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Independents: Fighting for Truth, Justice, and a Fair Day’s Pay

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“Will non-DRP shops that fight to make insurers pay for everything be ahead in five years?”

– Pete Kenney, manager, Black Diamond Auto Body, Las Vegas, Nev.


That’s a tough question, one with no obvious answers carved in stone. This industry has changed so much in the last five years that it’s anyone’s guess what the next five will hold. So much could happen. Five years ago, my kids were still in high school and college. Now, three of them are married, two have their own homes and I’m a grandpappy – plus I’ve gotten a little grayer … all of which I couldn’t have comprehended five years ago.

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But I’m willing to guess that if insurers have their way, all shops will be insurer-subservient under direct-repair control within the next five years – unless the perpetual-in-scope-though-presently-ignored-tenets-of-laws such as the 1963 Consent Decree (www.consentdecree.com) are once again enforced. If insurers and other large corporations with piles of venture capital at their disposal continue buying out collision repair shops, very few truly independent and profitable DRP or non-DRP shops will likely be left in the next five years.

Before I get started, let me clarify Pete Kenney’s question as I believe he intended it: All things considered, will the next five years prove to be less profitable or more profitable for shops that regularly hold insurers accountable for every part and labor item needed in each repair?

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All in a Day’s Work
To help illustrate typical insurer thought and practice, consider the following statements made recently by an insurer’s state supervisor to a Midwest shop owner and the shop’s attorney: “We’re a ‘bottom line’ insurance company, in that we’ll write estimates that might not itemize everything the shop must do in the repair, but we try to make sure the ‘bottom line’ is there.”

An adjuster for that insurer – in an effort to “clarify” his boss’ statement – added, “We sometimes call it cost shifting.”

But what an insurer rep (who, more often than not, has never owned and operated a profitable business) might consider a bottom line that a shop should be able to live with isn’t necessarily a realistic bottom line. As for cost shifting, it’s fraudulent activity, even though insurers have lulled the repair industry into believing it isn’t.

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Considering the complexity of modern vehicles and business transactions, and the ambitions of the entity disbursing repair funds and, increasingly, repair practices and allowances, bottom-line estimating seldom – if ever – profits repairers. With the repair industry’s help, insurers have amassed tons of data to determine what favorable-to-insurers bottom line they’ll pay repairers. In contrast, most repairers still employ “guess and by golly” accounting.

It’s been said that, generally speaking, insurers expect to pay supplements on 90 percent plus of the estimates they write. The reason: Most insurers demand their appraisers write deficient estimates, accompanied by deficient checks, knowing that many vehicle owners will run with the deficient windfall and not have their vehicles repaired. Insurers retain millions of dollars in payouts every year this way. Deficient insurer estimating differs little from deficient insurer “capping” of paint materials.

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Insurers get away with deficient capping of paint materials as often as they do because they know few shops, especially those that have signed on to their DRP programs, will want to rock the boat. The same is true concerning insurers writing estimates deficient in other areas. Simple behavioral psychology is such that the insurer puts himself in a place of command when he writes the initial estimate (which explains why insurer representatives write so many of their own estimates and insist that any supplements be written from the basis of insurer-generated estimates, rather than the shop’s).

Using this “thinking smaller” method, insurers know shops are less inclined to list all the line items they need. In essence, insurers are subtly brainwashing shops into “thinking small,” looking forward to a soon-approaching day when they’ll fire most of their adjusters/appraisers (except for re-inspectors) and their DRP shops will continue on in the tradition of writing “small.” Few repairers, though, ever fell for “thinking small.” Instead, many have found other (oftentimes fraudulent) ways of collecting what they want or need.

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I suggest the shop (the collision repair expert) write his own estimate as he believes the vehicle should be repaired before he’s swayed by an insurer-generated estimate. Then, he should compare the insurer’s estimate to his shop estimate, line for line, without prejudice. I mark whatever we have in common with a magic marker. Then I write down whatever my estimate shows he’s missing (whatever item on my estimate hasn’t been checked off with the magic marker), itemize the supplemented items (those he left off his estimate), add up the totals and fax it to him with a request he contact us before the scheduled beginning of repairs. Short of a lawsuit or small claims court, you may not be able to get every insurer rep to pay you for everything you feel and can prove they owe you. This is where tact, salesmanship and perseverance pay off.

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Do I receive full payment on all my supplements? No. But I do collect on the majority of them when I’m able to prove that I need each item I’ve listed better than the insurer rep is able to prove that I don’t need it.

Education and backup paperwork that proves your point is the key to getting paid. Know and be able to prove your cost of doing business. And realize that most insurer reps, like yourself, are just trying to make a living in their competitive and demanding field to feed their family. Few have many options open to them on what they can and can’t write, but if you can prove through literature from sources such as I-CAR, crash manuals, paint company warranties and the like why you can’t do a pre-loss repair without that line item they’ve denied, most will work with you to the best of their ability. But they need something written by an authoritative source to hand to their supervisor in order to prove why they paid you for that item – and to stay out of hot water themselves.

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Upcoming Market Changes
An industry friend of mine who also has a background in economics says: “The near future will bring more insurers into the repair business, and consolidators will grow. Though independents will succumb at a quicker pace, those that survive will make marginally better money. But few will be able to justify staying in this business when compared to the possibilities in other industries.”

I’m no student of economics, but I take the above statement to mean that though many independent shops will fold in the near future (as will a great many insurer-dependent shops), there will be survivors among the independents. Because of an increased presence of large consolidations of insurer-owned shops, the independents that do survive will have a marginally better net profit than their DRP counterparts that survive apart from insurer ownership and consolidation. It’s not a very glittery future my friend’s predicted for this industry, but it’s a strong possibility.

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Should the above scenario prove true, independent survivors will be those who thoroughly know their business, along with the nuances of the insurance industry. Location – as far as possible from major population areas where insurers will be inclined to establish their large shops – may be a must to survival. And there will always be thousands of locations across the country where sparse populations will leave insurers with no incentive to build nearby.

I also recommend diversification from doing strictly collision work. Though collision work is the main business at my shop, we also have three full-time mechanics performing virtually everything imaginable in the mechanical field, doing exhaust work, electronic wheel alignments, A/C, rental cars and trucks, and other things. Our diversification brings many more people through our doors each day, giving us many opportunities to sell them on our (continued from page 62)

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other services – including collision repair – and allowing me the freedom of not being totally dependent on fickle insurers.

Above all, be known in your community – especially with your customers – as being totally honest. Word-of-mouth is still – in spite of insurer spin-doctoring to the contrary – the most effective advertising tool you have. Insurers may be able to pick off a certain number of your clients by getting first shot at them following an accident, but they won’t be able to steer them all away from you. And once they’re inside your office door, sell them on the concept that you’ll take care of all the details with the insurer. Effective, aggressive advertising – pointing out the benefits of dealing with you as an independent – will also be a must for survival.

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Another shop owner and personal friend with an intimate understanding of the insurance industry foresees “consolidators growing for a short time, and then within the next few years, many of them folding when their investors realize their pot of gold closer resembles coal.”

Caliber has a debt to investors of $65 million, plus, surely, lots of leveraged debt. The big boys at the top are drawing big salaries, and I still believe you can’t “McDonaldize” the collision repair industry, have heavy debt, continue to expand and make money at the same time. Also, where will they find top-quality people with an owner mentality and a desire for success?

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I predict investors will tire of putting up money while seeing little to no returns. Allstate – which attempted shop ownership in the ’60s and, again when it recently bought out Sterling – will likely find out that it’s tough to manage and even tougher to make money at collision repair.

Almost every state has laws requiring that when insurance companies elect to repair vehicles, they be held to the “highest standard and must return the vehicle to its pre-loss condition,” which we all know is nearly impossible.

Once Sterling screws up some cars (which they will), watch for “Dateline” or “60 Minutes” to do a special that will throw Allstate under the bus.

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The insurer-as-shop-owner door is further open to tons of “bad-faith” lawsuits. I spent 26 years working full time in the insurance business, plus six more in a part-time capacity. One observation was that top-level people in an insurance company are ignorant concerning our industry. They may know how to set rates, invest money, play golf and hold meetings, but they have zero knowledge of our industry and of consumer expectations. For all these reasons, I believe that in the next five to 10 years, shop consolidators will fail and insurers will get out of the repair business.

Despite all this, the DRP system will continue to expand. Quality repairs will always have a niche, but I think the DRP and its associated steering will shrink the number of independent shops. Our hope is still in the courts, state legislation and exposing RICO violations. Insurers are using DRPs for control, discounts and to cut their administrative costs.

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But I think that many DRP shops wouldn’t be able to compete if they were forced to consistently perform quality repairs. I suspect the “average DRP” repair ticket would be 20-30 percent more than the “average non-DRP” ticket were the true costs of DRP finally exposed.

Since this isn’t going to happen any time soon, the battle for independents to survive in the future will be tougher and less profitable than it is today. Still, I believe shops that are doing quality repairs, taking care of the consumer and willing to function in a smaller, more efficient world will survive.

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Fighting Accomplishes Nothing
Personally, I believe fighting with insurer reps accomplishes little to nothing of lasting value – with it sometimes even being detrimental. Insurers still hold the money bag. And most insurer reps become vindictive when their methods and rationalization are challenged – especially in a confrontational way. Rather than the smoke-and-mirrors padding many shops have reduced themselves to, in an effort to buffalo insurers into a workable bottom line, I try to reason with adjusters from a “been there, done that … and it doesn’t work” knowledge of the repair process – educating the many insurer representatives who honestly don’t have a clue what’s involved in a proper repair.

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This requires time and patience, especially since these reps often conveniently – or honestly – forget. But hopefully some of my lessons will take root.

I get along well with insurance adjusters whose main goal is, as it should be, to do whatever is needed to make claimants “whole” by getting them back in their vehicles as soon – and as painlessly – as possible, while reasonably looking out for the interests of their insurer/employer. I believe that would be my goal if I were wearing their shoes.

Admittedly, I do have problems dealing with adjusters who literally don’t know one end of a car from the other. The recent trend of insurers hiring appraisers who are car-ignorant to watch out for insurer interests is hard to fathom. Even so, we go out of our way to educate these appraisers on the many required steps involved in a proper repair. I credit Safeco Insurance with, in the past, mandating their adjusters spend several hours each month observing actual in-shop repairs in process. Regrettably, that practice must have opened insurer rep eyes too wide, since it appears they’ve discontinued in-shop training.

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Most of the friction (fighting if you will) between appraisers and shops would cease, benefiting us all, if insurance representatives knew their job better, insurers were interested in making their insureds “whole” no matter the cost, and shops were more interested in maintaining honest relationships with their consumer-customers and insurers.

Though there will always be a certain degree of give-and-take in insurer-repairer relations, honest shops refuse to succumb to wholesale “south of the border”-style barter estimating. But at what point does reasonable and equitable give-and-take cross the line to become fraudulent cost shifting?

Another friend and industry writer with many years in collision repair makes a valid point: “My entire way of thinking has changed with respect to fighting for an agreed price. While the DRP arrangement seems to be the future for many shops, I see the independent shop in a much better position to be paid adequately for its services. I believe shops shouldn’t get caught up in the razor-wire of fighting for line items, procedures or the maze of P-page entitlements. They’re meaningless and only a roadblock designed to impose limits on pricing in markets where there literally are none. This is more of a bottom line business than we ever imagined.”

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Though this comment may appear to throw out of kilter every statement I’ve made so far by bringing up the aspect of bottom-line pricing, I believe we need to consider its merits. I believe what my friend is denouncing here is the “p_ _ _ ing match” that many repairers get into with insurer reps over seemingly small potatoes. It can also be called “extreme itemization,” and it causes undue frustration and friction between insurer reps and shops – along with much wasted time in book work for both. I know my friend (and his often-stated views on quality repairs) far too well to believe he’s suggesting for you compromise on critical line items.

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Bottom line estimating doesn’t necessarily reflect “bottom of the barrel” workmanship. What I’ve found is that every adjuster is different. With some adjusters, I can bend a little on this estimate, knowing they’ll be likely to give a little the next time around. With other adjusters, though, every inch of bend that I give ends up being a mile taken from future estimates. So I deal with them individually from my knowledge of their past.

Needless to say, some insurance reps thrive on causing estimate grief for shops, and the converse is true of some shops. Each shop needs to determine where to draw the line concerning give-and-take in the small potatoes of his estimate. But under no circumstances should safety, aesthetics, durability, your good reputation and such be bargained away in compromise for cost control.

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With that said, now I have a question for you:

All things considered, in five years, how far behind will shops be that don’t regularly hold insurers accountable for every part and labor item needed for a proper repair?

Writer Dick Strom and wife Bobbi own and operate Modern Collision Rebuild, a 10,000-square-foot shop, in Bainbridge Island, Wash.

 

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