How does an auto collision repair business get the insurance industry out of its business?
To hear Tony Lombardozzi tell it, the process of taking back control of the collision repair industry is difficult, but rewarding.
"Is it hard to do?" Lombardozzi asked. "Yes."
"Will you lose some business? Positively."
Lombardozzi, a New Hampshire shop owner and president of the Coalition for Collision Repair Excellence (CCRE), elaborated on how to minimize the impact of the insurance industry on the collision repair business at the CCRE two-day summit held in Reno, Nevada.
Refocusing the auto collision repair business on the car owner as the customer instead of the insurance carrier is one of the keys to disentangling a relationship that took a half century to build.
In order to rid the insurance industry from the auto collision repair business, Lombardozzi said it is important to know "how we got here."
Emergence of DRPs
In the mid-'50s, Glenn Mitchell, a Chrysler parts manager, published a part number service called Mitchell Manuals. It listed part numbers and prices. Subsequently, Duke Norman, a body shop manager at the time who eventually became Mitchell's president, was asked to input labor times to the manuals.
While auto body repairers knew how much time it took to do the labor operations, the insurance estimators didn't; therefore, by the late '60s, Mitchell Manuals part number service migrated into Mitchell's Collision Estimating Guide. Currently, the so-called guides, of which there are three - Audatex (formerly ADP), Mitchell, and MOTOR/CCC--are based on new, undamaged parts.
"When was the last time you worked on an undamaged part?" Lombardozzi asked.
While the infiltration of the insurance industry into the collision repair process began with the so-called guides, it didn't stop there. Rather it spread with the help of collision repairers.
The National Association of Independent Insurers (NAII) published a report in 1976 that expressed surprise and delight at the willingness of collision repairers to share business strategies and repair information with insurers. Truth be known, one of the reasons the Inter-industry Conference on Auto Collision Repair (I-CAR) was formed in 1979 (with a push from NAII) was so insurers could get control of the labor cost within the repair cost of the insurance claim dollar.
Since there are three price components in the repair: labor, parts, and paint and materials, the insurers' next step was to control parts prices by asking for discounts. In exchange for direction of work from the insurers, some repairers happily gave discounts on parts.
This was especially true of those repairers who were on Allstate's informal direct repair program, which began in the late '60s, and then formalized in 1988 when it restructured and was called the Priority Repair Option or PRO program. Essentially, Allstate was exercising the repair option of its insurance contract, which allows for either repair or replacement of the damaged property.
Controlling parts prices
Insurers made further inroads into controlling parts prices when cheap generic parts began coming to the United States from Taiwan in the '80s. In 1985, three companies - State Farm, ADP's claims services division, and Economy Parts, an importer of cheap generic parts on the East Coast - got together and figured out a way for ADP's computerized database system to source the cheap generic part on its estimate.
Thus the insurance industry gave birth to a huge aftermarket parts industry in Taiwan that still exists today. It also resulted in some of the car manufacturers lowering prices on parts that were competitive with the generic crash parts.
Lombardozzi said not only did repairers give insurers information that was used against them, but the equipment manufacturers did so, as well. Equipment manufacturers were quick to tell insurers of significant time savings gained from using specific equipment. As shops invested in the equipment, repair times in the so-called guides started to decrease.
When he first bought his bench repair system in 1979, Lombardozzi put a bench set-up charge of $175 on the estimate. Today the typical insurance allowance for this procedure is two hours sheet metal time.
Share the blame
There is plenty of blame to go around as collision repair trade associations court insurers as partners and the International Auto Collision Exposition (NACE) programs are heavily influence by the insurance industry.
Like hooking a fish, the insurance industry has been reeling in the shops to gain control. The big hook was set in 1988 with Allstate's PRO program. The final hook may be State Farm's new Select Service program, which is rolling out now across the country. State Farm's new program requires repairers to put State Farm repairs first in line, handle total losses for free, eliminate storage charges, participate in rental car coverage for repair delays, indemnify State Farm, and potentially source parts from a State Farm selected vendor, among other things.
Lombardozzi estimates that the window for change to get the insurers out of the collision repair business is about 18 months.
Develop customer-focused business
To begin a customer-focused business, Lombardozzi said, it is important to know why the customer comes into the shop.
"Is it to get an estimate or to have the vehicle repaired? If it is to get the car repaired, make sure to get a signed repair authorization," said Lombardozzi.
Lombardozzi added, "An insurance company estimate is meaningless when the vehicle is being repaired in your shop."
He said no one could write an estimate in 10 minutes. An estimate should be a blueprint for the repair, including all the repair procedures. While giving the insurance representative an opportunity to look at the vehicle in the shop, Lombardozzi cautioned against negotiating with the insurance estimator.
"Once the insurance estimator asks you to negotiate, you are treating the insurance company as the customer," said Lombardozzi. "Why do it? If you wrote a good sheet, why would you want to negotiate it downward?"
Lombardozzi said, "You are the CEO of your company. If I want to negotiate, bring in the chief financial officer of the insurance company and I'll negotiate."
Sending in an estimator to negotiate is the equivalent of a real estate firm sending in the janitor to negotiate with Donald Trump when he wants to buy a piece of property, according to Lombardozzi.
"Do not allow the insurance company into the contract for repairs between you and the vehicle owner," said Lombardozzi.
Instead of using hours, Lombardozzi suggested repairers write everything in dollars and cents. The hours on estimates are a convenience for the insurance industry. It makes it easier to one-tenth a shop to death in order to reduce the payout. Each repair procedure has a dollar value.
"The final invoice is a factual document," said Lombardozzi.