Auto Shop Coaching Blog

5 Areas Collision Shops Should Be Getting Paid Instead of Pushback

It’s no secret that insurance companies foot most of the bill for collision repairs. But behind the scenes, most customers don’t realize how much they nickel and dime repair shops. Collision shops—already operating on tight margins—are regularly forced into difficult situations by adjusters who question or refuse to accept prices and repairs.

State regulations require insurance companies to pay a “fair and reasonable” amount to its insured for a partial loss to a vehicle. Theoretically, insurance companies should rely on market surveys to determine what’s fair in a particular market. But in reality, they lean on bare minimum contract rates that DRP network shops have agreed to.

Many shop owners accept this friction as a natural cost of doing business. But not every estimate has to be a battle. By carefully documenting and justifying costs, you can reduce conflict, accelerate claims, and preserve your bottom line.

For more about this topic, join our collision shop owner training event, How to Get Paid for Your Services. We’ll cover everything from submitting precise estimates to enhancing revenue through effective negotiation tactics. Plus, you’ll get a complimentary virtual shop strategy session with an ATI specialist to help you apply these techniques to your business!

#1. Labor Rates

Non-DRP collision shops should charge labor rates that align with industry standards for their area—not what third-party payers/insurance companies say industry standards are in your area and not the lowest price possible. However, you should prepare to justify your rates based on your technicians’ skill levels, certifications, and your shop’s equipment and facilities with documentation. Finally, know what your effective Labor Rate is.

With rising inflation, it may be the right time to request increased labor rates. But the key to success is persistence, and that’s not always easy or comfortable. Consider asking, “Due to inflation and staffing challenges, we must request a labor rate increase,” with each estimate or supplement. And if you receive pushback, point to public inflation numbers.

In addition to labor rates, you should prepare to justify repair times. For example, an insurance company may receive a photo estimate from a customer that doesn’t reveal the true extent of damage. So, you may need to disassemble part of the vehicle to show the actual damage when justifying labor times to avoid any misconceptions.

#2. Paint & Materials

Paint and materials include everything that “may be required” to prepare, apply, and refinish the vehicle. If you use a simple formula—like the material rate times refinishing hours—you may leave money on the table or even incur costs. Instead, you should always use a material rate calculator program and charge as a profit center.

Insurance companies will try to include everything in “paint and materials,” so breaking your purchases into categories is essential. Liquids and refinished sundry items are the only things that you should include in the category. Body sundry items and other tools, like adhesives, should be billed separately.

Insurance companies will come up with estimates of what to include in paint and materials. So, it’s better to start with your own estimate than theirs. Check the P-pages to see what to include, and if necessary, submit the insurer’s estimate to the Database Enhancement Gateway (DEG) to receive a fair interpretation.

#3. Mark Up

Some insurance adjusters automatically pay a markup on sublet repairs, towing, recalibrations, or other services, and some won’t. But, of course, you should receive some compensation for arranging the service and ensuring the work is done properly and fronting repair costs for third-party payers/insurance companies. After all, these activities consume billable hours for your employees!

However, billing a percentage markup doesn’t always make sense from the insurance company’s perspective. If calibration for a new vehicle costs thousands of dollars, you shouldn’t necessarily get a 25% markup for arranging this costly calibration.

A good strategy is to try for a flat 25% markup since some insurance companies may adhere to the basic formula. But, in most cases, you should be ready to negotiate labor hours for arranging these services at body rates while considering that it may take two people to deliver a vehicle if one person needs to drive the other back.

#4. Direct Costs

Direct costs can make or break a collision shop. Rather than relying on an insurance company’s estimates, use a detailed estimating system that itemizes all direct costs for each repair. Then, compare the actual costs to the estimates to identify areas where you may be underestimating or overestimating your expenses. Plus, be sure to know the difference between Direct Costs and Indirect Costs.

But, at the same time, you should keep in mind that the aggregate is what matters. Insurance companies may be unwilling to negotiate on body materials (leading to a loss), but if you can make it up on paint by getting paid for clips and other little expenses that add up, you could improve your overall gross margins.

Ultimately, you should diligently track all your revenues and costs and let your P&L drive your business. Regularly reviewing each line item allows you to find areas to refocus on regarding insurance negotiations and understand the holistic picture.

 #5. Total Losses

Many body shops consider total losses as a loss to their business—but a loss for the customer doesn’t have to be a loss for you! Instead, you should reframe total losses as a major profit center for your shop by treating the administration as a billable expense, and the vehicle loss as an opportunity for additional upsells.

Start by diligently recording every task involved in administering and caring for the total loss vehicle—especially if they don’t operate under their own power. If the vehicle requires storage, that’s another billable expense to the insurance company. And, of course, any teardown or appraisal writing is subject to a charge.

The Bottom Line

Many non-DRP collision shops have contentious relationships with insurance adjusters, and that shouldn’t be surprising given their conflicting motives. But with the right systems and documentation in place, you can reduce conflict, accelerate claims, and preserve your bottom line, getting paid for your services rather than constant pushback.

Ultimately, the easiest way to streamline these processes is to leverage estimating software that itemizes your costs and take a wealth of photo documentation to show insurance adjusters the actual costs of a repair.

For more about this topic, join our collision shop owner training event, How to Get Paid for Your Services. We’ll cover everything from submitting precise estimates to enhancing revenue through effective negotiation tactics.

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ATI Experts is a team of experienced ATI coaches who collaborate to write industry articles. They leverage their extensive knowledge and proven success to provide actionable strategies for improving the performance and success of repair and collision shop owners.