COVER STORY: The New DRP - BodyShop Business


Without significant changes to current direct-repair programs, all parties involved are stuck with a system that has become a fertile garden for corruption, abuse, extortion and inefficiency.

When is enough enough? In early 2007, Greg Coccaro, owner of North State Custom in Bedford Hills, New York, struck a chord when he said “enough is enough” in filing a lawsuit against Progressive for steering. Last April at the Collision Industry Conference, that phrase again was repeated by several repairers who declared that they could no longer stand by and accept what they viewed as the distorted and arbitrary demands, concessions and illegal steering of insurance companies.

Shortly after those words were spoken, many other repairers across the country seemed to agree with them and also voiced that enough was enough. It seemed that they and thousands of others had finally reached their breaking point with the way DRPs are being managed throughout the country. Despite this outcry, however, nothing changed. 

More outrage was expressed a mere six months later when key insurance managers at multiple insurance companies were exposed for extorting shops and taking payoffs in return for putting shops on their DRPs. But once again, nothing changed. Most repairers agree, however, that without significant changes to the current DRPs, all parties involved are stuck with a system and process that has become a fertile garden for corruption, abuse, extortion and inefficiency – visible or hidden, proven or not. 

DRP History

Ever since the DRP was created 20 years ago, it has become integral to the principal claims process for over 60 percent of all insurer-paid claims – nearly $14 billion annually. The use of DRPs has spread since the 1980s, but they have been subject to little improvement and no systemic reform. All sides are afflicted by cobbled processes and kluged systems used to direct consumers to repair businesses that have entered into relationships with various insurers. And nearly all of these relationships are based upon concessions given by the shop in return for the referrals.

Some insurance companies implemented changes to their DRPs after discovering that key employees were extorting body shops. Other insurers fired the guilty parties but did nothing to prevent the abuse from happening again, with several high-level insurance executives explaining that they couldn’t do much to fix the problem because their hands were tied.  

DRP programs contain elements that many consider to be unethical, illegal and out of control, and that constitute a blatant violation of fair trade and consumer protection laws. These individuals also feel that DRPs are synonymous with poor business practices and bad customer service. Despite this pervasive opinion, reform has not been a point of discussion at any industry conference or within any association until now. The famous movie quote in the beginning of this article is a perfect description for this lack of dialogue between insurers and repairers.

Even after a study was conducted on the matter in 2007, nothing changed. The study was conducted by Carlew and Associates and involved more than 380 collision  repair business owners from 20 North American markets who offered their ideas and opinions on how to improve DRPs. The shop owners who participated had 712 shop locations and sales of $1.7 billion, or an average of $2.4 million in annual sales per location. A 130-page report resulted from the meetings and offered a series of recommendations to improve DRPs. The results clarified numerous points of frustration and offered suggestions for improvement, yet the recommendations fell on deaf ears.  

Command and Control    

DRPs may have been initially conceived to achieve efficiency gains, but command and control seem to be the driving factors for their existence today. But now that the outrage has reached a crescendo, insurers and repairers alike are starting to agree that a few fundamental reforms might make a positive difference for all, likely due to news reports of insurance company staff abuses that came out in late 2007.

It all started when the manager of AAA’s IRP was fired from the club for cause and many highly visible shops were investigated. In another high-profile case, an area manager for Allstate was arrested on IRS tax evasion for kickbacks he was extorting from shops around Chicago. In both cases and numerous others, even insurance company executives expressed frustration about not knowing how to address the problem.  

Insurers found that there were no specific laws that made this kind of conduct illegal. Legal experts explained that with this kind of abuse, the insurance company is not an injured party, so there is no grounds for a lawsuit or being a plaintiff.  Furthermore, state laws rarely define the specific actions to a degree where enforcement can occur. Even worse, insurers must be careful to terminate an employee for fear of a wrongful discharge counterclaim. Even more outrageous is that shops that blow the whistle or openly complain about the abuses have been known to suffer reprisals and be blackballed by both the insurance company in question as well as others. Regardless, the practices that this news exposed may leave insurers open to lawsuits relating to consumer protection and fair trade practices.  

A Proposal for Reform                

Following this news, the first draft of proposed DRP reform was presented to the industry. After months of review and consideration, insurers and leading repair organizations began to examine and debate the merits of the initial points of this reform (see sidebar on pg. 24). The points address current practices that may not be in compliance with the Federal Trade Commission, fair trade practices, and state and national consumer protection laws. The points also address loopholes that allow for corruption, abuse, fraud, conflicts of interest and ethical breaches.  

While everyone generally agreed that reform was necessary, some repairers spoke out against it because they feel DRPs are illegal to begin with and therefore shouldn’t exist at all. But it doesn’t seem like DRPs are ever going to go away.   

The real or potential implications of this problem point to a lack of controls, checks and balances, and monitoring. It sheds light on the potential for abuse and corruption in a system where a single insurance company employee can make or break any collision repair business regardless of how many locations it operates. These programs lack transparency and the objectivity that might elevate them above reproach.

The stories of extortion could have many more sequels if all stakeholders in this industry don’t do something quickly. It might sound alarmist to some, or too little too late to others, but the DRPs as they are today clearly are filled with bad business practices that expose shops, insurers, employees and consumers to lawsuits and legal enforcement.

Criteria? What Criteria?

One of the prime areas of potential abuse with DRPs is the selection of one shop versus another to be on one in a system that lacks transparent rules. What is the basis for selection? What are the criteria, and how does one actually get selected for the program? Is it a legitimate process? Is it legal from a consumer protection and fair trade practice viewpoint?  

While many shops on existing DRPs operate stellar businesses, that alone may not have been what got them on DRPs. There are many cases where the best shops (based on performance indicators, credit ratings, years in business, tools, equipment, training, etc.) are passed over for some shops that can’t hold a candle to them. There are numerous DRPs across the U.S. that include shops whose owners are convicted felons or that are under investigation by at least one state agency or have a long, blatant history of poor repairs, consumer complaints and rumors of unethical business practices. Why are they on the programs, and what was the selection criteria?

When one evaluates existing relationships between insurers and repairers in any market, one notices many questionable situations and dubious bedfellows. Objectively, no one could support why a shop is put on an insurer referral network while consumers are steered away from others. Are the circumstances above board? Can an area manager objectively show why one shop was selected and another passed over?  Can anyone show the existence of a transparent set of criteria that’s fair and equal for all potential players?

Insurers will point to their hidden or secret criteria for selecting shops. They may even suggest that it’s a matter of compliance to key performance indicators (KPIs). But what are the KPIs and how are they measured? Are the measurements arbitrary and only for the benefit of cost savings for the insurer? Are they equally and objectively enforced by independent authorities? Are all shops allowed equal access and opportunity to participate? If not, why? How is that not a blatant violation of unfair trade practices? How is the process not a perpetuation of the good ol’ boy programs of the past, or the cliques and close-knit bonds that gave some shops preferred positions with insurers, where a few hundred bucks invested in the right way might generate good relations with the right people at one insurance company or another.  

Even in State Farm’s recent rollout of its new Select Service program, shops were picked based upon which ones were willing to sign the agreement – an agreement that might have been potentially fatal to their businesses! But even then, not all shops were given the chance to compete for the referral account. Second, State Farm could eliminate any shop it wanted through the enforcement of its KPIs and other criteria that some feel is subject to interpretation.  

Situations such as these that exist in all DRPs raise the question as to whether the criteria really amounts to a legitimate form of “qualification” or simply the willingness to comply to concessions on pricing or repair standards. If selection is really only “concession based,” then how is that any different from other forms of grease, graft and payola? Is agreeing to a concession the same as bribery but just in another form.

Payoffs and scams riddle the existing DRP programs as much today as in the old days, but the cost is far higher. Everyone knows that there are more “pay to play” requirements to participate in DRPs, including products and services the shops must buy and even software and Customer Satisfaction Index services they must use.   

Of course, every insurer would deny these charges and suggest that their programs are for the good of the consumer and are far better than they were in the good ol’ days. However, under a blind analysis, there’s little difference. Insurers gain a direct monetary benefit that’s just as real in dollars and cents as a new TV, a Rolex watch, Lakers tickets or a leather jacket. What’s the difference? Perhaps it’s only that an individual rather than the insurance company received the inurnment (gratuity).

One might counter this argument by saying that at least the concessions are above board, but they are not. There have been many who question whether corner cutting is a form of consumer fraud that jeopardizes vehicle safety. Few if any DRPs have any kind of true performance incentives and rewards, so what’s a shop really paying for when it agrees to concessions on other DRPs? None are reciprocating agreements with true obligation and consideration for both the insurer and repairer.  

Spread the Power

Another important point of reform is that all power and authority should not reside with any one individual. Furthermore, selection should be based upon meeting the objective criteria. However DRPs are reformed, the program managers should not be able to arbitrarily suspend shops or kick shops off the programs. Allstate instituted this change with its DRP, and now no specific person has total responsibility for any one shop. Plus, Allstate DRP managers rotate randomly.  

Second, all insurers should create a review board made up of industry professionals who will review the insurers’ internal practices and tell them the truth. They may even want to consider making most of the advisors people who have nothing to gain or lose from the answers and feedback they give.

During a panel discussion of these issues, Michael Lloyd from 21st Century said, “You aren’t going to like this, but we are a private business and no one should tell us what to do.” That may be true, but that logic should then be applied to both repairers and insurers alike so that repairers, too, can run their businesses the way they would like.

Last, state laws need to be strengthened to make certain activities illegal, and any violation must carry heavy penalties. The laws must have a definition of the behavior and hold responsible any party that aids in the violation, whether it’s by malfeasance, nonfeasance, or misfeasance of their duties.
Insurers use DRPs to reduce their costs and keep their loss severity in check. Insurers can point out many abuses by crooked shops, too, in support of their business practices and also invoke their service to their customer. But reforming DRPs does not have to contradict these other important goals. There are many improved methods that insurers have not considered until now because the current questionable practices have allowed them to achieve financial gains while turning a blind eye to the growing crisis on the horizon. Those days are hopefully over!

14 Points of DRP Reform

1. Transparent standards and criteria. All future DRPs should be based on transparent standards and criteria that are objective and able to pass public scrutiny. All criteria must be published and open to public review.

2. Decentralized authority. Insurers should remove shop selection and all decision-making power away from single individuals and place those decisions with an independent review board. This board should be made up of consumers and industry professionals who can openly provide feedback. A majority of these advisers should be neutral, devoid of any conflict of interest and have nothing to gain or lose from the feedback they offer. AAA had a board, but it was made up entirely of subordinate managers. This helped create the perfect storm where payoffs and twisted deals became the norm until the manager was fired.

3. Staff rotation. Insurers should rotate area staff so that
no single person has long-term authority over any one shop or group
of shops.

4. Consistent interpretation of guidelines. Program guidelines or agreement items should be published and audited so that field staff can’t arbitrarily modify them and create areas for misuse and/or regional policy interpretation.

5. Performance-based discounting. If there is any price discounting between insurers and repairs, it should always be based upon fair trade practices and legal parameters such as volume. If a discount is given, it should be based on an objective, measurable and auditable business agreement.

6. Performance-based referrals. If there is any referral of a consumer to a shop by an insurer, it must be based upon fair trade practices and legal parameters such as consumer service and customer satisfaction ratings.

7. Referral language and word track. Repairers and insurers that use any kind of referral language and word track when communicating to consumers must always inform consumers first, before any discussion of other options, that they have the right to have their vehicles repaired wherever they prefer. If a consumer doesn’t have a shop in mind, the insurance company representative may recommend shops that meets his or her company’s published criteria and standards as outlined. If there are agreements to save the insurer money or to perform corner-cutting repairs, that must be stated to the consumer as one of the selection criteria. Also, the insurer representative may not make comments about any other business that isn’t on his or her company’s list as a means to encourage a consumer to select its referral choice or dissuade him or her from using the shop of his or her choice. The insurer rep also may not make comments that infer that there could be additional costs, lesser warrantees, delays or lesser quality if the consumer chooses a shop not on his or her company’s list. He or she is limited to saying that he or she has no additional information related to any other shop.

The participants of our panel discussion also suggested that repairers should be obligated to inform consumers that they have the same right to choose their own shop in an effort to prevent some repairers from “hooking cars” and holding them hostage when it was never the consumer’s choice to select them to repair their vehicles. Perhaps signs should be required in all shops that make that statement so all consumers are duly informed of their rights.

8. Shop-produced data. Insurers should acknowledge that all shop-produced data is the property of the shop and that no data can be gathered without the shop’s specific authorization. The insurer should disclose every data item to be collected along with the intended use of that data. Also, sharing this data should be strictly voluntary and not a requirement, point of agreement or criterion of participation in a referral program. One of the challenges with this point is defining what data we’re talking about. There’s room for debate when multiple parties gather and process the same data. But what seems to be universally agreed upon is that the consumer’s information should always be kept confidential at all times.

9. Universal acceptance of repair standards. Insurers and repairers should cooperate in the creation and universal acceptance of repair standards and mutually agreeable repair practices that will serve as the foundation of all estimating and repairs. To start with, the spirit of cooperation should focus on fundamental standards such as agreeing that all repair practices written on an estimate and employed by a repair business must return the vehicle to safety standards as defined by the auto manufacturers. State Farm Claims Consultant George Avery also suggested that perhaps the focus should be on mutually defining standards surrounding those issues that create conflict, friction, delays and consumer inconvenience. This alone could save billions on both sides of the trading relationship.

10. Repair practices. At no time will an insurance company recommend, encourage or pressure any repair business into following repair practices or using parts, paint or material that are not in compliance with repair standards in accordance with OEM specifications and/or that may in any way lessen the value of the repaired vehicle or compromise the safety of the vehicle. All requested repairs will be in accordance to the repair standards as established in point #9.

11. Restrictions from forced consumption or cram-down. Insurers should be restricted from requiring that a shop buy any product or use any service from a particular vendor or make the use of any specific product part of the agreement items or a prerequisite criteria to participate in a DRP or for receiving a referral of any sort.

12. Reform state laws on fraud. Insurers and shop associations should work in concert to reform all state laws to ensure they prohibit payoffs and other “pay to play” programs, with enforcement and criminal penalties clearly defined. The laws must have a definition of the behavior and hold responsible any party that aids in the violation, even if it’s by malfeasance, nonfeasance or misfeasance of their duties. There should be immunity and protection for whistleblowers as well.

13. Transfer of ownership. The transfer of ownership of a body shop should not automatically disqualify that shop from continued DRP participation. Continued participation when a shop is sold should be contingent upon a review and approval of the new ownership transfer and based on an objective application process commensurate to the criteria used for any and all shop participation as outlined in point #1. The selection might also be approved by the independent review board.  This issue has been of particular concern since it interferes with the buying and selling of a repair business. It can have enormous implications on the value of the business, too. It’s also not consistently enforced since consolidators regularly purchase shops and immediately continue the DRP relationships.
Consider the transaction surrounding Caliber Collision Centers in which a Canadian Capital company essentially paid $170 million for 65 shops and the operations. They were able to retain all their DRPs and avoid this arbitrary DRP rule, but independently owned shops in the same markets continue to be penalized.

14. Number for reporting abuse anonymously. Every insurance company should have a published, easy-to-find phone number so that shops and/or other individuals can call to report abuses anonymously, if necessary.

Writer Scott Biggs is currently the CEO and founder of Assured Performance Network, a shop-owned co-op founded in 2004 representing approximately 5,000 independently owned collision repair businesses in the United States. Biggs is the former producer and host of BodyShop Video Magazine and president of Business Development Group. He has received many awards and recognitions including Industry Achievement, Hall of Eagles, Most Influential Leader of the 20th Century and more. He has toured thousands of shops and delivered more than 850,000 hours of management education to the collision industry. His organizations have provided marketing, technology, management services and consulting to thousands of body shops worldwide since 1984.

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