At NACE 2011 this year VeriFacts' own Mark Olson chaired a round table discussion on DRP contracts. The panel consisted of shops, a few insurance reps and a lawyer who consults for shops looking to sign DRP's. Some challenges were discussed that shops looking to go the DRP route don’t often consider. Here are a few things to be mindful of before you sign on that dotted line.
Read it Thoroughly!
Even if business is down and you feel desperate to get those cars coming in, the single biggest mistake you can make is to simply grab the contract and sign. There are elements in there (legally binding elements) that can have a real impact on the way you do business. Read it thoroughly and if you see something that you don’t understand, seek professional counsel. A contractual attorney may be able to help you for just a little up front, and just might save you tens of thousands of dollars in the long run.
Future Seeking Terms
Beware of future seeking terms in the contract. These are items that might not be enforced yet but are enforceable in the future. An example is estimating systems. Perhaps you are in compliance at the outset of the contract, but what if a year later the insurance company changes systems? Are you prepared for that investment?
Integration Clauses
Let us say the contract specifically states an item, but the person asking you to sign it is telling you otherwise. Let’s say it states you must use aftermarket parts but your local rep is saying don’t worry about that you can use OEM parts. An Integration clause means that whatever it says in the contract is legal and binding. If you run into a situation such as this, please consult a qualified and reputable attorney to assist you. Again this could mean a complete change in the way you do business.
KPI's (Key Performance Indicators)
You must be absolutely clear what the KPI's are going to be for this insurer and HOW THEY WILL DETERMINE THEM. For example what is their definition of cycle time? Keys to keys? Claim to Bill? What if a customer picks up their car a week later due to a business trip? What if they just like their rental better (it happens). In many contracts there are cycle times specifically stated. Make sure you are aware of every single KPI, what the parameters are, and make sure you are comfortable with them. This is after all how you will be graded.
Privacy Issues
This insurer most likely does business with your competition. You want to make sure you competition doesn’t have access to you personal information such as shop performance and other KPI's. You do not want your competition getting their hands on your data. Make sure you are clear on what the privacy policy included.
It is no secret that todays market is tough for body shops seeking to earn new business with which to grow. Consolidators are gobbling up shops, sophisticated accident avoidance systems are causing less collisions and more totals, fewer clients pays due to a sluggish economy, it can at times be a real grind. However customers are keeping their cars on the road longer so the business is out there.
Perhaps now you have decided to step up your DRP contract load. You might have some already on program but are looking for more, or maybe you are ready to solicit your first insurance companies. Or perhaps you competitor down the road is starting to really slide and the insurance companies have come to you to apply for inclusion in their program.
It can be a daunting task to assemble the information required for a DRP contract. The key things Insurance companies are looking for are:
- KPI's- Key Performance Indicators: average estimate cost, severity, cycle time or key-to-key, and alternative parts usage (APU). In order for a shop to remain in good standing with the insurance company and consequently remain on their direct repair program, the shop’s KPI must meet or exceed industry norms.
- Equipment- Having the right equipment and keeping it up to date shows a commitment to your facility and the speed with which to make repairs. Fixing modern cars with 20-year-old equipment is not only inefficient, on some models it is in violation of the manufactures requirements for a safe repair.
- Training- How well your staff, especially your technicians, are trained is a major differentiator between you and the guy down the street. Insurance companies may prefer to work with shops whose staff is I-CAR trained and welding qualified.
- Cleanliness of Facility- Remember your shop is a reflection of the Insurance company- they are sending their clients to see you. At a minimum you need to have a clean customer waiting area. Bonus if you offer amenities such as Wi-Fi or refreshments.
This blog only begins to scratch the surface of areas to consider and highlight when soliciting to insurance companies for DRP contract work. We will get more involved in future articles about training and new business techniques that you can use in your shop.
