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Though this may seem like a strange time in the history of collision repair to consider dumping your DRPs, consider what plodding along in the same steadily deepening rut will cost you in the future. Many shops, having terminated their DRPs, are running very successful businesses, while drastically reducing their exposure to liability. Consider the costs of Direct Repair:

• DRP relationships promote insurer control of the repair industry (Daaah!).
• DRP relationships enable insurers to pass their liability on to shops (Have you had a competent contract attorney review your DRP contracts? Many shops that have, at attorneys’ advice, have dropped out of liability-laden DRPs).
• DRPs promote fraudulent cost shifting in the name of “cost-containment” (How else can shops recoup insurers-imposed cost-containment losses)?
• DRPs are divisive to the collision industry.
• DRPs undermine free enterprise / restrain free-trade (The BIG insurer lie is that Direct Repair actually promotes free-enterprise… Yeah, right!).
• DRPs promote shops’ doing insurers paperwork (DRP = “Do R Paperwork” (Survey findings: non-DRP = 2.5 hr paperwork/job; DRP = 4 hr. paperwork).
• DRPs promote more expensive payouts for insurers. An experienced insurance appraiser’s comment: “Its pretty much a given for all in the insurance industry, except for the empty suits in the HO’s, that DRP shops cost more than non-DRP shops. So why do insurers continue to promote Direct Repair? First, every other insurer has them, and no one wants to be the odd man out. Then, there are lots of execs that really believe Direct Repair saves them money (upper levels of management are far removed from what’s happening on our level). Also, the HO’s depend on statistics to tell them what they want to hear… and stats only say what those compiling them want them to say. Then, there’s the mentality of the corporate executives thinking about their careers, not wanting to risk being seen as ‘not a team player’ by peers. Finally, control is a factor at some levels.”
• DRP shops are begging to be hit with serious RICO Act violations. Some sharp attorneys are presently researching the relationships shops have with insurers, pursuant to bringing RICO (Racketeering Influenced and Corrupt Organizations) actions against D.R. shops and their insurers (If you doubt this, ask yourself why insurers are writing hold-harmless clauses into DRP contracts, placing all liability on you? (A May, 04 LIABRA article is titled, “Doctors’ Right to Sue Insurers for Racketeering is Upheld in Florida Court).

And DRP shops that are hauled into court can expect non-DRPs to be their worst enemy; most non-DRPs view DRP as having stolen untold jobs from them through insurer steering. And don’t plan on arguing that you were forced into Direct Repair (you did so of your own volition). And count on insurers pointing out that you are the collision repair expert, that they only write the checks. So, where does all this leave you?

EDUCATING / MARKETING IS THE KEY TO SHOP INDEPENDENCE.

In the words of a California shop owner, “DRP shops technically have no customers, because if their insurer-partners drop them, there go all their customers to a competitor. All they’ve really gained is lifetime liability.” Because insurerssold jobs for DRP-shops, breeding insurer-dependency, many shops greatly reduced their advertising.

So, increased education of, and marketing to consumers is an absolute must for shops kicking the DRP-habit. One shop owner that went independent told me, “I was on Allstate’s PRO program from 1991-99 along with other DRPs. I did what all DRPs have to do – hired additional shop and office help, bought additional equipment, and all the other expenses. By 1999 I’d had my fill of Direct Repair, and dropped them all. Since then I’ve been spending 5-7% on marketing consumer awareness. Computer-tracking everything, 1998, the year before we dropped our DRPs, we had our highest sales but our lowest profits ever. It became obvious this disparity resulted from our contracts with insurers, because the year after dropping them our gross profit and sales increased 4-5%, in spite of the fact that the number of vehicles we repaired had dropped 7%. Dropping our DRPs is the best thing we ever did for our business; now we get paid for towing markup and storage, plus a multitude of line-item operations insurers had denied under our DRP contracts.”

Next Week: “Get Creative in Educating and marketing to Your Customers”

Dick Strom

Modern Collision Rebuild

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