Industry Fisticuffs

"The relationship between insurers and repairers is strained," says Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS). "In fact, it's arguably one of the worst state of affairs in recent memory. What makes this more alarming is that it's continuing to deteriorate."

"There's an overall frustration from the shops' perspectives," says Dave McClune, executive director of the California Autobody Association (CAA). "Insurance companies are changing the way they do business, and I just think shops are frustrated and would like to have some kind of relief."

Not everyone takes this dim view of inter-industry relations, though. John Eager, director of claims with the Property Casualty Insurers Association of America (PCI), actually sees inter-industry relations improving on some level. Eager gives an annual presentation at NACE on insurer and auto repair issues. "If you go back a few years, there were a lot of angry voices at that session," Eager says. "But I didn't sense any of that at the last event. It's more positive and more constructive."

Everyone agrees, however, that both insurance companies and shops will need to find some common ground on the major divisive issues if they want to hold on to their existing customers — and attract new ones — in an increasingly competitive market.

Built-in conflict

Disputes between insurance companies and repairers are unavoidable — and that's not necessarily a bad thing. Repairers want to provide a quality repair for the customer (and make a profit), while the insurance companies want to make sure those repairs are completed in the most cost-effective way possible (which helps them make a profit).

"Disagreements, to us, are a necessary part of the process," says George Avery, claim consultant at State Farm. "When disagreements come up, that's when we start listening to the repairer's position. We both want to do what's best for the customer. We may have different opinions on how to accomplish that, but it all comes back to the customer."

These disputes can have a direct impact on customer service for both the shop and the insurer, however, and vehicle owners sometimes find themselves left on the sidelines.

In October, the SCRS announced results of an industry study that quantified some of the ill will in the industry, and pointed to some of the underlying causes. According to the survey, the majority of shops said suppressed labor rates negatively impact their operations. Steering ranked second on the list, followed by the lack of training for insurance company staffers in the field.

A more troubling finding in the SCRS data said the majority of shops considered the insurance companies as their customers rather than business partners. According to the report, SCRS believes "this view may be one of the biggest contributors to the poor state of relations between insurers and repairers."

"The insurance carrier needs to be removed from the decision-making process," Risley says. "In any business, the person making the buying decision is the customer. How many decisions is the vehicle owner making, as opposed to the insurance company?"

In ABRN's recent research evaluating the State of the Industry (see data beginning on page 60), shop owners were quick to point out the problems they are having with insurers. Of the 804 independent collision repair shop operators who responded to our research, 91.4 percent said they believe insurers are more concerned with making money than doing what's best for the consumer.

Wide range of complaints

Some of the most common clashes occur over labor rates, paint and materials caps, and the use of aftermarket parts. Shops participating in multiple DRP plans are under mounting pressure to conform to a wide array of sometimes-contradictory requirements that negatively impact their efficiency. Shops that aren't involved in DRPs claim they're being undercut by the discounts given at the DRP shops, and that the insurance companies are steering customers to their competitors.

Some of these suspicions may be misplaced. "One of the biggest misunderstandings in the industry is that shops not on the insurance company programs think that the DRP shops are cheats and crooks and must be doing something wrong," says Jeff Hendler of J.D. Hendler & Associations, who chairs the Collision Industry Conference (CIC) Insurance Relations Committee. "That's not necessarily the case."

There are plenty of insurance company programs that have raised the ire of repairers in recent years. Industry groups took American Family Insurance to task in 2006 when the company selected one information provider as its exclusive claims management partner. Progressive's concierge program has drawn criticism from the industry, and even caught the attention of regulators and legislators in Nevada and California.

Even State Farm, which was ranked highly by repairers in the SCRS survey and within ABRN's State of the Industry study, has not been immune from criticism. The company caused a stir when it revamped its Service First program, dropping a large number of shops in the process. Avery recently stated that 9,000 shops have been dropped from the program — declining from roughly 20,000 DRP arrangements to 11,000.

Insurance companies counter that these programs are designed to reduce the cost of repairs (and thus premiums) for the insurance company and consumer. A good example is the parts procurement pilot that State Farm launched at the end of 2007 in Indianapolis and San Diego. Some see this as a threat while others simply consider it an inevitable transition that all insurers will make.

"Some shops don't like it, but I think the more progressive shops are going to play ball and realize that the insurance companies are trying to reduce costs," says Mike Schoonover, owner of Schoonover Bodyworks in Shoreview, Minn., and chair of the Automotive Service Association's insurance subcommittee. "That's what I do with my own vendors: I try to negotiate a lower price on a product or a service."

By far, though, the biggest issue causing friction is still steering. In ABRN's research, steering was listed as the number one reason why independent collision repair shops found certain insurers to be difficult to work with. "Once a consumer has identified a shop where they want to have their car repaired, that should be the end of the discussion," says Hendler. "Yet we find there are still insurers with word tracks that are used to coerce and intimidate customers to go to a different shop."

For their part, insurers claim that they're closely following the existing laws, and feel additional legislation has left them hamstrung and unable to offer competitive services to their customers.

"When a customer has a loss, we feel obligated to inform them of all the benefits available under their policy," Avery says. "We just want to let the customer make an informed decision. When we offer our programs, some people think we're crossing the line into steering. We don't think so."

Tight market, short tempers

Pressure from the insurance industry to cut costs has only exacerbated the other challenges facing the collision repair industry — increasing environmental regulations, increasing cost of materials, more complex vehicles with specialized repair needs, and an overall decline in the number of collisions.

"Collision frequency is still trending down, and severity is trending up," says Eager. "It's been that way for awhile. Shops are asking, 'When are things going to get better?' I don't know if there's any answer to that."

Many shops have been forced to close. According to the I-CAR Education Foundation, the total number of shops in the United States has decreased more than 12 percent since 1995, and the number of small shops in the market is a third of what it once was. It's no wonder that shops see the insurance company cost-cutting measures as a threat to their business and their ability to perform quality repairs.

But as Schoonover points out, the insurance companies aren't going anywhere, nor will their efforts to reduce costs. In his own business, Schoonover has evaluated every element of his shop's overhead so that he can meet his DRP requirements and still turn a profit.

"We're looking at every single expense we have and figuring out ways to carve 5 percent or even 20 percent from those expenses," Schoonover says. "We're implementing lean manufacturing principles and concepts in our day-to-day operations."

Can't we all just get along?

Eventually, market forces may naturally rebalance power in the industry. The shrinking number of collision shops, along with the declining number of repairs, will mean that "the excess supply of collision repairers will no longer exist, and supply and demand will be more closely aligned," says Risley. But he hopes that more proactive, voluntary outreach between the two industries could solve some of these problems before more shops have to be shuttered.

In order for this to happen, insurers would need to acknowledge that these problems exist, and that change would be beneficial to all involved, including the consumer. The collision repair industry would need to be open to change as well.

"This isn't a one-sided equation," Risley says. "Repairers have equally contributed to this problem and we need to equally work toward a mutually beneficial solution."

"I don't believe the insurance company should be dictating repair procedures to shops," says Hendler. "We don't want to compromise that. But insurers don't want us out of business. They can't fix the cars themselves."

Some insurance companies have made an effort to reach out to repairers. Even though they might not agree with all of the company's policies, State Farm is generally well regarded by repairers. According to Avery, the company has earned this reputation by listening to its advisory committee (which includes repairers), and actively working with groups like CIC.

The key is open communication.

"We have focused on training our people to understand how to communicate in their market areas," Avery says. "It all happens at the ground level with our estimators and trainers — gathering input from the industry, being available for questions, taking the time to explain what we're doing."

Trade organizations from both industries have begun working together on a few issues, in some cases by participating on task forces or panels convened by state insurance regulators.

There also are several areas where the shops and insurers have some common interests: reducing the number of total-loss vehicles by getting OEMs to address reparability issues; abusive towing company practices; title washing; and accident response fees. By working together to address those problems, the two industries might be able to find common ground on the more divisive issues.

"The insurance industry isn't going away," Hendler says. "The industry wouldn't be the same if they did. We need to have a better understanding of why they do what they do, and develop a relationship of trust between the insurers, the repairers and the customers."

Hendler and others believe success will only come by being business-like and honest in day-to-day dealings and working together.