"I think we might see someone pilot a program where participating collision repair facilities will be given a standard flat fee to repair vehicles regardless of the amount of damage," said Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS) when asked to look at where the industry might be in five or 10 years.
"The thought behind that is that it would simplify the repair process, reduce cycle time and reduce overall claims costs. For example, the repair facility wouldn't have to spend the time and resources writing and submitting supplements and waiting for approvals."
Risley was one of three observers of the industry asked recently to talk about what they see in the future in terms of shop and insurer relations. Here's what else he and his colleagues had to say.
More insurer-owned shops?
Brian Sullivan doesn't believe more insurers will follow Allstate's lead into ownership of collision repair facilities. Sullivan, the editor of the weekly Auto Insurance Report, said he believes Allstate is benefitting from its ownership of the Sterling Autobody Centers, but not for the reasons many shops assume.
"It costs them the same to fix a car as anyone else," Sullivan said. "They can't buy fenders for less or pay less for labor than other shops. The difference is there are zero 'friction costs.' The Sterling shop just fixes the car. They have no incentive to puff up the repair costs, and the insurance company has no incentive to try to squeeze a few dollars out. They just fix the darn car. When I talk to senior Allstate execs, they say that taking the friction out of the process is the single greatest benefit to an insurer owning its own shops."
That said, Sullivan sees no other insurer planning to own shops. "But taking friction out is really what they all want to do," he said.
To do so, Sullivan believes, certainly five years from now - and maybe even 10 - insurers will continue to use various models of DRP structures: larger networks with lots of capacity, smaller networks with stricter requirements, concierge-type programs, and even programs putting insurer personnel in shops.
"At this juncture there is no clear model that has emerged as the answer," Sullivan said. "If I had to say what will happen in five years, my answer is that there will still be a range of solutions. Companies will be doing the things that work best for them and trying new ideas. I just don't see on the horizon the big 'aha' that is going to swallow up the way we do business today."
For his part, Russell Thrall III, founder and publisher of CollisionWeek.com, believes that more insurers in the next five years will move toward smaller provider networks, "concentrating work toward fewer, hopefully better-performing repair facilities based upon performance goals the insurer sets and measures." Thrall, who grew up in his family's collision repair business, is technical services manager for the I-CAR Education Foundation. He also predicts that within 10 years, technology will halt the "down-sizing" of insurer shop networks.
"Technology will make the benefits of limited referral arrangements largely obsolete," Thrall said. "Over time, a common set of financial and non-financial performance measures will be used by a larger group of insurers and repair facilities. Tracking these measures and communicating electronically will increase productivity on both sides of the transaction. For an insurer, why limit that increased efficiency to just a small number of DRP facilities?"
Risley too foresees more technology involved in DRPs.
"I think we are going to see an increase in the amount of software applications that a shop is required to utilize to regularly communicate with the vehicle owner, rental car company, insurance company, CSI vendor, etc.," he said. "We will probably also see an increase in the amount of training and OE certifications required to participate in a given DRP."
But he also predicts that rather than DRP being open to more shops, shops will increasingly focus on operating with just a few DRPs.
"I think that due to the increase in the requirements to participate in any given DRP and the amount of effort required to meet the performance-based measurements outlined by a given insurer, repairers will be forced to focus on a few," he predicted.
Number of shops, number of insurers
Will changes in the number of auto insurers and collision repairers impact interactions between the two in the future? Sullivan believes there will continue to be hundreds of auto insurers even 10 years from now, but that the largest insurers will continue to take market share away from smaller carriers.
"There are a handful of insurers who are really, really good at this, and there are a whole bunch of insurers who are just sort of muddling along," Sullivan said. "The people who are really good at it are going to take the customers away. You will continue to see market share flow to the bigger companies."
He does foresee, however, a significant decline over the next decade in the numbers of collision repair shops - or at least the number of shop owners.
"If there are 50,000 shops today and you came to me in 10 years and said there are 35,000 shops, that would not surprise me in the least," Sullivan said. "There may be just as many actual shops, but there will be more multi-location businesses, so fewer shop owners.
"The concept of a nationwide chain has proven to be difficult, but the single-shop operator becoming a six-shop operator is a trend that I expect. You start to gain the economies of scale but continue to have the benefit of the owner-entrepreneur. Lacking that resident source or energy, skill and experience is what has made consolidation of the repair industry so difficult for professional management."
Thrall also predicts some but not massive consolidation of the collision repair industry.
"People tend to forget that for a large number of the shops out there, it's not just a business, but a way of life," he said. "They will survive. Maybe not on a steady diet of insurance company-paid collision repair volume, but certainly with customer-paid repairs, maintenance and custom work."
Insurers will control consumers
Of all his predictions about the future of shop-insurer relations, there is one that Sullivan is most confident about - one that won't sit well with most collision repairers.
"The one thing I'm sure of is that 10 years from now, insurers will totally control the customer," Sullivan said. "Customers will come to shops because insurers directed them to do so. The insurers are building in incentives to drive the customer to the shops they work with. Except for unique specialty shops, the ability of shops that want to do insurance work to stand outside of whatever networks the insurers set up is going to be very, very difficult."
John Yoswick is a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988.