Wednesday, 31 December 2003 09:00

Insurer-owned shops - sucking the life out of suckers

Written by Dick Strom

An independent (non-DRP) shop owner-friend recently told me their local shop association hosted a meeting to discuss the proliferation of Sterling shops in their area. He wrote, "A lot of major DRP shops showed up to voice very strong opposition to insurance company ownership of shops. What's interesting is the number of 'scared DRP shops' who think Sterling's arrival is the 'beginning of the end' for their businesses." 

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He continued (and this is the amazing part), "These DRPers want us independent shops to work together with them to fight the big bad Sterling. My response was, 'Lets talk about passing a serious steering law that also includes doing away with all DRP relations with insurers.' Naturally, though, these DRPers don't want to ruin the sweetheart deals they have had with insurers; they only want to protect themselves. Most revealing were their comments that 'the DRPs are getting "tighter and tighter" every day, expecting and receiving more discounts and freebies, and steadily applying more pressure on their 'sweetheart shops' daily."
But another independent shop owner in the group stated, "I'm not afraid of Sterling since Allstate has already steered or otherwise stolen all my Allstate customers. I have a better chance of getting an Allstate job away from Sterling than do Allstate's non-Sterling DRP shops." He makes a point that few DRPers have considered, but soon will.

The owner of a prominent Midwest collision shop, heavily dependent on DRP relationships, recently expressed his frustration. Although having been an Allstate DRP for many years, when a Sterling shop opened nearby, Allstate began pulling jobs out of his shop and towing them to Sterling - at the rate of three cars in one week alone. Needless to say, this shop owner was infuriated, shaken by the crass boldness of Allstate to turn on their DRP shops, like this one, who had helped Allstate make record profits by unnaturally holding down the costs of repairs. When you play with fire, you're going to get burned!

Many shop owners are asking where all the DRP-type relationships with insurers are headed? Do independents and DRP shops have any place whatsoever in insurers' future plans? I don't know for sure because I haven't yet figured out if Allstate and other insurers plan on increasing their holdings in insurer-owned shops, or if this was all intended to further establish the "Big Brother is omnipotent!" message. What I do know is that sometime soon shops will have to say, "enough!" and begin conducting business like businesspeople - from a position of strength - rather than like mice.

Many shop owners seem to have forgotten that old truism "Never put all your eggs in one basket." It hasn't occurred to many that the reason insurers want to divide shops among themselves is to cause these shops to become top-heavy in their dependence on them… and thus, very controllable. A shop owner who in his past spent many years as a second-generation insurance agent, once told me, "I learned this 'too many eggs in one basket' lesson years ago in the insurance business, when I had two very large customer-accounts that represented nearly 50% of my volume.

Rather than concentrating on my smaller but more profitable accounts, I catered to the two larger ones, making them both a lot of money by getting them into some very lucrative investments while keeping their insurance costs low. But I lost those two large accounts within six months of each other, due to lack of customer loyalty on their part, when they were able to save a couple bucks elsewhere. They forgot me and all the money I had made them on investments to the lure of saving a few bucks on the insurance I provided them.

My dad taught me one basic principle that has always held water, one I'll never again ignore: "Never forget that insurance companies are 'fair weather friends' - as long as you are making them money they will love you, but the second you don't, they'll dump you like a hot potato." The number of collision repair shops that are now beginning to believe this has grown substantially since Sterling came to town.

Don't be fooled again

I too, once was an Allstate PRO-fool. When I signed on I'd been dealing with insurers for nearly 20 years and knew better than to trust any of them to look after my best interests. But, as I'm sure you did, I figured I could beat the system. Before long I was asking the same questions as you; "Why are they turning on me?… I've done every thing they demanded, seldom openly questioning their dictates." But I finally came to realize that consistent, honest business relations will never result from DRP-"partnerships"… that thorns and thistles will never produce anything but thorns and thistles. And let's be honest - you didn't enter into these relationships with the best of intentions yourself; you and I entered them for one or more of the following reasons.

Insurer-induced fear

First, there's insurer-induced fear that if you didn't sign on DRP programs your competition would. You prickled with pride when informed that you were the lucky shop owner to receive their benevolence. Later, when reality set in, you feared that if you dropped out they'd blackball you. I've been there myself, and have talked with too many shop owners, who turned red and sweaty when I suggested they drop out of their DRPs, to believe any different. Many feel trapped, lacking the confidence to once again enter true free-enterprise marketing.


Having depended so long on insurers to advertise for them and supply them with work, they no longer have a viable advertising campaign in place to attract new customers. You may have let your reputation in the community slip under the pressures of unreasonable cycle-time, insurer cost-containment, and the like. You fear what will happen to the additional employees and equipment you went into hock to acquire, should the transition away from DRP relationships not be a smooth one. In a word, you fear having to start over again, though the majority of those who've accepted the challenge have found it most rewarding.

Self-motivated greed

The second major motivation for entering into DRP relationships with insurers is self-motivated greed - when you realize this is your one big chance to "requisition" work from your competitors, under the guise of "good insurer-relations" - artificially inflating market share through means other than solely with better customer service, quality repairs, etc. The desire to have the whole pie - all the work - is a strong motivator. And the fear that you might lose some of it is a terrible blow to your pride.

Ignorance of insurer motives

Finally, you may have entered into DRP relations through ignorance, an honest lack of comprehension of insurer motives. A former insurance supervisor confided to a shop-owner friend concerning a large, new shop that was just opening its doors, "It's easy to talk shops like this one, that desperately need volumes of work, into becoming a DRP, because they're more reasonable, more willing to discount and deal." In essence, the shop profile many insurer supervisors are looking for is shops that can be squeezed and manipulated in exchange for volumes of insurer-directed work.

Personal experience - fear and greed

My motivations for entering my past DRP-relationship was a mix of fear - that competitors would accept Allstate's offer if I didn't, and greed - in that I wanted to leave my competition in the dust, to have all the work myself. I'll even admit that I played the fool in hanging on to the ever- elusive promise of more profitable work from this insurer for several years, hoping things would improve. But all that our books ever revealed we were gaining from them was lifetime liability.

Still not convinced that insurers don't have your best interests in mind? Take a serious look at the insurance adjusters and appraisers who frequent your door. Insurer upper echelons generally have little to no respect for their own lower level employees - often overworking them, and not utilizing their grassroots knowledge of the repair industry to see problems through the shop owners' eyes. If insurers don't treat their own employees with respect, discarding seemingly good and faithful employees with no more flare than throwing out the garbage, on what basis can repairers expect better treatment?

Yes, I experienced second thoughts and fear of insurer-retaliation, though for only a moment, when we bailed out of our DRP, just as I felt a brief moment of self- examination as I walked past the gate guards on my last day of military service, but I've never since that moment regretted reentering civilian life.

If you're breathing easy right now because there's no insurer-owned shop near you, be assured there is probably one on the way. And realize that other insurers are presently watching to see how Allstate-Sterling fares before taking on their own insurer-owned shops. Perhaps you think you're in too remote an area to be affected by insurer-owned shops. But another insurer in my area left its DRPs in a state of total disbelief by effectively diverting all the repairs it could, from an approximate 30- mile radius, to a huge repair factory located in another county, using multiple car haulers.

As stated earlier, "It's time we all sat down and discussed passing a serious "anti-steering" law, one that would also include doing away with all DRP relationships with insurers." For in the end, DRP partnerships promote steering in its most fundamental form.

Another thing you should seriously consider: Your DRP-relations may soon, finally, be proven to be violations of Racketeering Influenced and Corrupt Organizations (RICO) Act statutes. But that's another issue, one that will make all these other industry problems seem to be child-play.

Dick Strom, Modern Collision Rebuild, 9270 Miller Road, NE, Bainbridge Island, WA 98110; (206) 842-8056; email: moderncol@aol.com.