Thursday, 24 February 2011 17:14

Not All “Referrals” are Created Equal Featured

Written by Insurance Insider

I want to thank everyone who took the time to respond to my previous column on steering. I hope to address some of those comments and questions in future columns.

A related issue is understanding what a referral is. “Referral” carries many meanings—positive or negative —depending on who you are talking to. Shops that participate in direct repair programs consider referrals to be as natural as the air we breathe. Simply stated, shops that are heavily-laden with direct repair work would die without the referrals, just as we would suffocate without air. With that dependence, they typically forget who their customer is, and how to market to consumers.

 

Shops that don’t rely on work from direct repair programs view referrals as taking food off their table. They define a referral as a process in which the vehicle owner is potentially illegally steered to another body shop.

 

What’s ironic is that the insurance industry (health care providers in particular) uses the word referral as a means for a patient to gain prior approval to see a particular doctor. Why don’t we view that type of referral as illegal or unjust when it’s essentially the same thing? You are told which doctors you can see and if you want to go outside of the network it may cost you more money. Hmmmm, sounds like a direct repair program.

 

While there is a fine line between referring and steering, the latest direct repair programs to hit the industry can be viewed as referrals-on-steroids. It’s one thing to refer a customer to a particular shop. It’s quite another thing to completely remove the shop from its own business. Many insurance companies have immersed themselves into the collision repairer’s business like no other time in the industry’s history.

Why? The business of insurance has become extremely competitive and costly as evidenced by the ungodly sums of money spent to entertain us with the gecko, Flo and Mayhem. The bottom line is the button line: In a shrinking market, you better retain your existing customers and try to steal some of the competition’s policyholders.

All of that said, “If you want something done right, do it yourself.” Insurers believe that they can do a better job of servicing the customer’s needs than the repairer. Having spent time on both sides of this fence, I believe there may be some truth to that. But one fact that can’t be argued is that there is a direct correlation between the vehicle owner’s experience with the body shop and their perception of the insurance company. This was probably a motivating factor for Allstate buying Sterling. Allstate believed that if it could control the customer’s repair experience, they probably would see an increase in CSI and policyholder retention.

The Progressive (Concierge) and GEICO (RX) direct repair programs have taken things to a completely different level. In the Progressive model, unless customers ask, they may not have any interaction with the shop. The Concierge program virtually eliminates the shop from the entire process other than the actual repair work.

This is not a typical referral. This is more indicative of slave-master relationship. We, the insurer, will give you the cars we want to and you will do what we say. If you don’t agree, we will give the work to another body shop that appreciates the work.

While many of you may say that’s the case with all direct repair programs, I can assure you that this is different. If as a shop you don’t have the ability to build a relationship with the customer, you not only lose that person as a potential future customer, but also any residual benefit from their word-of-mouth advertising for your shop. I personally would not recommend any repair facility building their business on repairing vehicles through a Concierge-like program. Here today, gone tomorrow!

The GEICO RX program is a little more palatable. In this model, the customer actually drops his or her vehicle off at the shop where there is a GEICO adjuster with a desk and office who handles the GEICO customer from drop-off to pick-up. Although the interaction with the shop is limited, the integrity of the shop and vehicle owner relationship is somewhat maintained.

The challenge with this model is how quickly a shop becomes beholden to GEICO. GEICO virtually doubles the shops revenue overnight. Larger-producing RX shops can expect to get eight or more referrals per day. This quickly creates an imbalance for most shops where GEICO becomes greater than 50 percent of their business. As you can imagine, the shop has limited ability to negotiate with GEICO, and the master-slave relationship becomes a reality. The shop is working for GEICO and not the vehicle owner.

What’s the answer? There isn’t one. The fact is insurance companies are going to continue to trend in this direction for several reasons. First and foremost, insurers are a copycat industry. Second, to be competitive you need to be innovative and change in a shrinking market as evidenced by the activities of some of the industry’s largest carriers.

Repairers need to look at referrals as one means of growing their businesses. I’m not advocating for or against direct repair programs. The majority of the people reading this article rely on referrals for business. But if you are going to live by the sword, make sure you don’t die by it. Referrals can be healthy for a body shops business. If you want referrals, make sure that you never forget who your real customers are, how to market to your customers, and how not to lose yourself in the process.

More on direct repair programs in my next column.

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