Rising P&M Costs: Can Smarter Billing Help Loosen Insurers’ Purse Strings?

by Alana Quartuccio

Paint and material costs have soared over the past several years. Simultaneously, insurers tightened their purse strings. Although that is not shocking news, where does that leave collision repair shops? Stuck in the middle of a raging, never-ending penny-pinching war, of course!

The above is not likely to change anytime soon, but what can change is how collision repair shops address these issues. That begins with understanding what is happening out there.

“Inflation affected collision repair businesses with parts delays, parts shortages, rising costs and all the inflationary elements that impact our business,” observes Yanni Koutmos of Eagle MMS. “Over the past 10 years, the insurance industry forecasted that claims volume would go down with ADAS and self-driving cars, but claims volume trended in the opposite direction. And severity increased very fast because of inflation. Then other factors played in, like vehicle thefts and natural disasters, and the claim volume just blew up during COVID. At the beginning of the pandemic, cars went off the roads as the world went quiet, but about halfway through COVID, it came back with claims volume being worse than before. 

“So these insurance companies were at a net loss ratio between underwriting and selling policies and fulfilling claims,” he explains. “It’s called the pure-loss ratio, underwriting to claim losses. The only reason they maintained any type of profitability is because, in that interim where they were getting whole premium dollars, they invested in the S&P, which was hiking because of inflation. So their investments made money, but their policies didn’t make any money, which means these guys had to get more aggressive. They said ‘no’ to as much as possible and as much as they could justify. So, while it is the most necessary time for us to invoice, it’s also the most difficult time because inflation didn’t just affect us, it affected them, and they are trying to cover their losses now.” 

Koutmos, who worked as a paint technician for about nine years before the pandemic hit, recognized rising P&M costs as a major issue for collision repair facilities long before the pandemic, and he notes its fallout made things worse. 

When work began to dry up at the dealership he worked at during the height of COVID, Koutmos threw himself into restoration work. “I started to see a slight increase in the cost of paint. This was nearly five years ago. I had no idea how bad it was going to get at that time.” 

Soon after, he found himself embarking on a new venture to help collision shops accurately capture and bill for P&M.

“I was on a road trip with my brother, a software engineer, who was partially frustrated with some of the startups he was working on. He told me, ‘When you start a software company, you need two founders – one person who writes the code and the other who comes from an industry that has a problem.’ He then asked me what problem my industry had, and I told him, ‘Buckle up, we need three car rides to talk about this.’ 

“When I was doing restoration work, between the time I had quoted the cost on a job to the time I bought the paint, the paint cost had changed precipitously,” he adds about the growing problem. 

From there, the brothers started Eagle MMS, a shop materials management inventory and invoicing solution for collision repair facilities that streamlines job costing so collision repair shops have a fair shot at getting reimbursed properly for all these various materials. 

 “One of the nice things about our software is that it covers all material categories and all manufacturers. We have almost 100 different manufacturers in our database and thousands of parts numbers by all of those manufacturers. Typically, other solutions only focus on what one vendor sells or what one manufacturer makes, so a clip system will only have clips for one make, and your mixing system would have fluid paints just for that make, for example. To properly job-cost a vehicle, you need all of these things, but who wants to run three or four systems to do all that work? So, we put all the data in one place and removed the need for technician engagement because getting technicians to check everything out can be an issue.” 

Parts numbers are mapped to an operation, such as spraying a fender or putting on a quarter panel, and every account is set up specifically for the products the shop uses. 

Koutmos has been speaking out about the importance of itemizing accurately for proper reimbursement at various industry events, including SEMA and AASP/NJ’s recent Industry Night. 

“There are a lot of expensive things we use that don’t come out of the tip of a gun, which is what everyone focuses on,” Koutmos told the AASP/NJ audience this past May. “Masking tapes, masking papers, PPS liners and lids. We never write for PPS cups. How many do we use on a typical repair? Three minimum.”

The word “No” is a multi-billion dollar word to the insurance industry. “It costs them nothing to say. There are virtually no consequences when they say ‘no,’ and it saves them billions of dollars a year.”

There are two sides to negotiating: negotiating on behalf of the customer and then informing the customer about the process, according to Koutmos. “As far as informing the customer, the dirty little secret no one wants to deal with is that the insurance company doesn’t owe for something unless the customer incurred the cost. So unless the customer has incurred some type of financial loss due to the claim, the insurance company doesn’t owe. But the problem is, no shop on the planet wants to bill their customer because no one wants to have a conversation about what vehicle repair actually costs, so we fight with the insurance companies instead. But it’s not our fight because we don’t have a contract with them, and we have to explain that to the customer.”

It all comes down to the fact that it’s not about the shop; it’s about the customer. “They own the car, they’re on the policy, and they actually have the leverage. The problem is, oftentimes, the consumer doesn’t know anything about that, and it becomes up to the shop to educate them on their rights and about the Appraisal Clause. The average vehicle consumer doesn’t know any of that.” 

It’s important to keep in mind that what one does today may not change things overnight, but it definitely will lay the foundation for future progress.

“Just because you start implementing a new process, practice or procedure, it doesn’t mean that the whole world will change tomorrow,” acknowledges Koutmos. “You start with small incremental steps, you keep some degree of consistency across time, and when you look back, you’ll see the world does change. It’s small steps, not one big thing that you do. That’s not how business works. Small incremental improvements over a long period of time will find you looking back and seeing how it helped. If you want to make big bucks in this industry, that’s what you have to do. You have to engage in a process. I’m inviting people to engage in a different process. Even though it won’t change the world tomorrow, I’m confident that a few years from now, it will.”

Want more? Check out the July 2024 issue of New Jersey Automotive!