With repairs hard to come by these days, it seems some shops are doing anything they can to get cars in the door. One such tactic that has garnered a lot of controversy lately is offering to waive all or part of a customer’s deductible.
Proponents of waiving deductibles say it’s an independent business decision on behalf of the individual shop owner and that if they can still make a profit acceptable to them, all is well. Critics, however, say that it creates an uneven playing field and siphons out more profit from an industry that can’t stand to lose any more not to mention creates another divide among shop owners.
The way it works is this: A shop advertises that it will “waive” $200 of a customer’s deductible. If the customer’s deductible is $500 and the original estimate was $1,000, the insurance company would be on the hook for $500 while the customer would also pay $500. In the case of a shop offering to save $200 of the customer’s deductible, the customer would only pay $300 and the shop would eat the rest. Or, more controversial, instead of eating anything, the shop tells the customer it can save the entire deductible and only do $500 worth of work but the repair might not be perfect.
There is no debate as to what is illegal, which is overcharging the insurer to cover the waived deductible. However, there is some debate as to whether the above scenario is legal. The problem, says attorney Erica Eversman of Vehicle Information Services in Bath, Ohio, is that the laws don’t adequately address this.
“If there are laws, they’re going to be relating to the insurance regulations, and those don’t apply to repairers,” Eversman said. “The regulations concern competition among insurance companies as opposed to telling service providers what they can or can’t do.”
Ed Lowe, owner of Crestview Paint & Body in Crestview, Fla., has been in the eye of the storm of this controversy because he offers to waive $200 of a customer’s deductible and $250 for members of the U.S. military. He says he’s merely offering a “recession buster” to help customers.
“This wouldn’t have worked years ago, but this is a recession we’re in now,” Lowe said. “I’m doing a full, complete repair, it’s coming out of my profit and I’m making it up in volume.”
As to the legality of it, Lowe said that Mark Schlein, deputy director of insurance fraud investigations for the Florida Department of Financial Services, indicated that lowering one’s price in order to save a customer’s deductible is not illegal.
“The deductible is the customer’s money,” Lowe said. “The insurance companies are just upset because the customer has found a way to negotiate the deductible where they don’t have to pay their end of the bargain where before they did. But it’s okay for Allstate to advertise that you’ll get $100 off your deductible if you go to one of their shops.”
A recent poll conducted on www.bodyshopbusiness.com would seem to put Lowe in the minority, however, in believing that waiving deductibles is a legitimate way to attract more business. Nearly 75 percent of respondents said that offering to save customers’ deductibles is not a legitimate marketing tactic.
Charles Dillard of Precision Body & Collision in Beaverton, Ore., is one of those repairers who believes that waiving deductibles is a bad idea.
“We find that if you start giving things away to customers, they just want more,” Dillard said. “They think, ‘If they’re okay with giving me $500, why can’t they also take out one of my dents for free or give me a free headlight?’ It perpetuates expecting more.”
“We also find that those kinds of customers are less than honest in that they pick up the car and, all of a sudden, there’s damage that wasn’t there before or they’re missing 4,000 CDs,” Dillard added. “They’re the type of customer that wants something for free, so we try to nip that mindset in the bud from the beginning. Besides, the margin is so low any way, how can you give more and more away?”
Gigi Walker of Walker’s Auto Body in Concord, Calif., agrees with Dillard, adding that waiving deductibles is not only unfair but unprofessional.
“I think it makes the playing field unfair and, if you really want to call it something else, why not go back to kickbacks?” she said. “We’re really trying hard to change our image and, once again, by refunding deductibles or hiding them, we’re stepping back in progression to being considered professional business people.”
Lowe believes that the repairers who have a problem with his tactics are DRP shops that can’t waive deductibles because of contracts they have with insurers.
“If they want to sign those agreements, that’s just a bad business decision on their part,” he said. “I do a full repair and I eat the cost. There isn’t a shop owner out there who hasn’t helped his or her grandmother save her deductible.”
For some, however, it’s not so much an issue of getting more business but pushing an already fragmented industry farther apart.
“We already have a wedge between DRP and non-DRP shops, and now here is something else that is driving a wedge in the industry,” Dillard said. “The bottom line is that the opportunity to be dishonest is greater with waiving deductibles.”