DRPs: Sorting Through Different RequirementsPosted 11/16/2005
By Rachael J. Mercer
As a collision shop owner, you may be willing to try many methods to increase profitability and customer satisfaction. While many collision shop owners take on this goal without outside help, others choose the option of working within the stipulations of a direct repair program (DRP). For many shop owners, DRP agreements have led to a significant increase in business. But there are also many shop owners who have had less successful experiences with DRPs. How should you go about deciding whether or not to participate in a DRP program? And, if you decide to participate in a program, how do you go about deciding which insurer's program is best for your shop? Education is vital in the process before and after signing a DRP agreement.
Seek wise counsel
Most major decisions in life and business come after considering the opinions of people who believe they have your best interest at heart. As you are deciding whether to participate in a direct repair program, you will most certainly receive advice - both wanted and unwanted. And there will be plenty of opinions out there. According to the Automotive Service Association's 2004 "How's Your Business?" survey, 87 percent of ASA collision shop members participate in direct repair programs.
Because of the tenuous relationship between insurers and collision shop owners, shop owners are often polarized on the issue of DRPs. There are some shops that do a majority of their business through various DRPs. Most likely any discussion with them will paint DRP agreements in a favorable light. However, there are other shop owners who have had trouble in their DRP relationships, and you will likely get a negative picture from them. It is important to weigh any advice you receive carefully.
Deciding the right company for you
Once you have decided your business may profit from a direct repair agreement, you must make a decision about which company (or companies) you will align with. Begin by evaluating your current relationship with your insurers and adjusters.
Look carefully and critically at the claims process in which you currently participate. Is the claims process complicated? Do you waste time waiting on adjusters to approve claims? Is your relationship with the adjuster strained? Cold? Frustrating? Do you feel they compromise customer safety or satisfaction simply to increase profitability or save money? These may be red flags that indicate you need to think long and hard about signing a DRP agreement with this company. On the other hand, there are insurers whose processes are less complicated, friendlier and more customer-driven.
"It is essential to connect with insurers who share the same goals you have for your shop," said Carroll Proctor, owner of A.C. Proctor's Paint & Body Inc. in Augusta, Ga. "You can find good, honest and forthright insurers who are interested in you doing good, quality work and adhering to guidelines without having to cut corners." Evaluating your current relationship with adjusters is an important step to deciding whether to participate in a DRP program.
Ron Nagy, AAM, of Nagy's Collision Center in Doylestown, Ohio, said, "Weigh the checks and balances when making your decision. Remain open-minded in reviewing the agreements."
As you are reviewing agreements and having discussions with insurers, remain open-minded and as neutral as possible, until you understand the principles that company embraces. If you enter the learning process with a neutral attitude, you probably end up in the best situation. On the other hand, if you're gung-ho to participate in any and all direct repair agreements, chances are you may end up in some agreements that aren't a strong match for your business.
How much DRP business is right for you?
Another consideration must be deciding whether you will participate in multiple direct repair programs. The 2004 "How's Your Business?" survey revealed that 87 percent of businesses participated in an average of five DRP programs. Multiple participation is widespread: 34 percent of those surveyed participate in one to three programs; 32 percent participate in four to six direct repair programs; 14 percent participate in seven to 10 direct repair programs; five percent in 11 to 14 programs; and 2 percent in 15 or more programs.
One reason shop owners give for dissatisfaction with direct repair programs is the "cut-throat clamoring" that often surrounds the business. For example, some collision repair shops see direct repair agreements as the "golden egg" for their business, and will pursue these agreements and sign contracts often at extreme costs. Concessions, lowered rates and negotiating sometimes lead shop owners into a relationship that is not a positive, win-win situation for them and for the insurer. Maintaining balance is key in deciding how much business will truly enhance the profitability of your shop.
Evaluate your current situation
Evaluate the profitability that you currently experience with your customer base. What are your profit margins? Do you have many repeat customers? How many of your customers are happy enough with your service to refer you to others? What sort of management software do you have? Are you currently able to track these statistics?
Two disadvantages many shop owners mention in talking about direct repair programs is the increased paperwork and increased administrative costs. Obtaining the proper training and management tools to track performance, customer satisfaction, and profits is essential to making the direct repair relationship a success.
Making your DRP relationship a success
The education surrounding DRPs does not end once you've signed the agreement. In fact, the education process should have just begun. Most insurers have their own systems for filing claims, which involve precise steps and exact terminology. Without this process and correct information, insurers often assess penalties and shops begin making concessions. With these issues come profit loss and decreased satisfaction, and can eventually lead to a collision shop being "dropped" by the insurer.
"It is essential that shop owners be proactive, not reactive, with managing their direct repair relationships," said Pete Tagliapietra, of NuGen I.T. Inc. NuGen I.T. develops management tools for collision shop owners. Tagliapietra believes insurers and shop owners belong on an even playing field - and that equality comes when shop owners understand the methodology and terminology used by the insurers in "grading" and assessing the work completed by collision shops.
"Shops are probably at a disadvantage," he said, "because insurance companies manage by the numbers - numbers that shops don't readily have access to."
Technology updates are distinctly important to shops that decide to participate in direct repair agreements. Management systems from major information providers give shops statistical information that is useful in evaluating productivity and profitability. If these systems do not fully address insurer requirements, you may want to consider additional sources from other software information providers.
There are some systems available that are sold to both shop owners and insurers that allow the two to work on an even plane - each understanding what the other requires for successful business transactions.
In addition to technology updates, business owners must continue to stay educated. ASA offers many opportunities for continued education, including opportunities for you to learn about DRP agreements and how to make these relationships successful. The International Autobody Congress and Exposition (NACE) is held each November, and offers seminars on DRPs and insurer-collision shop relationships, such as the ones provided by the Automotive Management Institute. Events like these offer possibilities to network with other shop owners who are facing the same issues and decisions, while also exposing you to industry experts who can offer statistics and hard evidence to support or dispel information you have received in your decision-making process.
How can I be sure I'm making the right decision?
Knowing you've made the right decision can be a hard assurance to come by. There are many factors that come into play in deciding whether to sign a DRP agreement. Not all of the questions you ask will have easy or clear answers. Without a doubt, a successful DRP relationship begins with an informed shop owner. You must be willing to do the legwork and the research required, so that you can enter the relationship as knowledgeable as possible. You must be willing to take risks - sometimes even the best-laid plans fail, and even the most thought-out business venture can sometimes flop.
Fortunately, there are not any penalties involved in dissolving a DRP agreement, and most require a written notice of 30, 60 or 90 days. You must understand the situation your shop is in presently - and know whether the business brought by becoming a DRP will be to your advantage or not. You must develop a relationship with the insurer that thrives on information and mutual communication.
And lastly, you must be willing to stay educated, continually adjusting to meet the challenges that are brought on by such a changing part of the automotive repair industry.
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