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Direct Repair Programs

Why Insurers Need Alternatives in Today’s Market

February 02, 2009 Photo
Direct Repair Programs, or DRPs, ideally offer auto insurers a greater degree of control over the claims process than situations where one is not present. As the programs have matured, however, shops have developed divergent views of such programs—ranging from supportive to combative. Additionally, legislation in numerous states is looking closely at the DRP practice to determine legal compliance. Faced with growing governmental pressure, consumer pushback, and mixed press, insurers are reexamining DRPs to ensure their claims handling processes are the best reflection of today’s realities.

DRPs have many advantages, but they are not the best solution for every insurer, every place, or every time. The real issues revolve around cost control, customer satisfaction, and reduction of cycle time. Insurers need to seek innovative alternatives that can provide many of the advantages of DRPs without the disadvantages.

Strong in Theory, Complicated in Reality
General consensus places the inception of the DRP sometime in the 1970s as a perk Allstate Insurance offered to its policyholders. The original intent was to create a prescreened network of shops which could be relied upon to do quality work in a timely manner. As DRPs have spread and evolved, they have become more complex; now they include agreements on rates, the types of parts that can be used, and other operations which had been the domain of the collision repair expert.

DRPs give carriers several advantages such as controlling costs and supporting strong service advantages for their customers. Under the right circumstances, they allow the insurer to command results from the shop in terms of cycle time, quality and savings. DRPs also add stringent key performance indicators (KPIs) that are measured monthly to ensure the advantages to the insurer are being met by the shop.

A major drawback, though, is that a DRP works well only in regions where the insurer has many customers. They work best as a partnership, which means they need to be perceived as mutually beneficial on both sides. Shops need enough volume from the insurer to make it worth their while to comply with DRP rules. If only a few jobs are being sent every month, there is little incentive to play by the rules. Customers in those areas where there may be less volume still want and deserve good service; if they don’t receive it, they will find another carrier.

Another downside is that running a professional-grade DRP takes a real commitment by the insurer—time has proven they cannot run on autopilot. It is the insurer’s job to stay on top of monitoring and managing DRP shops and their results. A majority of insurance company executives believe their company is managing the DRP program properly, but that is not always the case, especially if there is no uniform measurement of performance. Managing the DRP is often an add-on to existing duties rather than a position unto itself.

They also can cause political problems for insurers. A number of states have passed anti-steering laws, and more are considering new or stronger legislation. Tales of consumers being forced by an insurer to use a particular shop and getting poor treatment or shoddy repairs have reached legislators’ ears. Many lawmakers and insurance regulators feel the DRP concept easily can be abused. Insurers may find themselves facing the shut down of DRPs in some states or, at least, greater restrictions on how they can be run.

Luckily, changes in consumer behavior and the implementation of Web-based technologies can help pave the way to a bright future for the handling of auto claims.

Changing Consumer Habits Help Point the Way
Consumers seek, share, and store information in new and ever-changing ways. For example, according to a study released in May of this year by independent research firm Common Knowledge Research Services, texting has become a mainstream communication mode with over 55% of consumers using text messaging. This is a rapid adaptation of a relatively new technology.

Every day, consumers are integrating electronic methods of exchanging information into their daily lives. They search online for information, read peer reviews, and send e-mails by the billions. Today, claims processing barely scratches the surface of available Web-based tools. Carriers need to utilize the Web and other technologies to close gaps ranging from customer service to overall claims monitoring. Currently, the systems used to handle claims are either custom-built or piecemealed together from various external sources; yet few take advantage of the power of Web-based solutions.

Consumers want access to information 24/7, they want to access it on their terms, they want to view their claim’s progress, and they want to be able to evaluate based on peer reviews as well. A Web-based service offers solutions to each of these requirements. As consumer expectations for technology utilization increase, meeting and surpassing those expectations becomes a strong differentiator—as well as a competitive advantage—in the marketplace.

Be a Hero in Your Customers’ Eyes
Customer service is the lynchpin of any program. When insureds are in accidents, they often do not know where to go to get their cars repaired, or even how to go about doing it. There is a great deal of confusion: Are they responsible for getting estimates? Do they need more than one? Will there be pushback on cost estimates they submit to the insurance company? How can they find a quality shop? The list of potential consumer questions goes on and on. This is one of the times when insureds look to their companies most—seeking guidance as well as information. It is also when insurance companies find themselves in the delicate position of helping their insureds without being interpreted as steering them.

During an active claim, the insurer has to make good on the promises of its policy. The quality of the customer experience makes the difference in whether the company keeps a customer or does not. Utilizing Web-based technology is a solid solution for ensuring a smooth, customer-centric process. J.D. Power’s insurance report from August 2006 notes that a consumer is twice as likely to switch companies because of poor claims service than because of rates.

Here is an example of how Web-based technology can direct and support the consumer side of the auto claims process. When an insured has a claim, the claims representative lets the customer know about an option allowing them to choose a repair shop online. If the customer opts in to the system, each step of the claims process becomes automated for the claimant. First, an independent appraiser is assigned to inspect the vehicle, take pictures, write an estimate, and upload the estimate and photos of the damaged vehicle to the Web. Then, the customer is notified via e-mail or text message that his estimate is posted for review, and that local body shops will be submitting cycle time proposals for the job.

Consumers easily can review the shops interested in their business. Once they login to a secure portal, they can find additional information about the shops, ranging from rental car policies to accreditations. They also can read reviews of individual shops from previous users. This helps them make informed decisions without calling all around town. It allows for an apples-to-apples comparison in an easy-to-follow format.

Once the repair is completed, the vehicle owner fills out a brief survey about his or her experience. Being part of a peer-to-peer community helps further engage insureds, which is crucial for retention. This type of system positions the insurer as technology-forward without additional investment in infrastructure. It allows for automation of all aspects of the repair process through a central hub, and makes insureds active participants in the process—creating a win on all sides for the consumer.

This type of program also helps with cost control because costs are shared between carriers and body shops. It also enables a reduction of cycle time because the Web-based process moves along automatically, keeping the job on track.

It’s All About Leverage
A Web-based system can offer something that a traditional DRP cannot: leverage. Because many different insurers use the system overall, the system itself will have clout with the participating shops. This way, if there is a claim in an area where volume is low, there is a direct benefit from the collective power of everyone’s claims. The shops are happy with the amount of business coming in the door, a low-volume firm is treated as one of the “big guns” in an area, and the customer can count on a process where he is treated well. And, because of the inherent automation, little oversight is necessary.

Servicing the Customer
The roots of a DRP are all about control, but control doesn’t always equal results for consumers. For instance, one major national insurer has a highly controlled DRP, but when J.D. Power surveyed consumers on the quality of their repairs, the resulting ratings were poor.

By contrast, the Web-based solution provides a framework that allows both the insurer and repair shop to service the customer to the best of their abilities. This type of Web solution appeals to consumers as well. They are used to accessing a broad range of products and services online. By putting them in the “driver’s seat” and boosting their involvement, their satisfaction increases.

DRPs have their pros and cons, but they don’t work effectively in every place for every insurer. Carriers need strong alternatives, and a Web-based solution offers a way that’s uniquely suited to the 21st century.
Ian Cunningham is CEO of Scene Genesis, a technology company in Pittsford, New York, serving the auto insurance and collision repair industries. He can be reached at icunningham@scenegenesis.com.

About The Authors
Ian Cunningham

Ian Cunningham is CEO of Scene Genesis, a technology company in Pittsford, New York, serving the auto insurance and collision repair industries. icunningham@scenegenesis.com

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