The headline read: State Farm to Replace Its DRP with New “Performance Driven” Program.
The news spread across the industry faster than Ebola and was about as well-received.
State Farm’s Service First and Select Service — which have been touted by repairers as the best direct-repair programs out there (for whatever that’s worth) — are being phased out, and the new program, which carries the Select Service name, is being tested in designated markets in California, Indiana, Illinois and Michigan.
In January, shops in test markets had the opportunity to review the new agreement and decide whether to apply to participate. According to State Farm, the “most qualified, most competitive repairers in the industry – large or small” will be the shops that are eligible to join.
Per the new contract, shops that sign on — and get accepted — must (among other things):
not charge storage or administrative fees;
provide free total loss handling;
provide a guaranteed completion date;
reimburse the vehicle owner and/or State Farm for additional rental expenses associated with a vehicle missing its delivery date if State Farm determines the repairer caused the delay;
wash and vacuum each repaired vehicle;
perform free pick-up and delivery at the vehicle owner’s request;
use CAPA-certified aftermarket crash parts when writing for new, non-OEM parts;
offer labor rates and paint/material pricing equal to the lowest price offered to any other insurer or vehicle owner.
What do shops get in return? Not guaranteed volume. The first provision in the contract states: “Vehicle owners have freedom of choice when selecting a repair facility.” Although volume isn’t guaranteed, it may increase for those left standing since all current Service First/Select Service providers won’t necessarily be accepted onto the new DRP. Says a State Farm spokesperson: “In each test area, local management will assess our needs and will select repairers based on those needs. It’s certainly possible this could result in a smaller number of repairers in some areas.”
The official reason State Farm is giving for the program’s overhaul is “to provide our customers with the best value in vehicle repairs with a focus on three things: quality, efficiency and competitive pricing.” Unofficially, State Farm has been watching for years as other insurers like Progressive and Allstate slowly gnaw away at their marketshare. They’re also not oblivious to the fact that most collision repair shops have been agreeing to hearty concessions to be a part of other insurers’ DRPs.
Don’t misunderstand. State Farm is not asking shops to match another shop’s rate. “We will not insist that Shop B charge us the lower rate that we’re getting from Shop A, as long as Shop B is providing us with the lowest rate it provides anyone else,” says the State Farm spokesperson.
State Farm just wants what you’ve been giving other insurers. After all, if you can afford to give it to those insurers, you can afford to give it to the country’s largest, right? Unless, of course, you’ve been giving away more than you should — and, frankly, that’s not State Farm’s problem.
Not surprisingly, many repairers are scratching their heads and asking, “How can I afford to give State Farm every concession and every discount I give to every other insurer?”
But State Farm isn’t concerned with the “how.” The repair industry has set a precedent (by what it’s been willing to give away), and State Farm is simply responding to it.
As I see it, shops have three choices:
Don’t join the program.
Stop giving some or all concessions to other insurers and join State Farm’s program (which could actually cause a market’s prevailing competitive price to increase).
Continue giving concessions to other insurers, join the new program, give those concessions to State Farm, and reduce your own costs (make more money) by re-thinking the process you use to operate your shop. (See “Lean & Mean” for more information.)
Love it or hate it, State Farm’s new program is a result not only of a changing market (our cheaper, faster, better society), but of the fact that shop owners didn’t say “no” to other insurance companies when they had the chance.
Georgina K. Carson, editor
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