom of it, I talked with John Norris of Collision Industry Information Assistance (CIIA), a regional trade association covering most of Ontario. He doesn’t believe market conditions in Canada are much different from those in the United States. Even though there are fewer shops in Canada (8,000), insurance companies there, like here, are drastically reducing the number of preferred shops they work with.

BodyShop Business:
What was the key to getting Allstate to make this move?

John Norris:
This has been driven by costs in the marketplace – hydro (electricity) is up, fuel is up, paints costs are up. So there are some logical inferences there. (Editor’s note: Huh? You mean business expenses go up so a business acts like a business and raises rates? You don’t say! Read on.) But we’ve also been harping on shops for so long to understand that they’re the masters of their own destinies. So an insurer like State Farm can reduce the shops in its direct-repair program from 300 to 70, but those 230 let go from the program aren’t going to be able to, and shouldn’t have to, work for the same rates as its DRP shops. So now, over the past few years, we’ve developed this huge gap between the labor rate DRP shops get paid and non-DRP shops get paid – DRP shops getting anywhere from $43 to $50 (CDN) per hour and non-DRPs getting $55 to $76.

But do you have the overcapacity issue we have in the United States?

We’ve always had too many shops, particularly in the urban centers. Right now, though, we’re seeing about 12 percent close a year for a variety of reasons, mainly costs. But we’ve simply advised shops to take a fair but tough line with insurers. If a car comes into your shop and the customer wants the repair done there, you have him or her sign a work authorization. And if the insurer calls the next day and wants to take the car somewhere else, you tell them they are not the owner of the car, the owner of the car has signed a work authorization and we’ve already begun work on the car. They’re free to take it but there’s already a laundry list of charges they’ll have to pay. These aren’t erroneous charges, ripoffs or extreme pricing. The rates are listed on the wall, it’s competitive pricing and please reimburse us for those.

So you chalk up Allstate’s announcement and insurers in general paying Canadian collision repairers more fairly to a collective decision by the repairers to get paid reasonable and fair rates?

Yes. We put on a lot of workshops where we said, gentlemen, you’re running a business. You’re not at the mercy of someone else, you determine your own prices, but make sure they’re fair in the marketplace. We’ll do market surveys on our Web site and we’ll identify what charges are there. So if your insurer says we only pay $27 per hour for paint, but 200 kilometers away they’re paying $30 per hour and the paint costs both shops the same, you’ll know that’s not right.

…It’s not as if there hasn’t been some examples of repairers in the United States banding together and successfully taking a stand against insurers. The work of the Auto Body Association of Connecticut and the Vermont Body Shop Association comes to mind. But this is just another example of what can happen when a trade association is relentless in educating repairers until the message sinks in.

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