- BodyShop Business

There’s a new DRP concept out there aimed at building high-volume, exclusive working relationships between body shops and insurers. But who will be the ultimate benefactor?

Through the years, our industry has experienced a seemingly endless redirection of focus. For the body shops, we shift from models of consolidation, to multiple-shop operators, to boutique shops, to specialty shops, to who knows what next. For the insurers, claims philosophies shift from drive-in, to field, to direct repair, to some other new settlement method. Sometimes we just change our beliefs in our equipment or pay plans or repair techniques. One thing’s for sure, though: the rate at which we change becomes exponentially greater, and, at every change, some new players enter the game and some veterans fall out. Clearly, in this world, if you plan on hanging around for awhile, it becomes more and more important to hone your ability to see around corners.

With every change we’ve weathered in the past, we all seem to wind up with one or the other philosophy. Sometimes we’re right, and sometimes we’re wrong…and sometimes it simply makes no difference. Often during these periods of transformation, while we’re forming our opinions, we’re either not presented with all the factors or presented with heavily influenced opinions. So why not present as much information available in a fair and balanced manner at the onset of these changes, so we may debate and decide?

In recent attempts to navigate the crystal ball, one particularly interesting development seems to be moving forward quietly. The philosophy at first glance looks attractive, but, after peeling back the onion a bit, also looks a little frightening. It’s the development of the “über DRP.”

What is the “über DRP?” Über is actually a German word you won’t find in an English dictionary, but, if used as an adjective, it’s usually translated to mean “super” or “hyper.” For the purposes of this article, I’ve defined “über DRP” as these recently created insurer/collision repairer referral programs that attempt to build high-volume, fairly exclusive working relationships. On average, the model seems to go like this:

Insurers select shops in a market that seem large enough to handle most of their work yet are small enough to be attracted to the volume the insurers can offer. These shops must: 

  1. Have rental cars either on-site, or very nearby.
  2. Have the proper equipment and resources. 
  3. Have office space available for additional customers and appraisers.
  4. Be willing to participate in or adjust their operating models to accommodate new ideas.
  5. Give priority service to their customers.

Once insurers identify those targets, the next steps they take of are:

  1. Select one shop, maybe two in a large market to participate.
  2. Remove all or most other existing shops from the program in the area.
  3. Bring several staff appraisers into the shop as full-time program administrators. 
  4. Create a “drive-in” inspection model at the location.
  5. Shift the majority of claims settlement from the field or DRP to the drive-in inspection method. 
  6. Schedule lots of drive-in inspections per day at this selected location.
  7. Offer these drive-in customers the option of just leaving the vehicle for repairs.

Once a drive-in customer is converted to a repair, the shops function like this…

  1. Shops must reserve capacity for these repairs so that they can be processed quickly.
  2. These “drop-off” claims are to be torn down quickly by the shop to identify any supplemental damage.
  3. Shops place priority on these repairs. 
  4. Cycle times are monitored closely by both insurer and shop. 
  5. Insurer’s co-located staff are available immediately to resolve any issues. 
  6. Insurer’s co-located staff stays close to, or takes the lead on, customer contact and communication.

Now, I’m not trying to describe any one insurer’s approach here. I’m just trying to outline the basics of the concept. Please forgive me if I’ve missed more specific points of a program you may be familiar with. As you can see, this is a very different approach to the repairer/insurer relationship. The question I pose is, “Is this a good thing, a bad thing or nothing at all?” And not just for the body shop, but for all parties involved? I won’t attempt to answer this question; that’s for you to decide. I’m only trying to present the issues for discussion so that maybe this time all of us who take something home in this process can win.

In any effective analysis, you need balance and must understand as much of the situation as possible. I know that’s not common for the rest of the media, but heck, we’ll try anyway.
To break it down, we need to look at the positive and negative elements for all parties involved – the vehicle owner, the insurer and the collision repairer. Let’s start with the vehicle owner.

The Vehicle Owner
Critical to any public offering, if you want the consumer to buy it, you better make it attractive. So does an über DRP offer value to the vehicle owner?

Is it easy to use for the vehicle owner? It might appear so since it’s a one-stop shopping situation; you can get right into a rental and your insurer is going to help see the repair along. It’s already a bit faster – the folks who selected the option for drive-in inspection apparently didn’t have a shop in mind already, so it would seem like a
good thing and an easy decision for
the customer.

Does the offering promise and deliver? It offers quality, but no more than any other DRP might. Every program offers lifetime guarantees. Maybe having the insurer on-site through the repair process helps a vehicle owner feel more comfortable. Maybe it has the opposite effect. Maybe the insurer, as the check writer, is the last person a vehicle owner wants overseeing the work. Perhaps the quality would increase a bit with the appraiser being so “hands-on” and somewhat responsible for the final product. The insurer representative surely wouldn’t want to deliver a poor product back in person.

Will it be done at a fair price? It seems like the price couldn’t be too high with the insurer being right there, and it couldn’t be too low with the shop having close daily interaction with the insurer. There wouldn’t be much guesswork on proper repair techniques with everyone being right there during repairs.

What works and what doesn’t would be
fairly obvious.

What about a potential downside for the vehicle owner?

Since these “drive-in” centers are limited inside a market, they could be located too far away or outside a vehicle owner’s normal driving area. Vehicle owners who don’t have a relationship with a body shop may feel “put out” by the limited selection.
Quality. Shops could feel pressured to rush in areas of work if they’re not prepared or set up to tear down vehicles at drop-off. Rapid increases in volume could also cause a drop in performance to keep up with demand. But it might only be a short-term dip in performance until shops managed the new requirements.

Again, from the customer’s perspective, it would seem to be balanced.

So from the customer’s perspective, weigh out the pluses and minuses. Will the process provide the value the customer demands? Remember, both the insurer and collision repairer are ultimately depending on the satisfaction of
this vehicle owner for the success of
their businesses.

The Insurer
What value does the insurer get from this type of relationship? Where is their win? Here are some things I can see the insurer benefiting from.

Customer satisfaction.
It would seem the “hands-on” approach would be appealing to the consumer. This added service might become a differentiator for the insurer, and hopefully a selling point. Consumers might even select their insurance products based on this special service over a company that doesn’t offer it. It costs insurers a lot more to gain new policyholders than it does to maintain their existing ones. If this were done properly, it might drive better retention. It seems clear that a close relationship like this with any vendor (the body shop) is pretty good. Insurers might expect to do things with shops that have never been done in the past. Anyone’s “best” customer is always going to get a little
bit more.

Administrative practices could become easier when dealing with fewer shops. Efficiency in processing work through repetition alone, in both administrative and production areas, might improve the overall quality of the
claims process.

At face value, it would seem like a more economical way to process claims, i.e. the savings associated with centralizing the staff at a body shop. Also, reductions in cost with field adjusters, DRP re-inspectors and desk reviewers – claims are settled quicker, cash moves back to insurers’ coffers more quickly and there are fewer redundancies in processing paper work. How about rental costs? This streamlining must reduce cycle times?

What about a potential downside for the insurer?

Customer satisfaction.
Any of the vehicle owners’ concerns above would have to be included. Other repairers in a market might no longer see these insurers as customers and, as a result, might not be willing to provide added services or prioritize their work. It may be more difficult to process repairs for those insureds and claimants who didn’t select the offering. It may also cause problems for insurers with their claims staff. Obviously, the model would need fewer resources to administer, causing concerns about future employment or other friction in the claims process.

Again, any of the customer’s quality issues would apply. Administratively, the claims process may suffer when shops and insurers work this closely. Shops may not process work at the rate or with the same sense of urgency as the insurers’ staff or vice versa, and, since there’s no employer-employee relationship here, processes may suffer as a result of the disconnect.

It doesn’t seem that the severity or rental costs would increase. In fact, the opposite would probably happen. I think the greater cost potential here is more related to the risks associated with the network’s size. For example, what’s the insurer’s cost if the relationship with its one shop doesn’t work out? I don’t think the other shops in the market, especially those who were removed from the program, are going to be very willing to help out. I’m sure they would take the work, but it won’t take priority. These claims would most likely become field claims with adjusters back on the street and result in higher processing costs.

On top of that, finding a new shop for the program might be difficult once other shops see the fallout from the initial shop’s termination. What about possible litigation expense? Is this model too close to steering? And what about the cost of rework? With lifetime guarantees and just a handful of shops nationally, warranty repairs for insureds or claimants who relocate or who’ve had their vehicle repaired at an ex-program shop might need to be processed at full price for
the insurer.

Are the greatest risks more related to this “all or nothing” business model? Do all parties involved run the same risk? What about the shops? Where do they win in this scenario? Where might they have risk?

The Shop
Let’s break down the potential positives for the repair shop.

Customer satisfaction.
The vehicle owner’s experience would also apply here. Shops may also see an increase in their own satisfaction with service levels back from the insurers. Things like responsiveness to dips or spikes in volume might improve or be easier to manage with the insurers being so close to the pulse of the shop. You might also see improved speed in the administrative process. Things like receivables and supplement processing may improve. It may just simply be nicer to work with an insurer who’s now so close to you. You may be able to break down some walls.

Again, the customer’s experience applies. What about the quality of the relationship with the customer and insurer, or the quality of the vehicle repair process itself? The relationship with the customer may improve somewhat, but shops who service customers well will always service customers well. There could be a gain due to the new “ease of use” for the vehicle owner. The quality of the repair process might improve, meaning the improvement in its efficiency due to “teardowns” and more consistency with the single insurer. Administrative work quality might also improve. For example, there would probably be greater consistency achieved from having a single insurer handling the majority of your work, experiencing more repetition in processing and becoming more familiar with staff.

It might have a great effect on costs. With the increase in volume a shop might expect from such a program, overhead costs would be reduced (as a percent of sale), leaving greater net profits. Margins on labor may improve. Utilizing processes like “teardown” to eliminate or reduce supplements may allow technicians to stay “on the car” for a greater percent of the day.

The same improvement may apply to the parts process. It may cost a shop less to process parts ordering and receiving if fewer supplements are generated. You might be able to leverage greater parts margins or reduce overhead labor costs. With the insurer being so close to the repair, rental costs may be reduced as well. It may be easier to get insurers to participate in rental costs if they’re close enough to understand certain delays.

Warranty costs might decrease. Some of the work performed by shops because “it’s just easier to do it rather than to get a supplement” may now get paid for.

So what about a downside? What are the potential negatives that may be caused by such a program?

Customer satisfaction.
Again, the customer’s potential negatives would have a direct effect. What about the service and satisfaction between shops and insurers? This closeness might also have the opposite effect. As insurers become the majority of the shops’ work, the “squeeze” for activity that larger companies place on their people may get pushed straight down to the shop employees. Shops may be pushed to align their values more with shareholders than vehicle owners. This working environment may drive away those employees who are more comfortable with the “small business” culture. It may also create new stress in the working relationship between the shop and the insurance staff. Unhappy people create an unhappy business, and that leads to unhappy customers. What about the rest of the industry? If these insurers take priority and become the majority of your work, other insurers and customers may be put out. Once good relationships may become strained to the point where these customers take their business elsewhere. It may become too apparent to the other customers who the favorite son really is.

Again, the customer’s experience is related. What about administrative and production process quality? Some of the processes required by the program may not be aligned with the needs of other customers. These processes may have the opposite effect on the quality of work for the balance of the customer base, i.e. repairs may be delayed for others if the requirement is to process the program’s customers first. Or, supplements may be requested at a point too far along for other insurers to process without special “work-arounds.” The overall business process may only really support the requirements of a single customer. It may become too specific to provide quality processes for others.

Cost. Just as it may have a positive effect, it may also have a negative one. The greatest cost might be related to a broken relationship. What would happen if things just didn’t work out? As with the insurer, this “all your eggs in one basket” approach could leave you in a difficult spot. What if the program failed after a year or so? (I don’t think anyone wise enough would pull out any sooner.) You may have displaced your previous customer base to handle the new program’s workload. Can you get them back now? Is that work still available or placed elsewhere? How quickly could you recover, and what would be the cost to your business? Could you afford to lose 50, 60 or 70 percent of your business? What about pressures from your largest customer (the insurer you partner with in the über DRP) to provide additional services as the program goes along? Could you find yourself providing things for customers that you can’t afford but feel you must provide? Does additional volume lead to increased profits if your business model isn’t very efficient? In many cases, additional volume through an inefficient process only increases overhead costs and results in greater losses, not gains. If you aren’t an organized or process-centered business, you run great financial risks with these quick increases in volume. Bigger is not better for most.

Questions to Ponder
As you can see, there are many
pluses and minuses for all parties involved to consider. So is there a future for the über DRP, and would it not be a good thing for both insurers and repairers to discuss before we all get in too deep? What do you
think? Either as a repairer or an
insurer, if this is coming, what are the
surrounding issues?

Here are some questions to ponder:

  • Will both or either industries benefit from the über DRP? Is it a bad thing for any of us, or does it just not matter? 
  • Will more insurers move to this model or does it resemble steering too much? 
  • Will batches of program work in a market wind up continually moving from shop to shop each year? Will it become, “They’re the ‘X’ insurance repair shop now and we’re the ‘Y’ insurance shop,” and continue to move around every couple of years like a professional basketball franchise?
  • What will the consumer think about this? Will they be affected? How will it affect their decision-making around repairers and insurers? 
  • Will aggressive changes like this only exist until a thorough weeding out of collision repairers occurs? Is it possible that once our industry is right-sized to match demand, we will not only be involved but perhaps lead changes in how insurers and repairers interact?

Let’s hear from you about where you stand on this issue. Should we be preparing for a shift like this and, if so, what should we be doing today?

Contributing editor John Sweigart is a principal partner in The Body Shop @ (www.thebodyshop-at.com). Along with his business partner, Brad Sullivan, they own and operate collision repair shops inside new car dealerships, as well as consult to the industry. Sweigart has spent 21 years in the collision repair industry and has done everything from being an independent shop owner to a dealership shop manager to a store, regional and, ultimately, national director of operations for Sterling Collision Centers. Both Sweigart and Sullivan have worked closely with former manufacturing executives from Federal-Mogul, Morton Thiokol and Pratt & Whitney in understanding and implementing the principles of the Toyota Production System. You can e-mail Sweigart at [email protected].

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