An open letter to insurance companies
Column by TOM BISSONNETTE
It’s hard to believe that I have been involved with the collision repair business since 1982! I have seen my fair share of change and challenges: the advent of the unibody vehicle, plastic bumpers, two stage paint products, water borne paints, new metals, composite materials, air bags, ADAS, environmental issues, I-CAR Training, workplace safety, OEM repair procedures, a pandemic, supply chain issues and a major case of margin compression.
What is margin compression?
Essentially it boils down to an increase in the cost of doing business without a revenue adjustment to compensate for those increases. It is real and it’s happening bigtime now! It used to be that a good body technician could generate between 200 hours and 300 hours a month if they were well trained and organized. Today that same tech is struggling to make their actual time each month. Due to the increasing complexity of today’s vehicles, they can no longer just repair the vehicle the same way as every other vehicle. Each manufacturer has very specific OEM repair procedures so to do a safe and quality repair which must be followed to the letter.
This repair “research” is seldom compensated by our insurance “partners” and can take anywhere from half an hour to half a day or more on big complex repairs. Many insurance “partners” are offloading administrative jobs on the bodyshops, doing the initial estimate along with repair planning and photo documentation of procedures and repairs completed—all for no compensation. The alternative is that, if shops don’t perform this needed work, the adjusting firm or insurance “partners” hire our qualified journeyperson technicians to do this work for them.
I used to be a partner in an appraisal company called Western Appraisals Group (WAG) and we routinely did estimates for out of province firms costing hundreds of dollars. I used to think “why couldn’t they just pay the shops to do this work?” Generally, many appraisal firms simply use the shop’s estimate and call it their own anyway!
Another contributor to margin compression is the fact that lately the parts portion of most collision repairs has now eclipsed the labor portion of the job. Traditionally, a shop could make about a 60 percent gross margin on labor while only achieving around a 25 percent margin on parts. It doesn’t take a rocket scientist to figure out that our overall gross profit margin has slid well below the industry standard 40 percent mark due to this sales mix.
Recently I did a survey in our market reflecting the cost of doing business or overhead increases since 2016:
• Over 65 percent of body shops experienced a 20 percent or more increase in natural gas due to the carbon tax.
• Over 50 percent of shops saw a 20 percent or more increase on their business insurance costs.
• 43 percent have seen property tax increases of 20 percent or more. have seen payroll costs increase by 20 percent or more.
• The cost of paint and body materials has had double digit increases in that time averaging 6% a year.
In addition to margin compression from both sides of our businesses, shops are experiencing major supply chain issues resulting in their shop compounds becoming free storage yards for our insurance “partners.” Unlike our towing cousins we are generally not allowed to charge storage on vehicles that are waiting for parts, yet we must keep them in locked compounds and in some cases plug them in, so batteries don’t go dead! Every shop currently has a backlog of work that easily extends out six to eight weeks. In a normal market situation, the law of supply and demand would allow a business to increase its door rates so they could attract more technicians, buy more equipment and hire more admin staff. Alas, this is not the case as the insurance “partners’ prevent shops of even talking about the door rate!
So, what’s going to happen? How much longer can bodyshops hang on when they are not making a decent profit? How do they attract sharp young people to this trade when the starting wage is less than these young people can make in other four-year trades? I Googled body shops salaries in Canada and here is what received:
“The average auto body technician salary in Canada is $58,500 per year or $30 per hour. Entry-level positions start at $49,725 per year, while most experienced workers make up to $84,065 per year.”
Let’s do some math. Assuming the average technician is 100 percent efficient and they make $30 an hour—don’t forget to add benefits, (holiday pay, income tax, CPP, EI, Group Insurance, training etc.) which can easily add another 30 percent or $9.00 per hour for a total of $39.00. Industry standard is to not spend more than 40 percent on employee costs so this technician would require a door rate of at least $100 per hour, maybe more if they cannot achieve 100 percent efficiency. I Googled the average labor rate in a Canadian bodyshop and it told me that $60 per hour was the average! If this is true, the end is near.
Insurance people: start planning now how you are going to get your customer’s vehicles repaired when there is no one left to repair them. I would suggest you start by engaging the collision industry and looking for ways to work together to control repair costs while at the same time making sure that there is enough profit to bodyshops to survive and thrive. Here’s some suggestions:
• Try to make it easier for shops to do business with you, eliminate the red tape.
• Work with shops to figure out ways to repair more parts and pay them fairly for doing so.
• Develop relationships with your shops or auto body associations where respectful two way communication can discover pain points for both “partners” then look for ways to eliminate them.
• Change your thinking, shops are not simply a cost to control, they are truly your partners and you both need to work together to make sure they have a viable business now and in the future.
Let’s start the conversation soon!
I have always had a problem with the term “Our insurance partners “. anyone or group of people that constantly have their hand in my pocket is not a partner. If you were to ask anyone in a business that has a partner and not a sole owner , the majority will tell you they do not trust their partner from stealing from them. Would you consider the Canada Revenue your partner also, my shops are in Niagara, Ontario and we pay 13% HST, i have seen many years where my net profit was less than what the government took for free.
Like yourself I have been in this trade full time since 1981, my entire working life, the thing that has always been constant is the insurance companies claim to lose money on collision every year , and yet the always find the money to swallow up another company or competitor to grow their ” book of Business. I do not call them my “partners “, but I do call them a lot of special names that may offend some.
A true partnership would have been give and take , and some negotiating, all we have is Dictating.
Ontario is an absolute failing mess, and I can go on for hours if anyone cared to listen, The franchises in Ontario have destroyed this industry, all their greed for volume has left them in a pickle. large beautiful shops , half staffed and continually searching for new employees. They cannot afford to pay for quality staff because their profit margins are too small. Most are booking 8-10 weeks out.
I am an independent , I personally do not believe in the franchise system. I have more work than I have ever seen, the franchises have actually helped make this possible, the longer their backlog , the more work there is for independents.
One interesting change in the last year is we have changed our rates internally.
I have never been one to put all my eggs in one basket, mixed up the volume in our shops.
i opened my first shop in 2005 with a posted door rate of $58 per hour, 23 years later insurance is at $61 per hour in my area. My customer pay and fleet is now $71.
Insurance has become ( and treated like the used car industry, last car in, last car out. and they are told straight out that their work is not priority at $61 per hour. Sure they bitch and moan about rentals, but not being a franchise there is not a thing they can do about it, we educate the customer
as to why, their alternative is to wait 3 months for a repair at an “insurance partner” or tell the insurance company to get off their wallet. The customer stands behind us regularly and are given the phone number for the Ontario Finance commission and Insurance bureau to file a complaint.
I do not see an end to this problem, only an increase in business, the Ontario government has dismantled the apprenticeship system about 4 years ago, we are still waiting for the new system.
The average age in my shop is almost 60. I plan on retiring in 5 years.
Maybe , just maybe the insurance industry will admit there is a problem, but ” the shit hit the fan years ago” and the price they will end up paying is going to cost a fortune for customer retention.
Chris, I think you nailed it saying that the time for change was 10 years ago
Tom and Chris make excellent points in this article and the comments. As I have stated many times for many years, insurers are NOT partners; they are payees. You have a signed agreement with the customer, the owner of the vehicle. Second, rentals are not our problem; the customer arranged with the insurer when they signed the policy. Unfortunately, we are left responsible for mitigating the rental situation on behalf of the customer. When has the rental coverage dictated the length of repair? The purpose of this coverage is to provide a replacement for the length of repair. As Tom stated, insurers have downloaded copious amounts of administrative work onto the repair facility; if you want these people to do your job, pay for the service. Insurers insure risk, period. They do not build, engineer, repair or sell and market vehicles. This is the place of OEMs and aftermarket repair facilities. I believe the time for negotiating and discussion has long sailed; there have been ample opportunities for these corporations to get on board, but they never seem to be there when they should. It is time for shops to charge for their services fairly and equitably. You have been in this industry as long as I have; you have seen the same soft shoe dance countless times—time to rip off the bandaids. Feel free to look up my last presentation on how this has become a monster and how we can reverse the effects. Enslaved by KPIs
Guys, mostly concur though I would challenge you guys that we are in a “time of consequences”, the time for efficient change & action has long since past…so now we TRY to run as fast as we can catch up to the monster that we seen coming for too long and did too little about.
There is no magic switch or solution that will turn back the clock 10 to 20 years and allow us to do what we should’ve done then and still are not doing now.
Hell we still have to fight and mostly absorb the “business cost to repair” the repairs we make, ie prep time, including the labour and materials, and all of those wonderful things that go into performing the operations… and we have people in positions of power to affect change that say “oh well stop complaining it’s always been done that way”
The proverbial gas tank is empty, and we’ve been coasting on fumes for just long enough to Gut out any kind of a safety net… hell has no fury like consequences.
I own and operate a small bodyshop in Calgary, and the day of the “mom and pop” shops is now gone. Insurance companies have now squeezed the autobody industry so hard, than only massive shops with operations that count on quantity over quality can eek out a small profit margin . Sure, this is the same “big box store” mentality that killed the small hardware stores, by the advant of building depots… but this is far more sinister in my mind:
In 2012, the main insurance company our shop is a “Partner” of, paid us $73 per hour, and then raised that to 75 in 2021, now has increased to 77 for 2023. (just over 5% increase) In this 11 years our Calgary property tax went from 11k, to 49k( over 400%). Our utilities have increased substantially, insurance has doubled, rent has increased 30% etc.
In 2012 we were paid $33 per refinish hour for paint materials, fast forward 11 years and we now get $37. per refinish hour (a 12 % increase)… this YEAR so far our paint supplier has increased costs by 17% and warn of more to come! Our paint materials cost have more than doubled in this 11 years.
It does not take a mathematician to figure out that this is unsustainable.
25 years ago, a well run bodyshop could expect to run at a 20-25% margin from gross sales to net profit, and today that number is 7%. But only in a large scale operation, no small shop can compete.
Now the insurance companies have begun to enter the marketplace themselves and compete against the shops that once were their partners… TD Insurance for example. 2 years ago Intact removed “Clean for delivery”, and “cover car for overspray” from what they covered… So I asked very tounge in cheek of the supervisor once I got through, ” So what you are telling us is to blast their cars with overspray, and give it back dirty”, and the rseponse was “ohhh no sir, we expect the shops to cover that out of their end”… WE DONT HAVE AN END ANYMORE!
That brings me to insurance field appraisers… there are none. Big insurance downloaded that onto the shops, and laid their staff appraisers off, but I bet that got a few Insurance CEO’s a bonus when they figured out this coup.
Its time to retire and sell my bodyshop that I have put all of my earings into building… oh yes, forgot, cant sell a bodyshop anymore because who wants a business that cant make an honest dollar.
Thankfully we have big repeat and refferal for customer pay work, as we cant afford to work for TD at 70 per hour, or Intact at 72… oh I forgot Intact just allowed a 1% increase to 72.75 maybe I can afford to give my staff a 1% pay increase and see how many dont quit.