John Yoswick is a longtime writer for Autobody News and editor of the weekly CRASH Network newsletter, which conducts regular surveys of collision repair shops to find out how their business -- and relationships with insurers in particular -- are faring.
He recently helped kick off “Insurance Talk: Navigating Insurance and Repairs,” the latest series on The Collision Vision podcast, hosted by Cole Strandberg and driven by Autobody News, by giving an overview of the current state of insurance in collision repair, as well as emerging trends.
DRPs: An Evolving Relationship
Yoswick said when he started covering the collision repair industry in the late 1980s, only a couple insurance companies had direct repair programs (DRPs) established. The concept caught fire in the 1990s, reshaping shop and insurer relations.
The first DRPs were very different from what they look like today. “The pricing and other concessions that insurers initially asked for were pretty limited, and so it appealed to those who were tired of having to fight over each claim and who were looking to speed up the process, while also getting a more steady supply of work,” Yoswick said.
Still, there were people in the collision repair industry who predicted DRP agreements “would likely become less of a partnership in the decades that followed,” Yoswick said. “And many shops do feel that the benefits of DRPs have become much more one-sided.
“I think that's part of what's led to more friction between shops and insurers, and less interest on the part of some shops to continue in those relationships,” he added.
The rise of DRPs brought more points of contention, Yoswick said, as insurers tried to reduce their own costs by insisting on more non-OEM parts or considering distribution partnerships to buy parts or paint directly.
“Shops really pushed back on those things,” he said. “I think that even those not around for some of those past times are seeing, even if they don't realize it, how the relationship between shops and insurers has been shaped by those turning points 1,000%.”
Advancing Vehicle Tech’s Effect on Insurer-Repairer Relationships
Yoswick said before he started covering the industry, manufacturers’ turn to unibody construction in the 1970s and ‘80s had a dramatic effect on repairs and, with it, how shops and insurers worked together – so much so, it led to the formation of I-CAR. “Shops and insurers jointly recognized the importance of getting the industry trained to repair unibody vehicles correctly,” he said.
More recently, Advanced Driver Assistance Systems (ADAS) and the scans and calibrations necessary to repair them correctly have had a similar effect.
“The realization about the need for scanning a significant percentage of vehicles seemed to happen pretty rapidly, and that rapid change led to a lot of push back from insurers, and everybody scrambling to get their arms around what this technology required,” Yoswick said. “It adds to the repair process and repair costs.”
Today’s DRP Challenges
Since 2017, Yoswick said CRASH Network’s shop surveys have measured how long shops say they have to wait for a response from an insurer about supplement approvals.
“Back then, the bulk of those reviews were in-shop re-inspections,” Yoswick said. “And that has shifted, as everybody knows, most dramatically starting during the pandemic, to what we initially were calling desk reviews and are now more often called remote reviews.”
The wait times for these reviews have increased from two to three days in 2017 to almost five days on average – “a full workweek for a supplement review, and the wait times vary quite a bit from one insurer to another,” Yoswick said.
Three of the larger insurers reportedly are taking seven days or more to review supplement approvals, he said.
The wait time has a trickle-down effect on shops’ productivity and backlogs of work, as well as how long a customer has to rent a car while theirs is in the shop. That all has a negative effect on customer satisfaction and their loyalty to both shops and insurers.
“There's just so much waste and cost related to this for both sides that I'm sort of baffled why there's not more joint efforts by shops and insurers to combat it,” Yoswick said.
Strandberg asked how DRP agreements affect how a shop operates.
“So many ways,” Yoswick said – everything from the parts vendors and estimating software a shop uses, the makes of vehicles it can fix, how it markets itself and even how it pays its employees can be affected by a DRP.
However, Yoswick pointed out, what may be an untenable DRP for one shop might work very well for another. One multi-shop owner told Yoswick he doesn’t work with a particular insurer because he found them too difficult, but he knows another multi-shop owner who has a location that does almost nothing but DRP work for that same insurer.
Insurers seem focused on trying to establish consistency in what procedures they will pay for related to ADAS scans and calibrations right now, Yoswick said, as everyone in the industry recognizes the liability they face if they don't follow OEM repair procedures.
“I'm hoping there's not too many people listening right now who aren't aware of the John Eagle case,” Yoswick said.
Post-collision OEM repair procedures can call for “pretty intrusive stuff,” Yoswick said, like measuring steering columns and replacing seat belts, but some shops are reporting significant pushback from insurers.
Insurers are trying to establish uniform wording on estimates and invoices to make data analysis easier.
“One of the keys to building that consistency is everybody calling things by the same name,” Yoswick said. “I think [insurers are] going to increasingly push back on generic invoices that just say something like ‘calibrate vehicle’ rather than giving specific detail, and I think they're increasingly going to want more documentation on exactly what was done and what's being charged for.”
Yoswick said he thinks the consistency could “come fairly quickly,” as some service providers and insurers are starting to work on agreements, but he didn’t want to speculate on how repair costs might come down as it is established.
Labor rates are always another point of contention, Yoswick said, as his surveys find a steady rise in the number of shops charging customers beyond their deductible to cover costs the insurer won’t. “It can be pretty easy to explain to a customer, your insurer will only pay X dollars per labor hour and our labor rate is X plus two, so we need to charge you $2 for each of the 30 labor hours on this job,” he said.
When considering a DRP, shop owners should establish what percentage of their business they want to come from any one particular source. They should also consider the type of vehicles their shop tends to repair and their market demographics, as well as their staff’s skillsets. “Try to find the ones that have the best fit,” Yoswick said.
OEM Certifications vs. DRPs
“We've definitely seen some indication of shops moving away from DRPs and focusing more on OEM certifications,” Yoswick said.
Of about 550 shops that responded to a CRASH Network survey in March, Yoswick said, about one-third said they had no DRPs for the past year or more, which was consistent with prior years’ surveys.
But of the 365 or so shops that did have at least one DRP, about 22% reported having fewer DRPs than the year before.
“Combined, those 365 shops had just under 1,300 total DRPs, but that was 84 fewer DRPs than that same group of shops said they'd had a year earlier,” Yoswick said. “That's a that's a pretty big shift.
“We also track how much backlog of work shops have, how their total sales and car counts are changing over time and across the board,” Yoswick said. “Those things were high and rising in 2021, 2022 and most of 2023. So if you've got more work than you can get to, it's pretty much a no brainer that maybe you don't need all that discounted DRP work.”
Yoswick said he thinks, right now at least, shops see more potential benefits going after OEM certifications instead.
“I think what will be interesting to watch, as we see shops’ backlogs and work in process and claims counts starting to get back closer to pre-pandemic normal, is whether that trend of moving away from DRPs stabilizes or even reverses itself, and I'm not sure I have a prediction on that. I think it's too early in that trend,” he said.
Insurers have offered rate increases to shops to keep them in their DRPs, Yoswick said, which he had never seen before. Insurers are also more willing now to negotiate some elements of the agreements.
The Future of Collision Repair and Insurance
Yoswick said some large MSOs have already shifted to performance-based agreements with some insurers.
“They say, ‘Our average severity for this coming period will be X number of dollars.’ And then money changes hands between the two at the end of that period, depending on whether severity ended up higher or lower than what was agreed to,” Yoswick said.
As consolidation leads to more MSOs reaching that growth level, Yoswick said he expects to see those types of agreements increase.
He also thinks shops and insurers will use technology to speed up the claims process.
“I don't know what that will look like, but there's just too much inefficiency in the current processes for the status quo to continue,” Yoswick said.
He said AI will probably play into that, by using historical data to get enough of an idea of what kind of damage a vehicle sustained in a particular type of collision to write an initial estimate.
Key Takeaways
“Get outside the four walls of your shop,” Yoswick said. “You've likely got great people within your shop. They're seeing things from within those same four walls just as you are. You need outside input from other shop owners, for example.
“Find a consultant who understands your business model and has a proven track record of helping others succeed, or get active in an association or join a 20 Group. Get outside input from podcasts like this and publications like Autobody News.
“Attend industry conferences and events to gather input, not just from the speakers and the presentations, but from interacting with the other attendees.
“Because, frankly, the most successful people I know in this industry, no matter how you choose to measure success, are people who can and do point to a multitude of ways that they've learned from others and then put that to use in their business,” Yoswick concluded. “I think that's true about navigating the insurance industry landscape or almost any other aspect about managing a collision repair business.”
Abby Andrews