Just five years ago, only about 8% of collision repair work was handled through insurer direct repair programs (DRPs). By 1998, it hit 20%. It's estimated to reach 30% this year.

The reason behind the trend is the estimated $8 million insurers spend annually on loss-adjusting expenses, says Rick Tuuri, director of ADP's industry relations.

“That $8 million doesn't include a nickel spent on actually fixing a car,” Mr. Tuuri says. “That's just the cost of managing everything to get to the point where you can: customer contact, damage evaluation, rental car logistics and payment, total loss evaluations, re-inspections of repaired vehicles, etc.

“Insurers are looking at this and saying, ‘There's got to be a way for me to manage loss adjustment expenses. What if I have the shop perform some of these tasks?’ There has been, and I think will continue to be, such task transfer.”

Dealership body shop managers say there's no question that insurer DRPs transfer documentation and other tasks to the shop.

“DRP work is paperwork-intensive,” says Ted Stein, manager of the Drew Ford-Volkswagen body shop in La Mesa, CA, which participates in a half dozen DRPs. “We do a great deal of the administrative work of the claim. My guys are almost becoming claims adjusters, even to the point of having to be the ‘bad guy,’ telling the customer what's covered and what's not.”

Added administrative work has required additional staff, Mr. Stein says.

“There was a time when a service writer could be cradle-to-grave on a car: greet the customer, write the estimate, dispatch the work, get the parts coming, close the paperwork and do final delivery and follow-up with the customer,” he says. “With DRPs, we've had to add an enormous amount of staff. We now have an administrative person for every two writers to help with the phone follow-up, to document the files, etc.”

Tasso Jones, assistant body shop manager for Curry Buick-Cadillac.

Pontiac-GMC in Bloomington, IN, says his shop purchased new computer equipment and software to comply with DRP requirements.

“My guys are almost becoming claims adjusters, even to the point of having to be the ‘bad guy.’”
Ted Stein
Body shop manager
Drew Ford-VW, La Mesa, CA

“About two months ago, one insurer we were a direct repair for dropped us because we didn't want to add yet another computer system to comply with their format,” Mr. Jones says.

One of the other gripes shop managers have about direct repair programs is the variation among the programs.

“Each insurance company has their own set of standards and processes they want you to follow,” says Bruce Hoecker, body shop manager at Riley Chevrolet in Jefferson City, MO. “Some companies don't take betterment; others do. Some companies don't use aftermarket parts; others want you to. You get eight or nine DRPs, and it all becomes hard to remember, and they don't always have the guidelines spelled out.”

Mr. Stein says he has addressed this issue by having each of his estimators become “specialists” in one DRP and handle those jobs. Each also becomes familiar with at least one other program to help out when that program's primary estimator is on vacation, etc.

“But my assistant manager and I get the pleasure of learning all of them,” he quips.

Despite these problems, most DRP participants find the programs worthwhile — if they generate a large enough flow of customers referred by the insurer.

That is often but not always the case, shop managers say. Even a representative of one of the country's largest insurers admits that in some areas without enough repair volume, shops couldn't justify the added administrative costs the insurers' revised DRP required.

“I've often said there ought to be an administration fee for this because insurers are getting by cheap,” Mr. Hoecker says. “We take their pictures for them. We write the estimate for them. We do a lot of their paperwork. They like a lot of documentation, and we're essentially doing it for free.”

At least one insurer agrees.

“If this task transfer is a burden to you and you're not able to find some way to recoup that expense, then it's no longer a good relationship,” says Rod Enlow, director of auto industry affairs for USAA Insurance.

He says he would prefer to see such added costs reflected in “a realistic (labor) rate” rather than a separate “administrative fee” or “hidden” in repair times or elsewhere on the estimate.

“But they've got to be somewhere because they're real,” he says.

Mr. Enlow also says the problem of the variations in the programs is being addressed by the Collision Industry Conference (CIC). It's developing a summary of the various DRP administrative processes and requirements. He said the summary could be a step toward analyzing to what degree differences in DRP administrative processes lead to higher costs. That, in turn, may lead to more standardization in the insurers' programs.

Mr. Enlow says dealerships must examine how each DRP will impact their shops' financial performance as the use of DRPs expand.

“Just as there's all kinds of shops and insurers, there's all kinds of DRPs,” he says. “You have to mix and match to find the relationship that works for you.”

John Yoswick is a freelance writer based in Portland, OR