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‘Most favored nation’ State Farm so far hasn’t given PartsTrader pass to some other Select Service shops

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Business Practices | Insurance | Market Trends

State Farm has granted Caliber Collision Centers a pass on its requirement that all Select Service shops must use PartsTrader to source replacement parts, but the nation’s No. 1 insurer hasn’t removed the mandate on some of its other direct repair program shops.

It’s apparently not just small collision repairers without the clout of the more-than-550-shop Caliber that are reporting still having to use PartsTrader. (We’ve kept our sources with information about Caliber and other shops anonymous here to shield them from potential repercussions for speaking about Select Service terms.)

A shop executive from one large national brand confirmed that their facility was still bound by the requirement. A national support entity for collision repairers reported that some of its larger shops were still bound to the PartsTrader requirements as well.

That seems sort of unfair to State Farm Select Service shops competing in markets with a Caliber, particularly if any of such competitors had key performance indicators equal to or greater than Caliber’s.

Asked if it planned to extend the perk to other DRP shops and about this fairness issue, State Farm said in a statement: “State Farm has nothing to share with Repairer Driven News.”

The apparent double standard for Caliber compared to other shops is ironic given that State Farm Select Service contracts contain “most favored nation” clauses demanding any special deals given to other insurers be extended to State Farm.

A 2015 Select Service contract filed as an exhibit in the Pulera et al v. State Farm litigation contains the following concessions (minor formatting edits):

Provider agrees to estimate and bill for repairs based on a pricing agreement between Provider and State Farm. If no pricing agreement exists, Provider agrees to charge the lower of the: …

(3) Labor rates and paint and materials pricing offered to or agreed to with any other insurer. …

When estimating new, OEM replacement parts, Provider agrees to estimate and bill for repairs based on a pricing agreement between Provider and State Farm. If no pricing agreement exists, Provider agrees to charge the lower of the: …

(3) Price offered to or agreed to with any other insurer. …

When estimating recycled replacement parts. Provider agrees to estimate and bill for repairs based on a pricing agreement between Provider and State Farm. If no pricing agreement exists. Provider agrees to charge the lower of the: …

(4) Recycled parts mark-up percentage offered to or agreed to with any other insurer. …

When estimating new, non-OEM replacement parts, Provider agrees to estimate and bill for repairs based on a pricing agreement between Provider and State Farm. If no pricing agreement exists, Provider agrees to charge the lower of the: …

(3) Price offered to or agreed to with any other insurer. …

Provider agrees that if it gives a bottom line discount, rebate, or other estimate discount on the overall repair costs to any insurer, such discount constitutes an estimate and bill for repairs for purposes of this section … In that event, pricing offered to State Farm and its customers by Provider shall include the bottom line discount given to any other such insurer unless otherwise agreed to by State Farm. …

If Provider agrees to perform a repair based on another insurer’s estimate where the vehicle owner has accepted a cash-out. cash settlement, or settlement under a similar settlement method, then any pricing for the repair shall constitute “a price offered to and agreed to” between the other insurer and Provider, is subject to subsections 4.a., 4.b., 4. c., and 4.d., and must be offered to State Farm as provided by this section …

Provider agrees that when glass is being replaced in conjunction with a claim being processed under this Agreement, pricing will be based on the lower of the:

(1) Prices charged to other insurers …

Regardless of the pricing utilized for such (specialty) repairs, Provider agrees that it will not charge State Farm or its customers above the labor rates and paint and materials pricing offered to or agreed to with any other insurer for such repairs. …

If Provider provides a price to any other insurer at a ‘non-participating’ location that is lower than the prices charged State Farm at locations participating in this Agreement. such price must be given to State Farm …

Experts have argued that individual shops can negotiate unique direct repair program contract terms — which Caliber apparently has done here — and we certainly have no issue with that. In fact, we’d encourage it — it’s just good business.

However, we should note that such negotiation might be easier said than done for smaller shops — or even national interests without Caliber’s size — particularly as State Farm arguably holds more of the cards in the form of the nation’s largest referral volume.

Also, there’s an argument that an insurer repeatedly demanding any perk a Select Service shop gives a competing carrier ought to extend the same “most favored nation” terms whenever it bestows an additional concession on one of the shop’s competitors. Otherwise, it’s a pretty glaring double standard.

Finally, there’s a case that a DRP insurer should give all network shops in a market the same “ground rules” and reward high KPI performers solely with referrals, not with altered ground rules. (For example, the winner of the Super Bowl gets a payout. They don’t get a rule change that gives them, and only them, five downs next season.)

PartsTrader has been controversial, with some shops embracing the electronic parts procurement system and others upset about being forced to use it as a condition of the No. 1 insurer’s direct repair program.

Images:

A State Farm sign next to an agency in Kentwood, Mich. (John Huetter/Repairer Driven News)

Caliber Collision in 2017 announced it’d reached the 500-shop milestone in the U.S. alone by opening a new collision repair facility in Fort Worth, Texas (pictured). (Provided by Caliber Collision)