Tuesday, 31 January 2006 17:00

State Farm rolls out new DRP program in test markets

State Farm is rolling out a new DRP program. The program calls for State Farm to get as good a rate as a shop charges any other insurance partner and asks for preferential treatment for State Farm insureds. 

Designated markets, including California, Illinois and Michigan, have been chosen by State Farm Mutual Automobile Insurance Company to test changes in its auto damage service repair programs. Selected shops in these markets will test an agreement that replaces the existing two-tier Service First® and Select Service® programs. The new program will carry the Select Service name.

According to State Farm spokesman Dick Luedke, "The goal of the performance-driven program is to provide customers with the best value in vehicle repairs with a continued focus on quality, efficiency and competitive price."

Not a "Concierge-type" program

Luedke emphasized that this new effort is not comparable to Progressive's Concierge program, in which the insurance company essentially becomes the customer and makes all repair decisions. As with State Farm's current programs, customers will maintain freedom of choice when selecting a repair facility and no effort will be made to interfere with the repairer-customer relationship, said Luedke.

David Sanchez, Sr., owner of three shops in the San Francisco Bay area, has agreed to become part of the new program. "State Farm has been very good to us and any concerns I had about the new program have been allayed." He does not expect any interference in the relationship with his customers and has no problem giving State Farm the lowest competitive rate. He expressed that some repairers have taken advantage of State Farm in the past and thinks that the new program is necessary for State Farm to maintain control of their finances.

Elements of the program

The Select Service program will offer what it refers to as a premier level of vehicle repair service, including national limited lifetime repair warranties, guaranteed completion dates, wash and vacuum of repaired vehicles and pick-up and delivery service, in addition to the one-stop convenience of State Farm's current repair programs.

"This is not a problem for us," stated a San Diego shop owner, "because we already do these things for all of our customers." He did express a concern over what he perceives in the agreement as the necessity to give priority to State Farm Select Service customers. Before signing on to the plan, he needs to clarify this point. However, the shop has a long-standing relationship with State Farm and he believes this issue can be worked out.

Other repairers in the designated markets are currently reviewing the agreement to decide whether to apply for the new program. Although most current shops with existing State Farm repair programs have received applications, Select Service eligibility will be extended only to the most qualified, most competitive repairers in the industry - large or small. Repairers who are best suited to meet the repair value and capacity needs of State Farm customers will be invited to participate, according to the company.

Shop must promise lowest rate

Although he has not yet seen the agreement, Joe Schirro of Schirro Col-lision Centers in the greater Los Angeles area, is confident that both his shops will be welcomed into the program. A point of concern for Schirro, who has DRP relationships with several other insurance companies, is the requirement that State Farm receive the lowest rate offered by the shop to any other customer. But instead of seeing this as a problem, Schirro sees this as an opportunity to negotiate with his other repair partners to bring their hourly rates in line with local area survey-determined rates. In California, State Farm does one of if not the largest rate surveys in the state, based on the number of shops participating.


State Farm preferred by many shops

State Farm promises to maintain its quality relationships with repair facilities and continue to provide the highest level of service to its shared customers.

In Arizona, for example, the Arizona Collision Craftsmen's Association conducts an annual survey of its members as to which insurers they prefer to deal with. For the past several years, State Farm has consistently ranked as one of the top insurers.

State Farm also ranked highest in a national poll of auto body repair shops conducted by an industry news website, www.Collisionweek.com. That poll put State Farm at the top of the heap in each of the past six years.

Whether this love fest will continue, given the new program's requirement that State Farm receive the lowest rate offered any other insurer, remains to be seen. For instance, "Shop A" may have a lower hourly rate for an insurer other than State Farm, but the shop in return receives concessions such as guaranteed volume or reduced claims paperwork. These "concessions," said Luedke, will not be taken into consideration when State Farm checks to see if it is getting the lowest rate - only the actual dollar amount will be considered.

How will State Farm know lowest rate?

Also unclear is how State Farm will know it is getting the lowest rate. Luedke stated that "of course, our relationships are built on trust, but we have the tools to help monitor compliance with contractual terms." He refused to be more specific.

According to a discussion between a test shop and a State Farm adjuster, as reported by Sheila Loftus' CRASH Network newsletter, State Farm has the opportunity to learn what a shop is charging another insurer when State Farm and that insurer subrogate a claim. If State Farm learns through subrogation that another insurer is paying a lower rate to a particular shop, that facility could be removed from the Select Service program.

Large shops with many DRP relationships involving discounts may have difficulty synching up the hourly rates of all the parties involved. This may make them ineligible for the program. On the other hand, small shops with few relationships involving discounts may benefit from increased volume if larger shops fall out.

The matter of repair priority for program customers could also become an issue. Many repairers work on a "first in, first out" basis and would be reluctant to put State Farm customers ahead of previous commitments.

What provoked the change?

According to Dennis Liphardt, publisher of Lip Service Collision Industry Newsletter, the more stringent demands by State Farm were inevitable. The company has been running its programs with no requirements for discounts or concessions. It has done the required labor-rate surveys and paid the established rate, while other companies dragged their feet. Further-more, shop owners could submit a request for a higher rate at any time, and this would trigger a survey that would benefit all shops in the area.

Liphardt writes that "everybody in the collision business that did work for another insurer at lower rates than what the shop charged State Farm is to blame for the changes in [the new agreement.] It is not State Farm's fault! It's your fault if you agreed to other insurers paying you a lower hourly rate or if you allowed discounts and concessions...For most shops [State Farm's] generosity is coming to a sudden halt."


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