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State Farm's parts program is the new shell game in town

Wednesday, September 12, 2012 - 08:58
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I am sure you've seen a street practitioner, magician or hustler performing the shell game. The expert places something under one of three cups, moves them around, and asks which cup the object is under.

At first, the "victim" is led to believe he can win with slow and methodical cup movements, Then the bet is made and the hustle begins. The movement of the cups is more confusing and deceptive, and the object never seems to be under the cup chosen. Misdirection and deception cause victims to consistently choose the wrong cup.

Tony Passwater

Over the next few columns, I'll examine some of these "games" we have fallen into, to try to get out of them.

The hottest topic is State Farm's rollout of the PartsTrader pilot program. The program has been "spin marketed" by State Farm and PartsTrader as a tool to gain efficiency and be a win for repairers, suppliers and policy holders of State Farm. It's obvious that none of the above are under any of the shell game cups we're looking at.

The program demonstrated at CIC, which is a newer version than in the field, was said to be easy to use, with minimal clicks to complete the process. The improvements to the program looked more like Expedia, or other travel software programs that find the best deal for you and hopes you go along with the selections provided. What Rob Cooper, CEO of Parts Trader, does not seem to understand is that we are not buying airline tickets or hotel rooms.

In this demonstrated version the program selects for you the "best price" based on the criteria you have defaulted to. The criteria options are based on if you allowed anyone to bid from the OEM suppliers in the entire system, or just your preferred vendors, the same for alternative parts, the parts types to receive bids from, and the number of delivery days (1 to 10).

The demonstration showed the best price with anyone bidding, all parts types, and a 10-day delivery window. At this point, you have no idea from whom, or how many vendors would be delivering your parts unless you look into the details, but you are clearly shown what your "best cost price" is for whatever combination of vendors the system determined provided the best price.

If you change your criteria such as to your preferred vendor or delivery to one day, the "current cost price" box changes dramatically, while the "best price" box does not. How long will it be until you will be asked, "Why are you consistently not buying the "best price?" Is there going to be a report that will be required each time you select otherwise? Or does it even make any difference to your declining score in the RPM Report, because regardless of the valid reason you are not being "competitive?"

There are two concerns I have identified with the next "line of defense" that is being used for the rollout of this program. The first being State Farm's statements such as, "We give $3 billion to purchase parts (every year)," and "We are a mutual company, which is owned by the policyholders. We have a moral and legal obligation to make sure that money is spent in a prudent manner."

It sounds as if it's a gift being given to our industry to purchase the parts that State Farm has a legal obligation to pay for due to the contracts in both first-party and third-party claims. It's not a gift, but an expected obligation to fulfill these contracts.

As for the spending on behalf of their policyholders, this has been used over the years in many variations. With the current out-of-control spending for advertising by many insurers (State Farm gaining on 1 billion last year), out of control money being spent on lobbyists, which State Farm led last year, and being one of the very few insurers still operating with an underwriting loss (around 1.07), it certainly doesn't seem very prudent. Most policyholders aren't getting premium reductions or dividends, Mutual companies have autonomy and a lack of transparency in their spending. The average policyholder has no idea what is going on.

Policyholders want their vehicles repaired properly by repair professionals using the current repair equipment, processes and materials to restore damages back to as close to pre-accident condition as possible, as it relates to functionality, appearance, durability and safety. And at all times, relying on the repair professionals in keeping their best interest in mind for all repair decisions, not the insurers' attempts to cut the costs of repairs to benefit their own financial interests.

Tony Passwater, president of AEII, has been in the collision industry since 1972.

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