Hammer and Dolly magazine, May 2006. Reprinted with
Here is What State Farm Wants
by Sheila Loftus
For the collision repair industry, it's time to render unto Caesar the
things which are Caesar's.
And what Caesar is claiming as his own is discounts.
State Farm, the largest insurer of automobiles in the United States, is
evidently tired of its competitors being granted discounts on parts and
labor from shops without it being given the same deals. At last month's
Collision Industry Conference (CIC) meeting in Portland, Ore., State Farm's
George Avery said, "The bottom line is that State Farm does not think
it is responsible to pay more for repair than our competitors. Period."
Avery was speaking about collision repair facilities that are, or will
be, a part of Sate Farm's Select Service program. Shops on the program
will be asked to give State Farm whatever discounts they give to other
insurers. If a shop gives a discount on parts to one insurer and a discount
on labor to another, it will be expected to give State Farm the best of
both deals, Avery said. "We get the best of all these categories,"
Avery made a point of noting that State Farm isn't asking collision repair
shops for discounts. If a shop operates without giving discounts to any
insurer, State Farm will not expect to receive one, he said. "If
your business model says no discounts whatsoever, that's perfectly fine
with us," Avery said. "I don't have a problem with that."
If collision repair shop owners give discounts to other insurers, but
are wary of giving discounts to state farm, "then perhaps [Select
Service] isn't right for you," Avery said. "That seems a little
rough. That is probably as edgy as [I] get. But that's really a fact."
Avery said State Farm would "trust" collision repair shop owners
to reveal what kind of discount arrangements they have with other insurers.
At the same time, State Farm is in a position to verify the nature of
those arrangements because of subrogation proceedings.
"[In subrogation], we get a bill and an estimate from a repair facility,"
Avery said. "It could be [from a shop] on our program.
[The shop] could have told us one thing [about discounts] and billed us
for something else. I think subrogation is the place we are going to look."
And Avery was clear about what State Farm would do with dishonest shops:
"If it comes to my attention, I am going to take appropriate action,
and I am going to take it now."
Avery, who is one of five estimating consultants at State Farm, said that
his employer aims to include the best collision repair facilities in its
Select Service program.
State Farm will know which shops are performing at an optimal level because
it will receive data from the information providers on a dozen or more
of the shops' performance indicators.
"It is wide," Avery said of the number of performance indicators.
He said, "it's not State Farm's list," but rather a list of
indicators to help repairers evaluate their performance.
Both State Farm and its Select Service repair facility will receive a
report of the shop's performance indicators from the information providers.
The report will give the insurer and its Select Service repairer a common
set of numbers with which to do discuss the shop's overall performance.
No other individual entity will have access to the repairer's report.
"I am going to tell you where you are, and where you are compared
to the industry company-wide," Avery said. "You know that this
whole thing [can be] managing to the average. We want to manage to the
top performers. So these reports are going to identify the top performers."
In a follow-up interview with Hammer and Dolly, Avery said that State
Farm will be providing performance information to the shops in a number
of categories because "we don't want the repairer to come back and
say, 'You left such and such [category] out, and that is real important
to me,'" Avery said.
Avery also said he doesn't want collision repairers to see the list as
a narrow set of particular items that only State Farm is concerned about.
"We don't want the list to be identified as State Farm's list,"
Avery said collision repairers had come to State Farm saying that there
were too many shops in the insurer's Service First program-20,000, according
to Avery. With Select Service, which is still being tested, there will
likely be fewer shops involved. And the program will be selective, Avery
said. "We agree that to manage the program, we need to reduce [the
number of shops]," he said. "And if we reduce, we need to work
with the top performers."
Although Avery didn't speak about the economic implications of Select
Service on the collision repair industry, he did mention two of State
Farm's market figures, which spoke eloquently enough: 3.2 million estimates
a year (more than half as many as its nearest competitor) and $8 billion
a year in claims paid (excluding total losses).
The Select Service agreement lists four areas in which it expects collision
repair shops to perform well: customer protection, quality, efficiency
and competitive price.
On customer protection, Avery said, "Our customers told us that they
are very concerned with their private information being shared with somebody
else." If the sharing of information with other businesses occurs
in the process of completing repairs, it's all right, Avery said. But
it's the shop's responsibility to make sure that information isn't sold.
On quality, Avery said that State Farm found that its top performers had
some kind of quality-control process in place. "All I want to know
is that if you are interested in being part of the [Select Service] program
and you are selected that you tell me that you have some kind of quality-control
program," Avery said.
"I had one shop say, 'Yeah, I've got Jim.' I said, 'Is that an acronym
for some type of computer program?' 'No, he's Jim. Jim.
That guy right over there-Jim. That's my quality control,'" Avery
said, adding that "Jim" indeed proved an adequate form of quality
"Top performers know their business, and they know the best way to
do it, and we are not going to tell you [what to do]," Avery said.
On efficiency, Avery said State Farm would know collision repair shops'
cycle times. "I am going to compare you with the rest of the industry
on [your] cycle time," he said.
"We want you to be efficient," Avery said. "We ask that
you give the customer a guaranteed completion time. You know why? Because
the customers are asking for that."
Under the Select Service agreement, shops won't be penalized for unavoidable
delays. However, if a shop is responsible for a delay, it will be asked
to "participate in some of the rentals," Avery said.
On competitive price, Avery emphasized that State Farm expects the best
of the discounts that shops offer other insurers. "If your business
model includes giving discounts to other customers and other carriers,
I'd like the same deal," Avery said.
Avery said that the Select Service program has been tested in California,
Illinois, Indiana and Michigan. Service First shops in designated areas
were mailed Select Service agreements. The shops that signed the agreements
became the first Select Service shops.
But not all of them made the cut.
"We discontinued relationships with some Service First repair facilities
based on either performance, capacity, geographic layout-however that
came out," Avery said.
He added, "We just want you to know that it is a business decision
we had to make that is associated with capacity and business needs. If
our capacity needs change, we will be glad to be looking for more competitive
repair facilities in those areas."