Profiting from Customer-Pay Repairs - BodyShop Business
Connect with us
Close Sidebar Panel Open Sidebar Panel

Shop Operations

Profiting from Customer-Pay Repairs

Afraid to make an insurance claim, many consumers are paying out-of-pocket. This trend not only presents some challenges for collision repairers, but also some opportunities.

Advertisement

Barrett has authored numerous industry trade journal/magazine articles, including several cover stories for BodyShop Business. Having grown up in a family-owned collision repair business and owner/operator of two successful collision repair facilities, his ongoing efforts as industry speaker and repairer coach-consultant are geared toward educating professionals and consumers to achieve equally successful resolutions to automotive-related property damage issues. Such issues include proper and thorough repair, reasonable repair profitability for repairers as well as equitable claim settlements for both claimants and the responsible/paying parties. ADE offers numerous professional services nationwide.

Regardless of most market demographics, many of us in the collision repair industry have noted a dramatic increase in consumers paying “out of pocket” for collision repairs – in an effort to avoid making an insurance claim.

Click Here to Read More
Advertisement

In fact, some repairers say that as much as 25% of their entire business has become customer-pay compared to other means, such as insurance claims, fleet, wholesale, etc. And it’s not just for those repairs that are a little over their deductible. We see customers paying $4,000, $6,000 and more out-of-pocket to merely avoid making a claim.

This pattern is true for the at-fault parties paying for their own damages out-of-pocket, along with paying their victim’s repair out-of-pocket and rental costs during the needed repair time. And we find this to be happening whether they’re single, married, elderly or young. In our particular market, we find customer-pay repair even more prevalent when the payer has young driver(s) in the household. (FYI: Money Magazine, March 2006 states in part that, “Adding a teen to your policy can double or even triple your auto insurance premium.”)

Advertisement

So why the widespread and growing consumer fear of making claims? Simple – because people have been conditioned to believe: If you use it (file an insurance claim), you’ll lose it (your policy will be cancelled or, at the very least, your rates will go up significantly).

The fear of making an insurance claim is so prevalent that we see consumers not making a claim even when they weren’t at fault and the probability of their rates being affected is unlikely. Arbitrary rate increases by insurers are illegal in most, if not all states, yet there’s a pervasive fear – valid or not – that some insurers engage in the practice anyway.

Advertisement

This fear creates consumer distrust of insurers, which can prove challenging for quality repairers since these self-pay consumers are more likely to be concerned with price than with quality.
But the situation presents some opportunities as well.

How It Got This Way
The insurance industry is extremely proficient at understanding American consumers’ habits and fears, as well as their wants and needs. Through focus groups, surveys and claims experience, insurers know us, the average consumer, better than we know ourselves. After all, information is an insurer’s core business. This is how they evaluate risks, set insurance rates, sell their products and go about settling claims.

Advertisement

This understanding is clear if you take a look at insurers development of direct-repair programs. Consider Progressive’s Concierge Program, in which an insured or claimant signs what amounts to a Power of Attorney, giving the insurer the legal right to act on the consumer’s behalf in the repair of his damaged vehicle. Let’s face it, giving an insurer the right to select the repairer and to determine the method of repair, the quality of parts to be employed and the level of quality is, at best, ludicrous. But to many, these sorts of programs fulfill the unwary consumer’s need for what he sees as a hassle-free repair.

Advertisement

Because insurers understand the American public so well, they’re able – when they so choose – to foster consumer fear. And this fear more or less trains consumers to think in a manner desired by insurers. For example, how many times have consumers read or heard in the news about an insurer leaving a specific market or even a state because the insurer felt rates were too low for the risks and the state wouldn’t allow a rate increase? Or how many times have insurers threatened to leave, and the state gave in, allowing the increase?

How many times have we heard (especially in recent years) that, due to major catastrophic events (hurricanes, floods, etc.), insurers need to raise their rates and/or just pull their business from specific areas (even after posting record earnings for the same period)? This situation is occurring in Florida on a regular basis and has become a major, ongoing concern for many policyholders, as well as the state government.

Advertisement

Think of how the possibility of losing your insurance coverage and the thought of having to find another policy affects consumer mindset: “Gee honey, maybe we shouldn’t make that claim for the busted water pipe, which soaked our upstairs bathroom and then leaked down to the dining room ceiling. Maybe we should just take care of it ourselves and save our insurance for something major.”

And a minor fender bender? Forget-about-it! “We have a $500 deductible and if we make a claim, it’ll cost us for the next five years. We’ll just pay the $2,500 to get it fixed and no one will ever know. Or maybe we’ll just live with the damage.”

Advertisement

Consumers are afraid to make a claim – even though having protection from unexpected damages/accidents is the very reason they bought insurance in the first place.

It’s the opinion of many that insurance companies have created this fear by design – that they’re going to raise rates at a whisper of a claim and cancel policies for the most basic reasons, regardless of how many years their loyal policyholders have had coverage (we’ve all heard these stories in recent years).

The cancelled consumer will then be in need of immediate insurance coverage, and one of the other insurers is likely to pick up his business – at a higher rate. This insurer follows the same practice, as do the others, and what we have is a high number of consumers being canceled and being picked up by other insurers at higher and higher rates.

Advertisement

It wouldn’t take long (in business terms, a decade isn’t long) before harmed consumers complain to others and more consumers become conditioned to the fear of making an insurance claim.

How This Fear Affects Our Industry
Repairers who provide high-quality, thorough repairs understand that the process for a proper repair begins with accurate and comprehensive damage assessments. And these quality repairers may find sales a bit more challenging when dealing with the consumer who’s paying for the repair out-of-pocket.

Whereas your customers of the past may have been more concerned with quality than pricing (since the insurer was paying), customers paying out-of-pocket today may feel they don’t have such luxury. And because many repairers fail to properly educate consumers on the importance of quality, safety, performance and restoring resale value, pricing becomes the No. 1 priority for the un-edified consumer.

Advertisement

Many repairers will be faced with having to offer cost-saving alternatives that they themselves may see as a compromise in quality, such as using aftermarket parts and omitting restorative procedures (e.g. re- moval and reinstallation of trim, etc.), in an effort to compete against those who offer less-than-the-highest-quality workmanship and related pricing.

These quality-minded repairers also may lose sales due to providing accurate, comprehensive estimates because many consumers will make their decisions based on pricing alone. These repairers will also be faced with considerable resistance and potential loss in customer retention and referrals due to the all-too-common necessity of having to call their customer with the bad-news-supplement – something our industry has done with regularity and without concern when dealing with the insurance industry. So, in an effort to avoid supplements, shops may find themselves performing more thorough inspections and writing more accurate (and higher) estimates, which will be harder to sell.

Advertisement

Talk about a conundrum!
This situation creates a potential nightmare for the quality-minded repairer simply because there’s that element of the collision repair industry that has – and will intentionally – underbid the repair price at the onset in an effort to secure the sale (“seize the keys”). These less-than-ethical repair practices will likely result in the consumer being notified of “hidden damage” and the additional costs to correct them only after the vehicle is under repair.

These shops may also write for parts of lesser quality and leave out recommended procedures and materials, etc., without informing the consumer of the potential problems associated with them.
To make the situation even more challenging, there are those low-cost, low-value providers who I refer to as the “Shake-N-Bake” chains that advertise an overall paint job for less than the average shop could even buy the materials (and some of these shops/chains are now offering collision repair services as well). These repairers will have an opportunity to get the out-of-pocket payer business based on pricing alone.

Advertisement

There are also the new “cheaper than costly body shops” repairers who offer the less costly one-day service of spot and paintless dent repair (PDR). These repairers specialize in minor dents and scrapes and simple parts replacements (what most of us would refer to as “The Gravy Jobs”). This is a growing segment of our industry that has come about to meet the changing needs of consumers for a cheaper and faster alternative to the more costly conventional collision repair and refinishing.

The Good News
What’s a quality-minded repairer to do?

The truth is, in order to be successful in this changing market, we need only to understand our clientele and how to best serve their needs – their true needs.

Advertisement

That said, let’s look at a couple segments of the American population. There’s the ever-increasing senior population; plus, there are the senior-seniors over age 80. And many of these senior-seniors are still driving, along with their sons and daughters who are 65 or older. And this market is huge! Approximately 23 million American drivers are age 65 or older – 11% of the motorist population. Add to that the 40+ million drivers of the “Baby Boomer” population.

Now consider the fact that older drivers have, over time, experienced problems with insurance providers and have a concern, resentment and fear that their rates will rise or their coverage will be cancelled altogether.

Advertisement

A repairer who learns and possesses heightened customer relations skills and properly educates the consumer will fare well in the coming years. Many of today’s older drivers have higher levels of education and income than other segments of the public. They’re also much more knowledgeable about cars since they grew up during America’s romance with the automobile. These are the same people who could by a new, fully equipped 1965 Mustang for $1,400 and who see Mustangs sell today for $39,000.
Patience, respect and open communication are important when dealing with all segments of the marketplace but most importantly when dealing with the older driver. An auto body professional has to be aware that, from a service point of view, there are going to be more questions asked, more doubt and more distrust. A good businessperson will take that into account and use it to both their and the consumer’s advantage through properly identifying the consumer’s needs.

Advertisement

How many times have we heard, “I just want it bumped out and a little paint to make it look better – and it’s not an insurance claim.”

Translation: “Hey, I’m paying out of pocket so don’t charge me what insurers are charged [as if insurers somehow are charged or pay more]. I don’t know anything about auto body repair and paint, I’m assuming all body shops are alike and I just want this to go away as easily and cheaply as possible while getting a perfect repair!”

What’s needed here is to determine this consumer’s real needs, educate him and try to meet his wants. Oftentimes, you’ll discover that what a customer thinks he wants may not be what he needs. Once the facts are clearly identified, most consumers opt for what they need over what they originally thought they wanted.

Advertisement

For example, my pastor came to me one day and asked for my help in repairing his son’s vehicle. He didn’t need the vehicle to be perfect, but he wanted it safe and presentable and to last long enough (a couple years) for his son to graduate from college. I went over several options, and he ultimately elected to use both new OEM and some A/M crash parts. He selected an OEM bumper reinforcement, related braces and such to ensure the airbags would perform as designed and opted for an A/M bumper cover (with no warranty for paint adhesion), an A/M grille and A/M park lamps. He also opted for tinting the color and panel painting over the more costly process of blending. The vehicle came out pretty good and far exceeded his expectations, and he has since been a great referral source – not only for the workmanship, but more importantly because I took the time to help him save some money without sacrificing performance and safety.

Advertisement

There are some distinct benefits here for repair professionals who view the consumer as their customer. I hear complaints from customers of many DRP repairers in my area who tell me that these shops simply do not entertain consumers who want a written repair estimate. These repairers merely request that the prospect get their insurance estimate and bring it in! This is a great opportunity to earn these consumers’ business and to seize this large segment of the collision repair market, as well as their ongoing referrals. (Note: Industry statistics suggest the average driver has a claim every eight years, so earning these people’s referrals is extremely important for achieving long-term success.)

Advertisement

Determining What Customers Need

  • The first step is to understand the changing market and to ascertain what it is consumers need – or at least what they think they need.

    First off, what is the vehicle? A 12-year-old transportation piece may merely need the safety and operation restored with a low concern regarding appearance. But what if it’s a late-model vehicle? Are consumers aware that what they try to save today in repair costs could cost them far more at the time of sale or trade in? Have they ever heard of diminished value? Are they aware that all repairers are not alike? That some repairers underbid repair estimates to merely get the job or that a low estimate may omit needed procedures and call for substandard parts? That a thoroughly written estimate makes the shop accountable for its performance (as opposed to the estimate written on the back of a business card that reads: “Repair right front $550”)?

Advertisement

Most consumers know that cheaper is rarely better and better is rarely cheaper. Consumers may believe their problem is finding a repair cheap when, in reality, their problem could very well become that cheap repair!

I’ve had customers come in who have late-model, high-end vehicles and want an inexpensive repair. Price is their main concern. However, once they learn that not tinting and blending the paint could result in a noticeable color mismatch and possible higher costs to correct it, or how A/M crash parts are marked as such and could affect resale value – possibly costing them thousands of dollars more than they ever stood to save – they often change their minds.

Advertisement

Once edified as to the many drawbacks of cheap repairs, I have had many decide to either make a claim or pay the entire amount out-of-pocket to have the vehicle repaired correctly. Furthermore, these customers, because of their newfound education, won’t stand for the insurer taking shortcuts or cheapening their repair.

These initial cost-cutters have turned into our most staunch supporters and excellent referral sources. And this resulted because we took the time to properly determine what mattered to them; we found it was saving money, but they found that they stood to lose much more in the long run if their vehicle received less-than-adequate repairs.

Advertisement
  • The next step is to modify your sales presentation by offering options to educate the consumer, so that you both can learn and understand what the customer’s true needs are. This allows customers to make better, more informed decisions as to what their short- and long-term desires are.

    Many customer-pay consumers ultimately decide not to have the cheapest repair (even though they thought at first that’s what they wanted), and they appreciate your efforts to aid them in making the best decision for their particular needs. This is how a repairer can earn a customer’s lifetime business as well as ongoing referrals.

    Advertisement

    An important shift here for many of us is to provide these self-paying consumers with options. A high-quality repairer who doesn’t typically utilize A/M crash parts may have to change his position and offer these cost-effective parts as part of his menu offerings. He also may elect to offer additional cost-saving alternatives including, but not limited to, masking of trim versus its removal, color tinting to get a close (non-warranted) match instead of costly de-chroming and blending to get an exact (warranted) match, etc.

    At our company, we’ve learned that we need to be more flexible to serve our community members and their specific needs. We now offer PDR, spot painting and even spot clearcoat blending, but only after customers understand how they can negatively affect their warranty and the value of their vehicle. On the other hand, we don’t offer or perform any service we feel may be harmful to the consumer, such as disconnecting airbag components, modifying or not installing safety components, etc.

    Advertisement

    It isn’t unreasonable to foresee repairers offering the “Good, Better and Best” that we often see for products in retail stores (tires, house paint, etc.). Of course, you also need to make it clear to your customers just what they may be sacrificing in exchange for these cost-saving shortcuts, such as voidance of “lifetime” workmanship and/or paint warrantees.

    It also would behoove the repairer to secure signed authorizations/disclaimers for the use of non-original parts, etc. These forewarnings will further enlighten a consumer as to what he may be giving up for a cheaper repair and may very well raise further questions and elevate the level of repair quality, as well as its related costs. While some may call this upselling, I call it professional edification – with the purpose of avoiding liabilities and misunderstandings by fully informing the customer (something that should be practiced even more so when insurance is involved).

    Advertisement
  • Perform non-high-pressure follow-ups with your prospects in writing and by phone, asking them if further assistance is needed and asking them again for their business. There’s no harm in letting community members know that you appreciate the opportunity to serve them and want to earn their business. People would rather give their business to someone who wants it than to someone who doesn’t appear to care. The secret here is to not appear overly aggressive.

    I have had many customers come in and tell me the reason they selected our company was because we seemed to care and others didn’t. I can’t count the number of customers earned due to our consultation follow-up letters, merely because we were “the only one” who contacted them after their initial visit.

    Advertisement
  • Learn to market your services in a manner that meets consumer’s desires, such as offering the very best in collision and cosmetic repair while offering cost-saving alternatives. Sort of like Burger King’s “Have It Your Way” marketing message, where they attempted to differentiate themselves from the assembly-line approach of “take-it-as-produced-or-wait-forever” methodology of their competitors.

    We review our advertising consistently to ensure we’re meeting the wants, needs and desires of our clientele as best we can. We used to run fairly aggressive ads that were leaning more toward in-your-face such as: “Insurance companies have their professionals. Shouldn’t you have your own???” Then we went to a more subtle approach of: “We work with all insurance companies. However, once your vehicle is placed in our trust, we work for you!”

    Advertisement

    Recently, we changed our ads to reflect the concerns raised in this article so they say something like: “The highest quality service and workmanship available, at competitive pricing.”
    We’re doing this to attract the attention of both those who are looking for quality, as well as those concerned with price.

    Tailor your marketing efforts to positively set yourself apart from your competitors and offer something they may not, like a choice.

    Shops with the expertise to both educate and meet the consumer’s true needs have an opportunity to attract and secure long-term, profitable business, especially if you properly promote these services in a target market through local advertising media, follow-up mailings and referrals.

    Advertisement

    Depending upon your specific market, Internet Web sites, properly prepared Yellow Pages ads and referral programs with other local businesses (auto dealers, retail parts suppliers, local auto service professionals, etc.) will become more important to the quality collision repairer than ever before – since it will be the consumer seeking the repairer.

    The key for us repair professionals is to create the opportunity for that prospect to visit our facility and to be prepared to properly qualify the customer’s true wants and needs.

    Capturing This Growing Segment
    Bottom line: Being successful in adapting isn’t rocket science; it’s merely getting back to basics. It’s identifying and meeting the challenge of change and doing so in a timely, effective manner. The place to start is in asking your customers what it is that brought them to you, what it is they want and just how you can help them. Start asking and listening today, and you may be surprised just how easy and effective this process can be in securing more sales from this growing market segment.

    Advertisement

    Writer Barrett Smith AAM is originally from Alaska, where he grew up in a family-owned and -operated auto body repair business. Barrett is president and co-owner of Brandon Paint & Body, Inc., a quality-driven independent collision repair facility in Brandon, Fla., a suburb of Tampa. Smith also owns and operates Auto Damage Experts, Inc., a service that provides independent post-repair inspections and diminished-value-assessment-related services. Barrett and his wife have four children, including twin 6-year-old boys.

    Advertisement
    Click to comment
    Connect
    BodyShop Business