Shop Management | Operations - Collision Repair

Search Autoparts/Abrn/Shop-owner/Shop-management-operations-collision-repair/

Insurers, shop owners battle over DRPs

Wednesday, September 1, 2010 - 00:00
Print Article

Mention the term DRP in this industry, and odds are blood pressures and temperatures will rise while repairers take an overly aggressive or defensive stance. There's good reason for this. DRPs are the tool insurers use to gain leverage over shops and begin dictating repairs and costs, which they've often done to the detriment of repair quality and the financial well-being of many shops.

While shops have pushed back against their influence – sometimes successfully with efforts such as anti-steering legislation – DRPs continue to control the collision repair market. Repairers have fallen into two basic camps: Those who say DRPs are a fact of life and must be dealt with and those who say shops should fight them at every turn and refuse to take any part in them.

If you fall into the latter camp, prepare for some bad news. Recent signs point to DRPs loosening their grip on the industry (or at the least losing some of their luster). Forget that because they're poised to grab an even greater share of the repair market.

Regardless of where shops stand on the issue, repairers need to be prepared to deal with how these programs are remaking the business landscape once again.

 

More work, fewer DRPs

 

What were the signs indicating shops were backing away or reevaluating their DRP relationships? Industry numbers pointed to it.

Conventional wisdom once held shops should contract with as many DRPs as possible to attract as much business as possible. In 2008, ABRN's annual State of the Industry report showed this thinking was changing. The survey noted the beginning of a decline of the average number of DRP contracts per shop.

Almost 36 percent of respondents (who represent the largest block of DRP shops – those reporting 51 percent to 75 percent of annual income coming from DRP agreements) said they reduced the number of DRP contacts to an average of 3.2. The 2009 State of the Industry survey showed almost 40 percent of respondents dropping DRP memberships to the 3.2 average.

With the decline of contracts came a new business model for using DRPs. In 2009, the number of respondents with 51 percent to 75 percent of their business coming from DRPs grew to 40 percent, while the percentage of shops getting less than 51 percent of their revenue from DRPs slipped. More shops, therefore, were getting a greater part of their business from DRPs while working with fewer programs.

These numbers reflect how shops are becoming more adept at managing their businesses, says Thomas Missiner, a long-time industry consultant.

"Multiple DRPs can be a pain to deal with," he says. "They're all similar to a degree, but they're all different, too. The more you have to deal with, the more problems you're going to have. Many guys looked at the time they were spending on DRPs and saw a lot of wasted effort. Once they dropped some DRPs, they found there were benefits to working with fewer."

As part of the changing attitude toward managing multiple DRP accounts, shops also seemed to have reevaluated how DRPs relate to their success. In the 2009 survey, only 26.8 percent of respondents agreed or strongly agreed that DRPs were crucial to the success of their shops, while 46.3 percent disagreed or strongly disagreed (27 percent somewhat agreed).

Those are curious numbers in an industry where more than half of the 2009 survey respondents said DRPs accounted for more than half of their revenues, and another 36.4 percent said 26 percent to 50 percent of their revenues came from repair programs. Missiner believes these numbers, too, can be related to better management by shops.

"Shops are never going to credit insurance companies for their success," he says. "At best, they look at them as a fact of life. They still have to manage their own operations. They have to figure out a way to make them work, a lot of times in spite of their DRPs. This probably goes back to cutting some DRPs, too. Without all of these DRP issues and demands, you spend more time working on your business, which is what every good shop does."

 

DRP growth

 

While ABRN's survey results indicate shops have, on average, reduced their DRP numbers in the past several years, new data shows interest in adding DRPs in certain parts of the industry.

For this article, ABRN also polled 12 random shops about their DRP numbers. Five shops reported reducing program membership in the past five years (usually by one DRP). Three said their numbers remained the same. Four shops said they were looking to add DRPs.

Brian Guerrero, manager of O'Rielly Collision Center in Tucson, Ariz. (a 2009 Top Shop finalist), is looking to add more. He says other Arizona repairers in the area are, too.

"I have a lot of friends in town who run shops," he says. "They're looking to add DRPs. That's the best way to get steady business."

Dave McClune, executive director of the California Autobody Association, reports the same. He says he's seeing shops reach out to DRPs to cope with the struggling national economy.

This phenomenon isn't exclusive to the western part of the country. Len Tooney, owner of Len's Top Choice Autobody in Bethesda, Md., says that after six years of working the same two DRPs, he's looking to add two more. And he's not alone.

"A lot of shops have to," he says. "We're in the same boat right now. It's either do this or get into a different line of work."

Shops in California with no DRPs or just one appear to be the ones most aggressively looking at adding programs, McClune says. These shops comprise a large part of the industry. In ABRN's 2009 survey, 37 percent of respondents said they had no DRP contracts, and 9.5 percent said they had just one.

So many shops potentially looking to add DRPs begs the question, why didn't these numbers show up in the industry survey? Tooney suspects that while many shops may be looking to add programs, they're moving cautiously for now.

McClune concurs.

"Shops are looking at DRPs that will fit into their business model," he says. "They're talking to other shops for their feedback. They're being careful in their evaluations."

If these shops add DRPs, Guerrero expects the new programs to be retained should the economy completely recover. Shops are getting better at running lean, which makes managing a DRP easier. It only makes sense to retain the additional DRPs to continue building business, he says

"At the end of the day, the goal is to add business," he says. "I'd rather hire new technicians and painters than get rid of a DRP."

 

Customer repairs challenge DRPs

 

Ironically, as the economy continues to pressure shops to add DRPs, it's also creating an environment for more non-DRP work as consumers turn to higher deductible policies to save money.

The best-selling auto insurance products are policies with $1,000 deductibles, according to Jason Bertellotti, vice president of repair solutions for Mitchell International. According to the company's data, those policies account for 24.1 percent of the auto policy market. Across the board, Mitchell's data shows average deductibles below $1,000 continuing to rise.

Should these policyholders need repair work, they're more likely to bypass the insurer, which means bypassing the DRP.

"It is the customer's money, so obviously they are going to shop around for the best deal," Bertellotti says.

Shops that are prepared to capture this kind of work, especially those looking for non-DRP alternatives, could benefit immensely. The only question is how active is this market. Guerrero believes adding DRPs is the better solution.

"Especially in this economy, you want steady work," he says. "DRPs are the best way to get steady work."

Add to this the fact that while higher deductibles raise the potential of more non-DRP jobs, the weak economy still could convince consumers to put off having any work done. Consumers aren't going to spend money on repairs unless they absolutely have to. That may not occur until the economy strengthens and greater consumer confidence is restored, which could be awhile.

 

Repairer vs. reality

 

Regardless of how these DRP trends shake out, shops have a larger, more significant chore in front of them involving repair programs, Missiner says, adding that repairers need to tone down the sometimes hostile rhetoric and the animosity they've aimed at one another over DRPs.

"What insurers have done to us is bad enough," he says. "We've always knocked heads with them. Now, we are pointing the finger at one another. With some guys, you cannot even have a conversation about this. We should be competitors with one another. That makes us better workers. Making enemies does nothing."

Worse still, the lack of conversation has created a situation where repairers won't work on a realistic solution to the problems DRPs can impose. Missiner stresses the need for realistic answers.

"Small steps, such as making sure your customers know you are the one taking responsibility for the repair or replacing a DRP that interferes with your business with one you can deal with, mean something," he says. "It may not be much, but it's far better than simply hoping things will get better.

"You hear all this talk about how we all need to stand up to the insurer, dump DRPs and make our own rules," he adds. "I'm all for that. But how do you make this happen? Getting thousands of shops in every part of this country to start working in unison is a huge job. No one says how we're going to do that. With no good plan, you don't have a solution. Wishful thinking won't help us."

What can shops do? Small steps add up, Missiner says. Shops can:

  • fire bad DRPs;
  • warn other shops away from programs they've found to be deleterious;
  • take the time to talk to customers about their rights; and
  • inform them of the types of repairs the DRP stipulates.

 

"Something is better than nothing," Missiner says. "And then we need to start talking to each other again. We shot ourselves in the foot a long time ago when we signed on to these agreements. I don't see how we can fight back and change things if we're battling with each other."

 

DRP viewpoint one: Making DRPs work for you

Johnnie McGillvray, manager of Auburn Collision Center, a 2009 ABRN Top Shop finalist in Auburn, Calif., falls into the category of repairers who say DRPs are the market. Realistically, shops have to deal with them to survive. But that doesn't mean shops should join any DRP.

The key is finding DRPs that interfere the least in the repair process.

"We're out for what's best for the consumer," McGillvray says. "If we're going to sign on to a DRP, it's only going to be with the ones that don't come in and tell us how to repair cars. Those are the ones that are focused on taking care of the customer and making sure they're happy."

McGillvray's shop has fired DRPs that had longstanding ties with the shop because they didn't share that philosophy. DRPs that aren't focused on customer care with the shop eventually pay a steep price.

"If an insurance company starts pressuring us to perform a repair we believe will put the customer at risk, we'll talk to the customer and get the state Bureau of Automotive Repair involved," he says. "The next thing you have is a very unsatisfied customer who knows what the insurer is doing and won't go back to them for coverage when the repair is done.

"Insurers are losing customers left and right," he adds. "It makes no sense for them to fight about a $30 or $100 charge if they end up losing a customer who was paying several thousand dollars a year in premiums."

Article Categorization
Article Details
blog comments powered by Disqus