The
collision repair industry changed forever on May 8. While this assertion
may seem a bit melodramatic or exaggerated, Allstate's acquisition of
Sterling Collision Centers' 39 repair facilities will permanently alter
the relationship between collision repair facilities and insurers and will
have a lasting impact.Naturally, independent collision repairers
are expressing concern. Will Allstate move quickly to bring all repairs
in-house? Will Allstate start selling HMO-like auto policies? What will
happen to Allstate's 5,000 PRO shops? Will other insurers follow suit and
buy collision repair centers? These are just some of the many questions
repairers are asking in the wake of Allstate's announcement.However, it will be quite some time before
the industry has the answers it wants. And Allstate is adding to this
uncertainty by only publicly stating that the Sterling facilities will
become what it terms a "one-carrier model," where Sterling's
primary business will come solely from Allstate.It came as no surprise that State Farm
quickly dropped Sterling from its Select Service direct repair program (DRP)
following the announcement. Individual State Farm regions will have the
choice of dropping Sterling's stores from the Service First referral
program-and you can expect that will happen soon.In the short term, Sterling's loss of
other insurance companies' referral work will help independent repairers
who compete against Sterling's 39 stores because they can pick it up for
their own shops. But Allstate's long-term plans will certainly have a
negative impact on independent repair shops down the road.Allstate has also said it will expand
Sterling's reach beyond its eight existing markets to areas where Allstate
has significant market share. This can be interpreted as, "If our
Sterling stores are successful at maintaining profitability while keeping
claims costs under control, we'll expand where it will benefit our
insurance business."This should be the biggest concern for
Allstate's PRO shops. Although you may not currently compete against
Sterling, don't count on that to last. Make no mistake about this: While
Allstate maintains that its new consolidator stores will be independently
operated by Allstate's Non-Insurance Holdings Subsidiary, Sterling's
impact on Allstate's core insurance business is crucial to the overall
success of its vertical integration strategy.The cost of direct losses is an area in
which Allstate may already have an advantage over other insurers.
Allstate's adjusted claims ratio-defined as direct losses incurred divided
by the difference between premiums earned and dividends paid to
policyholders-on auto physical damage insurance was just 55.3 percent in
1999, according to A.M. Best. By comparison, State Farm has an adjusted
loss ratio of 70.3 percent.This leads us to the bigger question all
repairers now face: "What impact will Allstate's ownership of
Sterling have on the average repair cost paid to shops?" Will this
impact the long-term growth in repair costs? Will Sterling give
preferential rates to Allstate? If so, will Allstate only pay its
customers based upon those rates, making the customers pay any additional
charges if they take their damaged vehicles to independent repair
facilities? Will Sterling be Allstate's stick to beat independents into
compliance on rates and allowances? Again, more questions that need
answers.The other major concern is the prospect of
Allstate moving toward a preferred provider or HMO-style insurance policy.
Preferred provider auto physical damage insurance policies have been an
anathema to both collision repairers and insurers in years past. Perhaps
Allstate is rethinking this position. Certainly, it will be many years
before they can build up Sterling's operation to handle a significant
portion of their insureds' repair work. But when they do have enough
capacity, will they look at HMO/PPO-type policies to better their
competitive position?Repairers don't want to see that. A
thriving collision repair market feeds off of the competition for
customers. Certainly, DRPs have changed the nature of competition for
customers, but an HMO/PPO insurance policy will drastically change the
collision repair business-especially if the insurer is vertically
integrated. If the experience of the medical community is any indication,
it will wreak havoc on customers and service providers.The actions of Allstate, which has more
than 11 percent of the U.S. auto physical damage insurance business,
impact every repairer. Right now, there are far too many questions and too
few answers. The collision repair industry has invariably been changed.
But how much it has changed is a question that only time will be able to
answer.
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