Direct repair programs (DRPs). Just mentioning them can send shudders down the spines of some collision repair shop owners. But for others who have worked successfully with insurance companies under DRP agreements, their mention can bring a huge smile and stories of success.

The annual “How's Your Business?” survey conducted by the Automotive Service Association (ASA) has revealed several trends concerning collision repairers and DRPs. According to 1999 survey results, 81 percent of respondents were involved with DRPs - an 11 percent increase from both 1997 and 1998. Thirty-six percent of collision shops' business came from DRP referrals and, on average, shops belonged to five DRPs. The 2000 survey also revealed that 81 percent of participants were involved with DRPs, but the volume generated by DRP referrals had increased from 36 percent in 1999 to 42 percent.

Signing an agreement with an insurance company to become part of a direct repair program is a business action that deserves thorough consideration.

As part of making an informed decision, it is important to consider the opinions of others as well as information that you seek out on your own. Talking with other shop owners can open your eyes to both the pitfalls and successes of DRP agreements. But it can also cloud your mind with unwarranted fear and anxiety - or you could receive from peers a much rosier picture than you may encounter. It would be good to find collision shop owners who participate in a DRP agreement with the particular insurance company with which you are considering working. Be sure the people whose opinions you seek run reputable businesses, and that they share both good and bad experiences. Carefully consider input from your peers, but don't let their opinions outweigh the expert advice and legal counsel that may also be needed before you sign a DRP agreement.

What Should You Know About DRPs?

First, you should understand that joining a direct repair program should be entirely your choice, as a shop owner. There should be no outside factors that require you to join a DRP, and there should be no reason that you feel pressured to join a DRP. The decision to sign an agreement for a business relationship with an insurance company should be one that you make freely, willingly and with the utmost confidence that you are doing the right thing for your business.

Second, understand that there is a good bit of legal “jargon” that you must interpret (or have interpreted) prior to signing a DRP agreement. Granted, you may not understand all the legal terms and binding clauses included in such an agreement. For this reason, it is important that you and a lawyer review the agreement prior to your committing your business to it.

Geralynn Kottschade, AAM, a general director on the Automotive Service Association (ASA) board and co-owner of Jerry's Body Shop in Mankato, Minn., agrees that one of the most important things to do prior to signing a DRP contract is to be informed. “What are you signing?” she asks. “If you do not understand the language contained in a DRP contract or agreement, ask a professional, maybe even your [insurance] agent.”

During the 2001 ASA Annual Convention in Maui, Hawaii, Jerry McAndrews, senior vice president of the Automotive Specialty Markets (ASM) division of Universal Underwriters Insurance Co., discussed the risks involved with the liabilities contained under DRP contracts. He pointed out that each insurer's practices and policies are reflected within its DRP agreement.

“Within the various DRP contracts, there are types of contractual hold harmless agreements, lifetime warranties and confidentiality of information [requirements], including pricing, that exist,” said McAndrews. He suggested that each shop owner take his or her policies and contracts to a lawyer, or to their insurance agent, to confirm that the shop has adequate insurance coverage and to ensure that the owner understands the language of the DRP agreement. McAndrews also stressed that this is an important step even if the contract has already been signed.

How Will a DRP Change Your Business?

After learning about the various types of DRP contracts, different insurers and their requirements, and all the other information you will discover when researching DRPs, the next question to ask is: “How will this change the way I do business?”

The language in your contract will outline many of the potential changes. For example, the contract may require that you use certain repair parts, which may limit your ability to chose what you feel is best. A second question to ask is how participating in a DRP will affect your turnaround time. Is your shop capable of handling multiple DRP agreements, or will just one DRP agreement hinder your ability to accept repair orders from customers not covered within the DRP? How time-consuming will this DRP be to your shop?

Since the bottom line is what most people look at, especially those in the ownership and management positions of a business, how will participating in a DRP affect your labor rates or profit margin? These are important questions that will take some research and time - but they are questions you should have answers to prior to signing a DRP agreement.

How Will a DRP Affect My Employees?

No collision or mechanical shop can run smoothly and effectively without employees who know your business procedures. They must understand both the technology involved in vehicle repair, as well as the technology needed to operate the various estimating systems shops use - and insurers require. This technology is another factor that must be considered when deciding whether to sign a DRP agreement.

Because different insurers may use different estimating systems and may have differing “not included” procedures, this must be taken into account. Will your employees have to learn another estimating system, and do the "not included" procedures - or the procedures in general - differ from those you have taught them and to which they are accustomed? The training needed may become time-consuming, and conflicts may arise if you are working with multiple DRP agreements that use different estimating systems.

While the decision to work in a direct repair program is an individual one that must be made by each shop owner, there are obviously pros and cons to the process in general. Just like deciding which employees to hire or what parts to provide for a quality repair, there is a need for informed decision-making that reflects your concern for your employees' peace of mind, your customers' satisfaction and your bottom line.

Research and understand fully the consequences and benefits prior to signing a direct repair agreement for your business.

ASA's advice on direct repair programs is that some programs provide a benefit to both the consumer and the participating shops, and some do not. ASA believes its membership must concentrate its efforts on educating the consumer, as well as the insurance industry. In addition, it believes we must all focus our efforts on stopping unfair claims handling practices, rather than denouncing all DRPs.

Rachael J. Mercer is a free-lance writer based in Cisco, Texas.

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