Hammer and Dolly magazine, May 2006. Reprinted with permission.

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," he said.

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," he said.

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 control.

"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."