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A Supplement-Free World: Just a Dream?

Many shops say much of their inefficiency comes from having to write and request supplement after supplement. Is there another way?

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Writer Charlie Barone has been working in and around the body shop business for the last 35 years, having owned and managed several collision repair shops. He's an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993.

For many reasons, including the insurance companies’ penchant for underpaying claims based on their initial inspections of damaged vehicles, supplements are a growing problem in the business of repairing auto body damage. It’s not unusual to have two or three supplements to a job being processed in an independent shop under the traditional claims settlement system. With few exceptions, every insurer-written sheet requires a supplement before actual repairs can begin.

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While the underwritten claims coming out of insurance companies’ claims departments are a real concern in today’s business, the focus of this article is on the add orders for unseen or unforeseeable damage one discovers in the course of the repair. For non-DRP shops, these are a major headache.

Ed Kizenberger, executive director of the Long Island Auto Body Repair Association and the New York State Auto Collision Technicians Association, believes supplements, especially large ones, are a great cause of inefficiency in the repair process.

“Let’s call some supplements necessary and most unnecessary,” Kizenberger said. “Necessary supplements can be parts price changes, minor hidden damage, et cetera. The unnecessary ones are ones in which the claims could and should have been written correctly the first time. The shop has disassembled the car and written an accurate damage report, and the insurance company appraiser can now inspect the damages and [both parties] can negotiate the manner of repair from there. It seems these days that large supplements add an unnecessary layer onto the claims process which kills cycle time, thereby delaying the car and resulting in a bad customer satisfaction index (CSI), added rental car expenses and more. In fact, at times it seems certain insurance companies jump over dollars in an attempt to save pennies.”

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Unnecessary supplements have a strategic feature as well. Kizenberger said, “They make repairers look like they’re dragging out the repair when in fact their incentive obviously is to deliver the vehicle back to the consumer ASAP. Several times, I’ve heard of insurance companies telling their insureds that they should’ve picked a DRP shop to avoid the delays when, in fact, they’re the root cause of the delays.”

Supplements can also be viewed as essential to revenue enhancement. John Shortell, an ex-body shop manager, software vendor and well-known figure in the industry, said there’s a couple ways to look at supplements.

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“First, as vehicles get more complex, supplements will become more frequent,” Shortell said. “An honest appraiser will only write what he can see. Guessing just isn’t ethical. That said, insurers are increasingly omitting obvious damage and necessary procedures, hoping the vehicle owner won’t get the car repaired or will find a shop that will repair it for the amount the insurance company paid.

“On the other hand, supplements are where the profits come from. I know of many shops that have a near 100 percent supplement rate. I’m one of them. As insurers get stingier, we have to be more diligent in extracting every penny out of every repair order. The supplement amount is only limited to the shop estimator’s imagination, knowledge of P-pages, attention to detail and negotiating skills.”
 
Change Your Evil Ways
Dan Risley, executive director of the Society of Collision Repair Specialists, says supplements are a necessary evil unless shops are allowed to completely dissemble the vehicle or only submit a final repair bill. But the costs go both ways.

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“Supplements are extremely costly to repairers,” Risley said. “But make no mistake about it, insurers incur a significant cost as well.”

But what if the system were to operate as the ideal arrangement Risley suggests? What if the insurance evaluation of the cost of repairs came after the repair work was completed? The shops could take digital photos, write a preliminary estimate based on a thorough teardown, make a comprehensive parts order and document unforeseeable damage discovered as it went through the repair. The shop would notify the insurer as to the expected date of completion, and then – and only then – would an insurance person see the vehicle, examine the collected damaged parts and perform a thorough post-repair inspection.

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Naturally, shops would have standing arrangements with insurers with respect to usual and customary charges, labor and material rates, etc. Essentially, the shops would function as DRPs do but without the concessions, referrals and steering of customers.

Sound like a dream? Well, you may be surprised to learn that just such a system is in the works already by a major insurance carrier. Nick Notte, auto claim director of Allstate, says the insurer is  currently testing “NextGen 2.5” in Illinois, a proprietary computer application to be implemented for Allstate’s PRO program that would be downloaded onto a shop’s system. Notte says there’s nothing sinister about the program in terms of privacy issues, although some folks may be somewhat reluctant to load Allstate software onto their hard drives that share customer data, financial information and such.

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This plan could eliminate the need for supplements, their impact on CSI and the associated unproductive delays. And because of the random post-repair inspections, the NextGen 2.5 program could also stem the practice of cost shifting, consumer fraud and poor workmanship. Shops will only be paid for what they did at pre-determined rates. Cycle time goes down and CSI goes up, as do profits for the shop.

NextGen 2.5 went live on March 10. Countrywide implementation is scheduled and on pace for delivery on a market-by-market basis to collision repairers currently participating in PRO. Delivery of the application is being considered for non-PRO shops as well and, if approved, could be rolled out in a parallel process to the PRO implementation.

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“If a shop would want to install the application, we could allow any shop to download it to communicate with us,” said Notte.

Notte added, “This could be available to shops that our customers love and ones that we do volume with. We envision that with a non-PRO situation, the customer would choose the repairer, we would approach the shop and ask it if it would have a problem with downloading an application.”

What’s remarkable about this development is that it comes from Allstate, the insurance company that’s sometimes referred to as the “Dark Star” of insurers. But Notte says that Allstate has recently undergone a change in claim department management to bring even more collision repair experience, which explains this rather enlightened approach to auto claims.

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George Avery, State Farm’s claims consultant for the property and casualty claims, looks at the supplement mill in terms of how it fits the model of lean processing.

“I can tell you that State Farm is trying to find out what our role is in the lean processing,” Avery said. “There are benefits for the repair facility in throughput, benefits for the customer because they get their cars fixed faster, it benefits me because cars are fixed quicker and, if there’s rental involved, it certainly helps in terms of our overall cost of getting vehicles repaired. The overall efficiency is a win-win-win for everyone.

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“When it comes to not writing the original estimate, we would embrace that. The challenges we run across are that there are some customers who would like to know what you’re going to do to their cars [and] there are state laws that require that the customer have a copy in advance.”

Avery’s response to the scenario of the shop writing the preliminary estimate without the opportunity for his company getting a pre-repair peek at the damage was in the context of his company’s shops on the Select Service program. With respect to opening that ability to all shops doing business with their policyholders, he said, “What you’re looking at is whether anyone can communicate with us electronically. We see that as where we’re going to end up.”

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While USAA believes the reduced supplement process is a bad thing, it’s not ready to commit to it fully yet.

“As part of our commitment to serving our members and continuously improving the efficiency and effectiveness of our claims procedures, we’re open to ideas for simplifying the repair process,” said Clay Allen of USAA’s Corporate Communications department. “However, at this time, USAA believes it’s in the best interest of our membership to initially assess the vehicle in its pre-repair condition. While we support the concept of reduced supplements and believe the proposed process could contribute to this reduction, we believe it still requires more research and study.”
    
On a Broad Scale
Phil Mosley, general manager of Elite Collision Service in West Chester, Ohio, thinks the idea of post-repair inspections as opposed to the traditional “guesstimate” at the onset of repair work is great as a concept.

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“As an industry, we do a horrible job of writing an accurate pre-repair plan and blueprint,” Mosley said. “We’re terrible consumer sales practice agents in that we’re so wrapped around the axle trying to make nice with the insurers that we neglect or ignore the consumer and our legal obligations
to them.”

As for eliminating cost shifting, Mosley’s all for that, too. “I hate cost shifting – I think it’s bad business for both the shops and the carriers, and I’d like to see an environment in which we could call it like we see it without all the smoke and mirrors.”

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Mosley believes the whole estimating process has gone out of whack because insurers have been allowed to become too involved. “I think that it’s fundamentally wrong to allow any insurer to engage in any pricing activities. They have no business interfering with our customer contract and, likewise, we have no business allowing them to
do so.

“Consumer sales law clearly places the burden upon shops to approve our prices with the consumer, and I can find nothing that supports any reason to leave a place at the table for the insurers in the chain of events. By that, I mean that we write an estimate and approve it through the car owner; we dismantle, revise and approve the revision through the car owner; and we complete repairs and approve the final costs through the owner. The insurer’s place in all this is only that of indemnification. All this stuff going on about ‘No supplements without prior approval’ is garbage and has no foundation in law – at least as far as I can find.”

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Mosley makes an interesting point. After all, whose system is this after all? Back in the day, body shops competed with one another and simply handed an insurer the bill. While the problems of that era were legion, it was a much purer way of doing business. Of course, the insurers footing the bills started writing their own estimates 40-some years ago, and the tedious micro-management of the repair processes by third-party payers took hold. In fact, there’s an entire generation of body shop operators who became so accustomed to this that they simply stopped writing their own sheets (some would say, why bother to write our own sheets if no one’s going to pay any attention to them?) and started working off the insurance sheets. A number of years ago, I visited an Acura dealer’s body shop to inspect a car it had just completed and asked the manager what the total charges were. His response? “I don’t know. Nationwide hasn’t told us yet.”

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A Different Vocabulary
Let’s look at some of the claims trends in the industry and the business patterns of some forward-thinking shops. Tony Lombardozzi is the president and co-founder of the Coalition for Collision Repair Excellence (CCRE) and an ex-marine with a hard edge. One of CCRE’s stated purposes is: “To affirm and defend the rights as independent business owners, to serve our clients based upon our one-to-one contractual relationship with those clients without any third party interference…”

Toward that end, many of its members have embraced the contractual and tort rights of their customers and tailored their business practices to essentially eliminate the insurer for any portion of the repair, its procedures and, most importantly, the cost of  the repair.

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When asked for his opinion of the post-repair inspection by insurance companies and shifting the control of prices and procedures to the repairer, Lombardozzi chuckled and said many members of CCRE have been working this way for some time.

“We’ve tried to eliminate the words estimate and supplement from our vocabulary,” said Lombardozzi, who also operates Automotive Collision Repair Services in Hudson, New Hampshire, serves as an I-CAR instructor in the region and is an Acura specialist. “Basically, we start with a repair order, or a signed authorization. I don’t mind giving someone a planned cost of repair, but I’m not going to do it until the customer commits to having the work done.

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“Once the car is brought in (with the customer’s authorization), you can disassemble it. Now you can come up with a blueprint for the repair and approximate cost, but you’re never going to know any of that until the car is completely repaired. Then you can explain to the customer that there will be certain additions and/or subtractions as the job progresses. A lot depends on state law because ours says that if we exceed our estimated price by 10 percent, we have to notify the customer and get authorization.”

But Lombardozzi added a twist to the practice. “We explain to the customers that we’re going to call them and also, if they like, we will as a courtesy let the insurer know that the amount it held in reserve may not be accurate.”

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Lombardozzi says the insurance estimate’s only purpose is to establish the amount set as a tentative reserve loss for that claim. He believes the only role the insurance adjuster has is to satisfy the policy’s provision to allow him or her to verify the loss. And, at least in a CCRE shop, that’s the beginning and end of an insurer’s involvement in the repair. He says the process is working out great, “although it takes a while for a shop to get out of the rut it has been in.”

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“At the end, you’re presenting the customer with a final bill, period,” Lombardozzi says. “Are there instances in which the customer has to pay out of pocket? Yes. But some shops take an ‘assignment of proceeds’ because they have an attorney that handles collections for them. But still, you’ve eliminated a third party from interfering in that repair contract.”

Lombardozzi pointed to the familiar boilerplate at the end of the estimate that says, “This is not an authorization to repair.”  

“[The insurers] don’t authorize the repair because only the owner and policyholder can do that,” he said. He has his customers send the paid repair order by certified mail with return receipt as a permanent document to serve as the proof of loss and establish the cost of repairs.

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“It’s stated in the policy language that if [the insurer] doesn’t pay that bill, it’s breach of contract,” he says. “It says, ‘Upon proof of loss, we will pay the cost of repairs.’ And you know what? About 99 percent of the people who have submitted paid invoices have gotten paid.”

Lombardozzi believes that the system of claims handling most body shops in the United States are familiar with is merely a function of the insurers to manage their losses, but has no basis in contract law. He says most people have simply gone along with the system because they don’t know any better, and this includes body shop operators.

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“They’re the worst offenders…we’ve all been brainwashed,” he said. He added, “[The insurers] have no control over the situation unless you give them control.”
When an appraiser calls his shop and asks to come out to do a supplement, Lombardozzi says, “We have no supplement. You have a supplement.”

Lombardozzi explained that a body shop doesn’t create a supplement, rather, the insurance adjuster does an addition to his or her initial figures, which he says are nearly always deficient to do a proper and thorough job with a profit. He asks, “Why would a shop take a document and use it as a blueprint when it knows it’s inadequate?”

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Lombardozzi says he works with two insurance companies that come in prior to the start of the repair, take photos and leave with a copy of his sheet. Their departing instructions to him are to contact them prior to the completion of work, when all the costs can be tallied, and submit a final bill which is used to reimburse their insureds. “That’s the relationship you need to develop,” he said.

Lombardozzi says roughly 70 percent of the shops that belong to the coalition are using this system with a substantial success rate. He also cited a long-standing disorientation of body shop owners’ minds with respect to the overall role of the insurer.

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Dedication to Change
While one may imagine all the potential pitfalls of working in this manner, not the least of which is getting one’s area insurance claims personnel trained and vested with a degree of comfort with this arrangement, it requires a dedication to change the ingrained preconceptions with respect to an insurer’s role in the body shop. And, of course, there’s the issue of a customer’s ability to pay for a major collision repair out of pocket and one’s capacity to wait for the reimbursement.

Gaining control over the claims process will work for you, or rather, getting out of the claims process and focusing on the repair and its efficient and timely completion. Understand that the customer is the only party able to authorize any type of work on his or her car, and that a prior thorough teardown is, in fact, allowed. Understand what’s owed and what isn’t and to whom. Focus on the customer, place his or her needs above everything and you may prevail in ways you never thought imaginable.

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Writer Charlie Barone has been working in and around the body shop business for the past 35 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician and a licensed damage appraiser, nd has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at [email protected].

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