Insurance company parts procurement-report from SEMA

NOTE: The following account is from the CIIA newsletter in Canada, reflecting on the parts procurement discussions from SEMA.

Insurance company parts procurement-report from SEMA

A central topic of collision repair discussion this year has been the advent of insurer-mandated parts procurement programs, of which State Farm’s controversial Part Trader pilot in selected cities across the United States has garnered the most visability to date. In Canada at least one major insurer is involed in an active parts procurement
program while two other companies are advising shops that they are planning a parts procurement process.

While the effect of these programs have yet to fully play out in the United States, their nature as mandated intrusion into established business processes may well cause long-term harm to collision repairers
and suppliers.

In November 2012, the Society of Collision Repair Specialists (SCRS), brought together a panel of guests from around the world that have first-hand experience with insurer-mandated parts procurement in their respective countries. The progam was entitled ” Bidding Wars: A Global View on the Possible Economic Impact of Insurer Involvement in Parts Procurement”. The full house of attendees attested to the fact that this is a topic of much concern to the industy.

Panel particpants included David Newton-Ross (Australia), Publisher of National Collision Repairer and the NZ Collision Repairer magazines, and organizer of the Collision Repair Specialists of Australia (CRSA) Conference in Australia; Rex Crowther (New Zealand) , a former facility owner, current editor/publisher of Panel Talk Magazine and former Executive Chairman of New Zealand Collision Repair Association, and John Norris (Canada) collision chairman of the National Automotive Trades Association of Canada and executive director of Ontario-based Collision Industry Information Assistance, the second-largest trade group in Canada.

Though their markets are thousands of miles away from each other, with their own specific identities, the impact of insurer-mandated parts procurement on each was negative to varying degrees. “Based on my experience the situation in the U.S. is bad, and will worsen as more American insurers get on board with the programs” said Newton-Ross. “Over time the collision repairer will lose in almost every way imaginable; loss of profitability, thanks to cheaper parts, loss of
efficiency as inferior parts need to be reworked and loss of relationship with suppliers. The only gain they will see is many more accounts to handle! The reason that the impact of these programs wasn’t worse in Australia is that we worked together as an industry to raise consumer awareness and that helped put a stop to the spread of this program. When consumers find out what’s going on they get concerned- and for good reason.”

Perhaps the impact of mandated parts procurement has had its most devastating impact in New Zealand where the indutry didn’t work together as vigourously as Australia. As a small island country, New Zealand, has it own set of unique parts supply challenges which are non-existent in the United States; as Parts Trader provided a solution to these unique challengs it was also promised to deliver improved efficiences and other positive attributes that convinced New Zealand (NZ) repairers that the progam would be mutually beneficial to all involved. Unfortunately, the resulting situation did not reflect the initial promises presented to the repair community. “Prices were driven down- we weren’t even allowed margin on freight- and quality control became non-existent” stated Crowther. “There was additional administration time and constant interruption to workflow. The model rewards shops that do not undertand profitabiity and business discipline, and by buying into the system, these lesser shops drag everyone down.”

Insurers are also pursuing mandated parts procurement in Canada, with less than acceptable results. ” In insurer-dominant marketplaces, shops fear saying ‘no’ to an insurer’s program beacause it may result in the blacklisting of their business,” Norris explained. “But shops that agree to particpate find significant discounts taken and parts orders taking extra days to arrive from distant and unknown suppliers, as the program restricts their supplier options to only those who pay a fee to the insurer when parts are sold. Shops can not deliver on-time estimates. Anyone who says these sytems increase efficiencies is wrong. If there is one lession to be learned out of this it’s that shops should work with insurers, not for insurers. They can not afford to become “DRP lazy”.

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