Insurance and Body Shops Part I: To DRP or Not to DRP – That is the Question (And There is No Right Answer)
For nearly as long as cars have been sold in America, auto insurance has also been sold – and mandated. While these two businesses work in tandem, they also have a history of conflict. In this two-part series, we’ll explore some of the issues that arise between body shops and insurance companies and the effect of those issues on shop owners and consumers.
Body shop owners have to make hundreds of decisions every day to act in the best interest of their business and customers. One of the most important decisions to make in terms of insurance is whether or not to join a Direct Repair Program (DRP). The Insurance Information Institute defines a DRP as “a network of auto repair shops and dealerships approved by an insurer.” When joining a DRP, a body shop will enter a formal agreement with an insurance company that lists the terms of repair work, including what the insurance company will pay for each hour of labor, products used, services needed, and more. The body shop also agrees to liability for issues that arise with the car following the repair.
“DRPs are a personal decision every business owner has to make for themselves,” said Bruce King, founder and former owner of King Collision. “There are benefits and costs to joining these programs.”
Paul Rinaldi, a FinishMaster Sales Manager, agreed.
“Every shop owner has a choice to sign the deal, but it is a choice,” Paul said. “You need to consider exactly what it means to be in that program.”
One of the main advantages is a consistent stream of business. Insurers send their customers to shops in the DRP network.
“The average consumer gets in an accident every seven years,” said Paul. “Will they know who to go to for repairs? Being in a DRP is one way for small businesses to attract a local customer.”
However, Bruce said some shops become complacent.
“It’s a misconception that work comes automatically by getting on a DRP list,” he said. “Shops become dependent on them – they stop advertising. I don’t think it’s a healthy thing.”
Another issue with joining a DRP is the financial concessions and the commitment to provide services the insurance company would typically perform. The labor rate paid by the insurance companies to the DRP shop is often lower than the door rates body shops publish for themselves.
“It will likely be a lower hourly rate for the labor to do a repair,” said Paul. “But shops have to consider the amount of business they get by being in the DRP. Would they have gotten these repairs without being on the list? Everyone has to decide what is best for their own business.”
Dennis Seaver, a FinishMaster Sales Manager in Massachusetts, said he noticed DRPs became prominent in the industry about 10 years ago.
“If you want to join a DRP, you make concessions as a shop owner to make that happen,” he said. “There are situations where shops make major concessions, but in a lot of cases, it works for them.”
Regardless of whether you choose to join a DRP, it’s important to continue to market your shop directly to potential customers, so you don’t become 100% reliant on DRP directed business.
Here are some tips when deciding whether to join a DRP:
- Read through the agreement thoroughly. “I would even have a lawyer look through it,” said Paul. “It’s money well spent because it’s extremely important to understand what you’re getting into.”
- Think about the business you want to be and how joining a DRP will impact your decisions. “You have to be willing to go toe to toe with the insurance companies,” said Bruce. “You need to step up and run your business.”
- Learn as much as you can about the insurance industry. “You need to know how to speak their language,” said Bruce. He also recommends educating customers about the insurance industry as much as possible.
- Consider the customer. Keeping their best interests in mind will help your business succeed in the long haul, whether or not you decide to join a DRP.
In addition to the labor rate, insurance companies also determine the repair jobs covered both for shops in the DRP and independent shops. In Part 2, we’ll look at the issues that might arise when negotiating repairs and who covers the costs.