In my “Ask The Expert” column last month, I shared written comments posted by several collision repairers following my response to the question, “Who should pay for access to OEM repair information?”
All the repairers generally agreed that insurers should pay for all the necessary costs for a proper repair, and for the most part, I agreed. However, it’s absolutely necessary to fully know just who it is that repairers work for – and who truly owes them for their services and why.
The Big Picture
First, it’s important to understand the insurer’s limited role in the big picture.
When we buy insurance, we’re essentially gambling that at some point in our lives, we’ll find ourselves in a situation where we’ll be faced with an economic challenge. It could be a healthcare matter or catastrophic home, business or auto loss. Or, a matter of financial liability to others due to our negligence where our financial assets may be threatened and we may not have the available funds needed to pay for such a loss. This is why “insurance” is often referred to as “assurance,” “reassurance,” “protection” and “surety” – all these terms offer a sense of security.
The insurer, on the other hand, is gambling that we will not have a loss or need to make a claim and, if a claim is made, it will cost less than the premiums collected. Generally speaking, the most an insurer is obligated to pay in any single loss are the amounts agreed to when the policy was purchased (often referred to as “policy limits” of coverage).
NOTE: The ensuing information is not, nor is it intended to be, legal information. The scope of insurance coverage can be complex and have many stipulations and deviations from one policy contract and state of issuance to another. I offer the following only for the topic and issues I will address in this column.
Confronted with a Claim
When an insurer is confronted with a claim, either by their insured/policyholder (first-party claim) or by a victim of the insured’s negligence (third-party claim), they have several duties and obligations such as honoring their contract with their policyholders by protecting them and their assets from claims as well as to their mutual policyholders and shareholders regarding the continued profitability of the company itself by ongoing efforts to reducing claim costs. This is often a balancing act between meeting their contractual obligations to the policyholder and the financial goals of the company itself.
NOTE: Companies such as State Farm are mutual companies, which means they’re owned collectively by their policyholders, not shareholders who own shares of stock in a company.
One such duty is contractual, meaning the insurer is contractually obligated to protect their policyholder (and their assets) up to the terms of their policy. These may be through:
Collision coverage: In the event of a covered loss or peril (i.e. damages caused by upset, for example a roll-over and/or impact with another object), where a deductible and exclusions may apply.
Comprehensive coverage: In the event of a non-collision event (i.e. flood, fire, theft, vandalism, riot, impact to or from an animal, debris, lightning, earthquake, hail, volcano and other incidences considered to be “acts of God”), wherein a deductible and exclusions may apply.
In most situations, where coverage is provided and liability is accepted, and another’s property has been damaged as a result of the insured/policyholder’s negligence, the insurer is to provide:
- Payment to the third-party claimant for the full and proper repair of their damaged vehicle less any depreciation, betterment, etc., as may be applicable to restore them to their pre-loss condition and value, as well as loss-of-use or a comparable substitute vehicle for the time they are without the use of their vehicle.
If the insurer deems the damaged vehicle to be a total loss, the insurer would then provide payment to the policyholder or the third-party claimant for:
- The pre-loss fair market value (FMV) or actual cash value (ACV) of the vehicle (the anticipated cost to replace the covered vehicle as it was just before the loss, plus sales tax, tag/registration fees, rental or loss-of-use (less any deductible as may be applicable).
To some, this information may seem redundant. However, based on my years of interaction with thousands of body shop owners and managers across the country, I’ve found that many are not even familiar with the terms “first party” or “third party.” Or, they don’t understand the basics of auto insurance and the duties of those involved in auto claims. This lack of knowledge and understanding is one reason repairers across the country find themselves in a predicament when it comes to conducting business involving insurers. And trust me when I say that insurers don’t take kindly to my educating the collision repair industry and the consumers they serve…or are supposed to be serving!
So, when one goes back and re-reads the information I’ve provided, they’ll find one consistency that’s in direct contrast to what most repairers believe: When it comes to paying claims, the insurers owe the vehicle owner, not repairers. And the vehicle owner, the true “customer,” owes the repairer!
When resolving claims, insurers have four basic choices:
- Make repair to the damaged property, meaning the insurer takes possession and has the repair performed (rarely chosen in auto claims).
- Provide compensation for the necessary repairs to be made.
- Replace the property with that of “like, kind and quality.” For example, the insurer secures and provides a replacement vehicle. (This too is rarely chosen in auto claims)
- Provide compensation to enable the replacement of like, kind and quality replacement.
So, understanding these basics, what role does the repairer play in the big picture?
The repairer, while they’re the true professional expert in collision repairs, should accept the role I refer to as “the humble repairer.” The humble repairer is like any other local community member who offers quality services to their neighbors and wants to be respected for the quality of their service offerings.
Collision repairers are not in a position to negotiate their customers’ claims. In most states, it may in fact be illegal for one to negotiate insurance claims unless you’re a licensed claims adjuster, insurance agent or attorney. Doing this has been found to be the unlawful practice of law.
Consider what the term “negotiation” means. For the repairer, it generally means to concede and give something away. That something is your customer’s rightful monies they’re due for the repair of their vehicle.
Consider this example of what transpires on a daily basis across the country:
A repairer prepares a comprehensive estimate/blueprint/repair plan calling for OEM parts for their customer in the amount of $4,600, and the insurer writes theirs for $2,800 (with “alternative parts,” fewer procedures, capped materials, etc.). After negotiating, the repairer agrees to repair the vehicle for $3,800 while not disclosing the numerous concessions to their customer. The customer is never informed of what they should receive for the proper and thorough repair of their vehicle and what the insurer has changed or denied (and the reason for it). This is not in the consumer’s best interest and only serves the needs of the insurer and repairer. Ultimately, the customer is left without an advocate to champion their needs for a proper and thorough repair that restores the vehicle’s safety, reliability, appearance, value and the customer’s peace of mind.
At the end of the day, it appears to the consumer that the shop tried to overcharge them and that the insurer saved the day; therefore the insurer is the one to trust! That’s not a great way for a repairer to be seen by anyone, let alone their customer, community member and potential lifelong referral source.
Furthermore, the repairer accepts all the liabilities for any potential repair and part failures. At the end of the day, the insurer prevails with higher profits and no liabilities while the repairer and consumer suffer the losses and risks.
This age-old problem of clouding who the customer is began with repairers’ efforts to make a deal with insurers and leave their true customer out of the equation so as not to bother them with the details. It felt only right that the repairer would handle the repair on the customer’s behalf; after all, it’s what they do! Of course, the insurer prefers to not involve the customer in the process, as it’s much easier to tell a repairer “no” than an informed consumer. This is the reason that repairers often hear a claims person say, “We don’t pay for that, you’ll have to get your customer to pay that.” They know most repairers won’t involve their customer.
Repairers need to accept their role as the repair professional and expert and educate their true “customer” on the proper recommendations and the parts and materials required to restore their vehicle to pre-loss condition to the best of reasonable human ability so the customer may protect and assert their rights for same. Let’s face it, when it comes to an insurance claim, consumers have certain rights, but if they don’t know what they are or how to protect and assert them, they’ll likely forfeit and lose them. Note that insurers do not have a duty to inform others as to their rights of recovery unless asked a specific question. And even then, the question can and likely will be vague.
As a repairer, the best role to play is the “humble service provider” who provides their professional and expert recommendations to all parties on behalf of their true customer – just as you would expect from a doctor, attorney or accountant.
Do the right things, for the right party, in the right way, for the right reasons!