Sunday, 30 April 2006 17:00

CIC: State Farms new program, the gap and third-party procurement

"State Farm does not think it is reasonable to pay more for repairs than our competitors," stated George Avery, State Farm Claim Consultant, speaking to over 200 attendees at April's Collision Industry Conference in Portland, Oregon. Avery offered a 30-minute high-level overview of the changes the industry can expect from State Farm.  

Bob Smith (left) of SCRS speaks with State Farm's claim consultant, George Avery, at CIC. The new program, Select Service, will be replacing, in certain areas, the Service First program implemented by State Farm in the mid 1990s. Annual claims dollars paid by State Farm have reached approximately $8 billion. "At one time," Avery continued, "we had over 20,000 Service First shops." During this time, we heard the message loud and clear, we need to manage our data, not to the average, but to the top performer."

State Farm's priorities are very clear. They will protect their customer by working with shops that provide quality, efficiency and a competitive price. State Farm plans on working with top performers in the Service Select program, but will not have a definitive quality control measurement. "We are not about the business of telling you how to run your business," stated Avery. "We expect top performers to know their business." State Farm will be comparing shops to the rest of the industry. Third-party information providers will be pushing data to the State Farm Select Service Shops.

The shop selection process will be based on performance, geographic location, capacity and business needs. If a shop's business model is to give discounts and you are not giving State Farm discounts, this program may not be right for you. If there are no discounts across the board, that is okay too. What State Farm is looking for is a level playing field. They are going to trust the shops. The subrogation process will tell the tale if a shop has been dishonest about discounts and labor rates. "If we find a discrepancy in what the shop has told us and the truth, we will take appropriate action and we will do it now!" Avery emphasized. "These will be tough decisions." Local management will make them in each distinct region.

"We tried to have an ethical and professional program," declared Avery. "We are going to stay the course." Avery discussed industry reaction with respected colleague and friend, Bob Smith, executive director MoKan SCRS, asking him, "Everyone has raved about how ethical and professional State Farm is, yet, we are receiving a lot of criticism."

"It is about change," stated Smith, whose industry knowledge spans over 30 years. "Change is scary, everybody likes status quo and to stay in their comfort zone." Smith feels that the new State Farm contract is close to a decent piece of paper for this industry. He also recognized a history of mistrust. "Not with State Farm - they print it on paper and do what they say they are going to do," Smith quipped. Regarding industry reaction, he told Avery, "George, a fella gets snakebit a couple of times, he is suspicious of any movement in the grass."

Avery's presentation was well received by the CIC audience and industry participants are watching with cautious optimism.

Filling the gap

After four national meetings and multiple conference calls, the Estimating Procedures Committee Chairman Chad Sulkala, Acme Body & Paint, Boston, Massachusetts, and Co-Chairman George Avery, State Farm Insurance, Bloomington, Illinois, announced the Collision Industry Conference recommendation for the process Feather/Prime and Block - commonly known as the gap.

The statement reads: "The repair process associated with damaged painted body panels typically involves multiple operations; body repair, feather, prime, block and refinish.

The body repair process includes metal finishing and/or the use of body fillers to return the body panel to its undamaged contour. The repaired area is finished to 150 grit and free of surface imperfections.

Feather, prime and block are not included refinish operations that complete the process from 150 grit to the condition of a new, undamaged panel.

The refinish process starts at the condition of a new undamaged panel and is outlined and documented in printed and/or electronic time guides.

The body/paint labor and materials necessary to prepare the repaired area from 150 grit to the condition of a new undamaged part is a valid and required step in the process. The labor and material allowance for these operations requires and on the spot evaluation of the specific vehicle and damage."

With regard to this announcement, "Motor Information Systems did make this change in their database and the CIC Estimating Committee wants to thank them for clearing up the ambiguity of the language," responded Sulkala.

Parts procurement

Third Party Procurement of Parts was addressed by the CIC Parts Committee. Chairman John Bosin, Akzo Nobel Coatings, called this issue a conundrum - puzzling and confusing. Bosin spoke with eight insurance companies to compile the committee's extensive report. He said the message is clear: "There will be future parts procurement."

Bosin said the insurance representatives were forthcoming about their reasons for parts procurement, explaining that the insurance industry is looking for cost savings and efficiencies.

Among the repair industry's concerns are business interference and vendor relationships. It is not unreasonable to ask if parts will go the way of glass.

Collision repairers voiced many concerns regarding this new policy which has already begun creeping into certain regions. A collision repair shop in Illinois was told on his insurance repair estimate to get parts out of New York. Gene Hamilton, Sports and Imports, Atlanta, Georgia, espouswed: "If we want to cut the industry down by 25% - just take parts out of the estimate. The insurance company may want that solution."

Ric Pugmire, Leading Edge, Phoenix, Arizona, asked, "Imagine tomorrow morning the insurance company ordered your parts and you were faxed a parts list. Three days later could you fix that car?"

In other parts of the world, Korea, for one, parts are already purchased by the insurer. Herb Lieberman, LKQ Corporation, suggested inviting other countries to CIC to present the pros and cons of this third-party parts procurement. Craig Griffin, Laney's Collision Centre, El Dorado, Arkansas, reminded attendees, "Don't forget about profitability. Parts are 42% of revenues. Without that I can't afford to be a good employer. If you are going to take that out, you are turning class A shops into chop shops!"

Anti-fraud committee reinstated

The Anti-Fraud Committee, chaired by Gary Wano, Jr., GW and Sons, Oklahoma City, Oklahoma, was reinstated this year with one goal being to explore manipulation of user-defined profiles. "Fraud is costing us all," stated Wano.

Another item on this committee's agenda is the increasing demand for concessions from collision repairers. He reported, "Shops are being asked for concessions that are dangerously low." He interviewed several repairers, asking how they are making up for these concessions. The answers covered the gamut:

*The adjuster will take care of me somewhere else;

*Lower quality;

*Cost shifting;

*You can't;

*Fight it - educate the consumer; and

*Take it in the shorts and move on."

Ron Reichen, Precision Body & Paint, Beaverton, Oregon, asked the fraud committee to please investigate why insurer's will not pay collision repairers a mechanical labor rate. "We have the same equipment; we pay our employees the same," Reichen challenged.

Database Task Force on the job

Lou DiLisio, chair of the CIC Database Task Force reported the Task Force will be meeting in June with CCC and Motor. Motor's John Lypen responded to the accusation posed in a recent publication that they do not do time studies. Lypen stated the employee who responded to this particular question did not follow protocol, providing an unclear answer. The procedure in question, a Volvo rear body panel, did not have time studies done. CCC has since scheduled the study.

DiLisio also reported that Solera, the company that recently purchased ADP, responded to a letter from the Task Force, recognizing the Task Force and stating that Scott Jenkins, the ADP representative, will continue representing Solera to the Task Force.

The Task force sent a 15-point survey to the OE's asking how they are transferring data to the information providers. DiLisio reported that the need to find the process of how this information is getting to the IP's will determine how timely and accurate repair times will be. Ford and Toyota have responded to the survey. The Database Task Force is also asking all information providers for disclosure of drastic price changes in the system.

Rule development time line

Environmental Committee Chair Les Young, AAS, is helping the industry define the potential national impact on shops for EPA compliance. He produced an EPA Time Line of the Rule Development Process from the NACE CIC meeting:

*2005 is the year to start data gathering.

*2006 will be used to develop emission limits and determine environmental and economic impacts.

*In 2007, the rule will be proposed and comments received.

*The final rule will be promulgated in 2008.

*The rule goes into effect in 2011.

Of more immediate concern are the new OSHA standards for hexavalent chromium that will be take effect this month.

Insurer/repairer relations

A new committee, Insurer/Repairer Relations Task Force, will be formed, consisting of CIC past and present chairpersons. CIC's current chairman, Rick Turri reported, "It is a good cause, a good reason for them all to get together," and then asked attendees for any ideas or suggestions for this committee.

Toyota's Karl Krug closed the meeting, giving the gift of one year's subscription to Toyota Technical Bulletins to all first time attendees.

Janet Chaney has been in many facets of the collision industry. She is serving the best interest of her clients through Cave Creek Business Development. She can be reached at janet_chaney@earthlink.net.


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