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Pandemic awakens direct repair shop programs

‘Even though DRPs can provide customers with additional convenience and benefits, it does not imply that repairers who do not participate in DRPs don’t also offer the same services’

Steven E. Schillinger is a P.E. and PBE consultant in addition to being “actively retired.” He can be reached at schillingersteven@gmail.com and linkedin.com/in/seschillinger.

Direct Repair Programs (DRPs) provide customers with additional benefits and services, and can provide the opportunity to lower repair costs, which also benefits the consumer in the form of lower premiums. DRP contracts between collison repairers and insurers typically include service agreements, business requirements, and pricing agreements. Customer choice, however, determines who performs the repair. Typically, consumers choose the convenience of a DRP and the shop benefits from the additional business.

In the event of an accident, as post-pandemic driving begins, policyholders may now hear the following from their insurance carrier: “We have a list of recommended shops you can choose from, all of which have been confirmed for safety and quality. You can also choose your own shop. However, if you choose a shop from our list, we will guarantee the work and arrange for the repairs, so you’re not subjected to the possibility of Covid-19 exposure.”

Steven E. Schillinger

There is growing concern surrounding a shop owner’s liability involving Coronavirus exposure as well as their employee’s medical evaluation, training and testing during the pandemic. Many insurance carriers are now requiring “proof” of registration for Paint Stripping and Miscellaneous Surface Coating insurance coverage under EPA’s National Emissions Standard for Hazardous Air Pollutants, aka HAPs 6H. 

According to George Avery of AveryKnows, “Even though DRPs can provide customers with additional convenience and benefits, it does not imply that repairers who do not participate in DRPs don’t also offer the same services. As a result, some repairers do not see the value in participating in a DRP, others do. DRPs do include some form of performance metrics, which differ between insurer DRPs and can be challenging for the repairer.”

THE PROS:

  • Insurance companies can save money, repair, or replace the vehicle for less, improve loss ratios, and may pass on the savings to their insureds in the form of lower premiums.
  • Vehicle owners gain piece of mind, knowing the insurance company has already evaluated the repair shop and their insurer will guarantee the shop’s work if the work is poor or incomplete.
  • Automotive service and repair shops on a DRP list may receive a consistent stream of work and payments from various insurance companies.
  • Shops are assisted in recording and preserving employee health, safety, and environmental obligations.
  • Insurance companies promote recognition concerning hazardous air pollution prevention and containment.

THE CONS:

  • The insurer (rather than the shop) may determine the scope of replacement or repair work, and because the insurer’s incentive is competitive pricing, the scope of work is likely to be narrow.
  • DRP-listed shops are more apt to accept the insurer’s scope of work, even if the shop disagrees, because the shop owner wants to continue to receive additional work from the insurer.
  • Shops may offer to “negotiate” the claim on behalf of the policyholder and thereby risk unauthorized public adjusting.
  • Insurance companies pay only the “prevailing competitive rate” as determined under a DRP agreement. This may reduce or eliminate the margins necessary for shop owners to make a profit.
  • Non-DRP service and repair shops are unable to submit a “competitive” estimate given insurers’ control over the scope and price of the repair or replacement work.

IN CONCLUSION

Service and repair shops are becoming overwhelmed with the multiple impacts of Coronavirus pandemic: employee confinement, Garage Keeper insurance exemptions, delayed cashflow, lost revenue, expanded workers’ compensation claims, and potential third-party liability, to name a few.

DRPs will evolve to benefit the customer and the shop owner as obligations increase and Covid-19 uncertainty continues. Whether and to what extent coverage will be available will depend on the facts, the science, the law, the policy, and, inevitably, the courts.

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