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Auditing Insurer Estimates

Analyzing insurer-produced estimates versus my own has led me to a better understanding of what body shops should and shouldn’t do during the estimating process.

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Writer Phil Mosley is the general manager of two Mercedes-Benz Collision Centers, one in West Chester, Ohio, the other in Ameila, Ohio. In the industry since 1978, Mosley has done it all: tech, manager, insurance appraiser, physical damage manager and shop owner.

If you’re at all like me, you’ve spent countless hours poring over your estimate and an estimate written by or for the insurer, pulling your hair out trying to identify the differences in the bottom lines. On your desk, you have the insurer’s estimate and yours, and the dang things are just a little off on the final totals. You and the insurance appraiser both looked at the same damage. You discussed the repairs and agreed on the scope and operations. Heck, you’re even using the same estimating software and your two estimates look identical, but you’re about $20 off. Where the heck is the $20? You finally give up and shift your final bill around until the two totals match. Sound familiar?
I’ve probably done that hundreds of times, but I couldn’t tell you exactly how much money the $20 or so per job has added up to over the years. I probably don’t want to know, but I recently found where the $20 went anyway: taxes.

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You see, in Ohio, everything is taxed. Labor, material, parts, towing, sublet – everything. As I was pulling my hair out one day, trying to find the phantom $20, I happened to look at the tax calculations at the bottom of the estimate where it all totals up. And that’s where I found the missing money – the appraisers weren’t paying taxes on all categories. No, I thought to myself, that can’t be right. So I started looking into other estimates that were close but not exact and found a whole stack of estimates with taxes not properly applied and paid. These were estimates from staff appraisers and independent appraisers and were written using all three estimating systems.

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Across the board here in Ohio, appraisers are routinely entering line items into their estimates as “misc” or “other items” and not calculating tax on them. I’m referring to items like flex additive, which is a legitimate paint and material item that they’re putting into a “misc” or “sublet” column and skirting taxes – little nickel-and-dime stuff that’s easy to overlook and adds up just a few bucks at a time. I reviewed a couple dozen estimates and found that the average shortage in taxes not paid was about $18.

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Understand that this is not all carriers nor is it all independents, but it does appear to be a practice and I’m not the only one who had discovered this. I have asked friends in the business if they’ve noticed this practice, and they say, “Oh sure, I knew that. [The insurers] say that they just don’t pay tax on that – they say they don’t have to.”

So here’s my question. The insurance company didn’t pay taxes on towing or flex or car cover – whatever the item(s) happened to be – and we all gave up on trying to find the missing few bucks, fiddled with our estimate and made the numbers match. So what just happened?

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We just took it in the shorts – again. We accurately represented to the state what our sales were and paid the taxes due on those sales, so the state’s not
out anything. We just paid tax that we
didn’t collect with our own funds.

Cute, huh?

It’s not just in taxes either. Do you know that estimate software is option-
driven? That means that the times produced by the software for a given operation are affected by the vehicle options selected by the user. Does your painter clearcoat the interior surfaces of new parts? Sure he does, and you probably have your software set up to allow clearcoat interior surfaces as a default. I guarantee you that many insurer-
produced estimates do not include clearcoating interior surfaces. Big deal, you say? At two- to five-tenths per panel, you’d better believe it’s a big deal – especially when you factor in paint product.

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Try writing an estimate with trim or accessory options not selected (power windows, headlamp washers, proximity sensors in the bumpers) and then do the same estimate with them selected. It all adds up.
I have to tell you that this topic has opened up a number of concerns, at least in my mind. I’ve come to the realization that a) we should never be re-keying any estimate into our estimating systems, b) we should never adjust our final totals to match an insurer’s final totals and c) we need to pay better attention to the insurer-produced estimate products and hold them accountable
to accuracy.

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Full Page Estimate

Re-keying. In my mind, re-keying is a really bad idea. In support of that, Erica Eversman, chief counsel of Vehicle Information Systems in Bath, Ohio, has authored a very well-thought out and constructive Code of Ethics draft that was considered as part of the Accountability for Collision Auto Repair meeting October 19 in Washington, D.C. A version of Eversman’s document has already been adopted by the Ohio Body Shop Owners Association (subject to revisions after the ACAR meeting). In it, Eversman suggests that “a collision repairer may not utilize any estimate or damage analysis prepared by an insurer, insurer’s representative or any other person not employed by or directly affiliated with the repairer or repair facility.” That’s a good idea in my book. The premise is that we should be doing our own thinking without outside influence by a party seeking first to restrain costs. The safety of the consumer is in our hands, and we should build the repair plan. While we’re on the subject of safety, Eversman goes on later to say that, “On issues of safety, a repairer shall not relinquish professional judgment as to the repairs necessary in favor of any external interest, including the customer’s.” Boys and girls, we are the repair professionals, and we should not be investing employee resources in the practice of keying an outside party’s work product into our software nor allowing our better judgment to be subverted in the interest of adding to insurer profits.

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Adjusting our totals to match theirs. Fraud? I don’t know – maybe. Here’s how I see it. If you’re off $20 and you’re just not going to get it out of the insurer because “that’s all we pay,” show the adjustment as a write-off. Your doctor’s office does it and any other legitimate business does it, too. Why are we the only ones who adjust our repair costs to match what someone else says they should be? If you accept the payment from the insurer as full and final accord and satisfaction, fine. Accept it as such but show your customer the write-off. Show your accountant the write-off, too, and I’ll bet at the end of the year you’ll have a different way of seeing things when you have a real total in your face showing just how many $20 bills you tossed out the window. Right now, you have no way of knowing how deeply you’re being cut because, when you wash it out (cost shift), you lose all ability to track and prove your loss later. For those of you who are managers, do you dare show the write-off and have ownership see the truth or do you stand up for what’s owed and collect it?

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Paying better attention to insurers’ estimates. That’s where I started this discussion and that’s where I’ll end it. Stop taking for granted that they’re using the estimating system the same way you are. You know better – at least now you do. Look at the little things because that’s where the leaks are. Make those appraisers include all the vehicle options such as clearcoating the jambs. Make them code their entries correctly so that taxes are properly accounted for. Make ’em do their jobs correctly.

Writer Phil Mosley is the general manager of two Mercedes-Benz Collision Centers, one in West Chester, Ohio, the other in Ameila, Ohio. In the industry since 1978, Mosley has done it all: tech, manager, insurance appraiser, physical damage manager and shop owner. You can
e-mail him at [email protected]

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