Industry Pans Paint, Materials Compensation Formula

From CollisionWeek ©

According to the results of a new independent study, more than 9 out of 10 industry participants who were interviewed think the current system of calculating paint and materials compensation is a poor methodology.

The study, conducted by Richfield Associates, and commissioned by ComputerLogic, was based on interviews with collision industry professionals from every major industry segment. Of those participating, 64 respondents (94%), representing shops, insurers, suppliers and others, consider the current method used to compensate repairers for their paint and material usage “poor” methodology. The four remaining respondents described the current system as “adequate” or “good.”

The study showed that the dramatic rise in paint and materials costs over the last several years has far outpaced increases in average compensation rates.

Researcher Steven Lanza, Managing Partner with Richfield Associates, said, “Over 90 percent of the respondents felt that the current methodology being used is both a poor and antiquated methodology and that the variance between the cost increases and the paint and materials compensation is a growing concern.”

The study shows that while average paint and materials costs have risen over 50 percent since 2005, the average rates paid by insurers has risen only 23 percent.

Lanza said, “It’s evident from the responses that this is a serious issue that needs to be approached for a couple reasons: the increasing divergence between rising materials costs and the lagging pace of compensation increases will only get worse, and it was pretty clear that the sheer number of hours spent negotiating over paint and materials compensation represents wasted time and energy that could possibly be eliminated from the repair process, which would ultimately benefit the consumer.

The company that commissioned the study, ComputerLogic, produces a paint and materials costing application, PMCLogic. Rick Palmer, president of ComputerLogic, explained, “There were two reasons I commissioned the study. I hoped to find out if paint and materials compensation is still an issue, is this something the industry should keep investing discussion time in; and, if this is still a problem, then what are we going to do about it?”

Clearly, Palmer believes the solution lies in the widespread adoption of a paint and materials calculators, like the one his company produces, but says the benefits of adopting such a solution are not just about raising compensation rates.

“One of our goals,” Palmer says, “has been to turn something that’s been a constant source of confrontation into more of a collaborative effort to drive efficiency. The hours wasted negotiating over reimbursement for paint and materials is something we should, and can, completely eliminate. The time savings for both shops and insurers would likely more than make up for any difference in the reimbursement calculations currently being used, for both shops and insurers, and in the end, both would at least know that the result is very fair and accurate.”

Palmer added, “The benefits of a paint and materials management system, with an estimation calculator, include inventory control, job costing, and accurate invoicing, which often leads to reduced materials waste, even if a shop didn’t get paid a penny more.”

Palmer said the study results were not entirely surprising. “The results pretty much confirmed what I already knew, but what did surprise me was the high percentage of people who felt the current system needs to be changed. Before we did this study, I would have guessed maybe 60 percent thought the current system needed to be overhauled. But more than 90 percent was very surprising. The big question now is what do we do next?

Download the study report:
Paint and Material Compensation and Cost Study
Improving Paint and Material Compensation Through Industry Collaboration

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