For the last couple of months the collision world has been buzzing about State Farm’s decision to whittle down the number of shops on its direct repair program. The nation’s largest insurer, which processed more than three million claims last year, says it is in the testing phase of its new DRP deal, rolling out the program to select markets in California, Illinois, Indiana and Michigan. The ramifications of this move will be far reaching. State Farm wants to do business solely with the top shops and from what we’re hearing other insurers are reacting to this initiative.
No one can say exactly what the final outcome will be, but a few things are clear. We’re heading toward a class structure of top tier, middle tier and bottom tier shops. We may already be there, but State Farm’s move will make this a more defined process because other insurers are going to do more to define and partner with those best-of-class shops as well. The criteria for being a “partner” is going to get much tougher. And think about the ramifications of that when consumers understand this dynamic – and you can bet they will, given that insurers will use media campaigns to play up those relationships. What would a “Certified State Farm Repair Shop” logo, or Allstate logo, or Progressive logo on the outside of your shop mean to the general public? That type of branding is common in mechanical repair (think NAPA and CARQUEST service centers) and we could be heading down that path very soon.
Another point of clarity is that State Farm isn’t shy about telling everyone to play fair. If you’re offering discounts to other insurers, you better be giving the largest automotive insurer that same deal. This message was made clear during April’s Collision Industry Conference meeting in Portland, Ore., where State Farm’s George Avery sheepishly addressed attendees in an attempt to clarify the insurer’s position. And if you don’t offer that same deal to State Farm, don’t think you can hide it. You can’t. Too many players are involved and too many documents move back and forth between insurers for you to get away with it. They’ll find out and you’ll get bounced off the program anyway.
One item Avery quickly tackled in Portland was that while the selection process during the testing phase has been based on internal numbers related to shop quality and other factors, many of the decisions of who to keep and who to dump from the program are being made at the local level. So, if you have a lousy relationship with your local State Farm reps and you value that business, you might want to figure out ways to mend fences. Having strong CSI scores and solid cycle times may not be enough to keep you on the program if you’re constantly bickering with your local State Farm contact. Grudges may come back to haunt you on this one.
The recent developments have given non-DRP shops more grist for their mill. All the years of losing business through DRP arrangements have them feeling pretty good about their decision to avoid such contracts. If you’re providing quality work and have ways to market your shop and attract plenty of business without the means of a DRP, then you are probably going to be ahead of recently dumped shops who have relied on such programs for survival.
Grasping the value of your direct repair program relationships couldn’t be more important than it is today. There’s no doubt the DRP landscape is changing and those shops that adapt quickly will make the final cut.
