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Insurer-Related Profile: Relationships with Insurers

Some shop owners got mad, some got even and some didn’t even get mad.

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Some shop owners developed heavenly relationships
with insurers in 1997; other shop owners sat around complaining
that insurers are the Antichrist; and a select few – which included
frustrated shop owners and fed-up consumers – quit praying for
miracles and started taking action against insurance companies
that were making their lives hell.

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  • One such fed-up consumer was David Kalmback. Kalmback filed
    a $3,133.28 diminished value claim against Nationwide, which insisted
    on the use of aftermarket sheet metal to repair his vehicle –
    and won a judgment for $2,995.89. Nationwide is appealing.

  • A shop owner in Florida wrote a $5,800 estimate for a damaged
    1993 Lexus, which didn’t quite match up with the insurance company’s
    estimate for $2,680. Unsure of what to do, the shop owner called
    the Florida Commissioner of Agriculture & Consumer Services.
    Turns out the car owner was the commissioner. Strangely enough,
    when the insurance company found out who the vehicle owner was,
    an adjuster visited the shop and prepared a "supplement"
    to his original estimate, increasing the amount the insurer would
    pay from $2,680 to $6,300 – $500 more than the body shop’s estimate.
    The Florida Commissioner of Agriculture & Consumer Services
    is investigating the incident.

  • Tammy Snider and Michael Avery, on behalf of themselves and
    all others similarly situated, are the plaintiffs in a Class Action
    Suit against State Farm that’s set to go to trial Feb. 2, 1999.
    The plaintiffs allege that State Farm violated the terms of its
    policies and breached its contract with its policyholders by using
    non-OEM "crash parts" to repair their vehicles.
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  • After paying towing charges, being authorized by the car owner
    to do a tear down, and ordering and receiving parts, a shop owner
    received an unexpected call. The caller was the car owner, who
    said he no longer wanted his car repaired at the shop. Why? He’d
    been advised by the insurer’s inside adjuster that the shop was
    incompetent and, therefore, the insurance company wouldn’t "guarantee"
    repairs. The shop owner called the insurance company, which denied
    all accusations, and told the insurer he would release the vehicle
    pending payment of charges. The shop owner wanted reimbursed for
    the tow and advance charges, for the normal daily storage rate
    and for the tear down the customer authorized. The inside adjuster
    then told the customer that he (the customer) was responsible
    for the charges. The customer disagreed, and the shop has yet
    to receive payment or release the vehicle. The shop owner plans
    to legally apply for a mechanic’s lien to secure the title, and
    his message to the insurer was loud and clear: "You steer,
    you pay."

    These few examples demonstrate that the relationship between insurers
    and repairers (and insurers and consumers) in 1997 was, at best,
    strained. "I have no choice but to work with insurance companies
    – I want to stay in business," said one shop owner. "Everyone
    needs to eat, pay their bills and pay their employees."

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    That’s not to say that all insurers and repairers were at odds;
    but, unfortunately, many were. With the insurance industry becoming
    such a major player the past few years, many shop owners fear
    that control of their businesses is slowly slipping into the hands
    of insurers. "If you want to be on our DRP, you have to do
    this, this and this. …" "We don’t pay for that operation.
    …" "We only pay $25 an hour for labor. …" "We
    want aftermarket parts used on this vehicle. …"


    Still, despite the potential problems, 44 percent of the shop
    owners surveyed chose to be involved with DRPs in 1997 – some
    because they feel they have no choice. "We don’t have the
    luxury of having more work than we can handle," said one
    shop owner. "We need the volume."

    Interestingly, the larger the shop, the more likely it was to
    be involved with DRPs: 97.1 percent of the shop owners making
    $1 million or more a year were DRP shops; followed by 70.3 percent
    in the $750,000-to-$1-million-a-year range; 56.3 percent in the
    $350,000-to-$749,999 range; 31 percent in the $250,000-to-$349,999
    range; and 13.6 percent in the up-to-$249,999 range.

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    Of the 44 percent who were involved with DRPs, 71 percent said
    they’re better off financially because of DRPs. But when asked
    if their profit margins have increased since DRP affiliation,
    only 32.3 percent said yes, while 13.5 said profit margins have
    decreased and 54.2 percent haven’t seen a change.


    How can 71 percent say they’re better off financially when only
    32.3 percent of them have seen increases in profit margins? Because,
    according to some respondents, the higher volume of repair work
    makes up for stagnant (or falling) profit margins.

    Does the higher volume of repairs also make up for the concessions
    given to insurers? It would seem so, since 58.8 percent of our
    respondents give concessions to be part of DRPs.

    Compromising the labor rate is the most frequently given concession
    (41.2 percent do it), yet 58.6 percent of our respondents said
    they believe the surveys insurers take of labor rates in a market
    area aren’t accurate and 79.9 percent said that insurers shouldn’t
    have any control over or input regarding labor rates charged by
    body shops. Regardless, many DRP shop owners are still willing
    to compromise their labor rates to get the work – and the larger
    the DRP shop, the more likely it is to compromise its rates. Nearly
    64 percent of shops making more than $1 million a year have compromised
    their rates, as opposed to 42.15 percent of shops making $249,999
    a year or less.


    With all this compromising going on, are DRP shops concerned that
    they’re also compromising repair quality? Not particularly. While
    60.9 percent of DRP shops were concerned with the issue of diminished
    value (39.1 percent weren’t concerned), 75.3 percent said they
    weren’t concerned; they believe they can return a car to preaccident
    condition and the car suffers no loss of market value due to the
    repairs done under the DRP arrangement.

    This confidence seems somewhat misguided considering that 81.6
    percent who purchase aftermarket crash parts said they do so because
    they feel pressured by insurance companies – not because they
    think they’re the best parts for the repair. Which leads to the
    question: How can shop owners say they’re not compromising repair
    quality when they’re purchasing parts simply because insurance
    companies want them to? (It should be noted, however, that aftermarket
    crash parts are used on only 23.8 percent of repairs. Why? Because,
    oftentimes, shop owners willingly purchase the parts, demonstrate
    to adjusters the parts don’t work and then use OEM parts. Still,
    on the 23.8 percent of repairs on which aftermarket parts are
    used, are they used because shop owners want to use them or because
    insurance companies want shops to use them?)


    Regardless of whether or not they’re involved with DRPs, 64.5
    percent of our respondents said they’ve been told by an insurance
    adjuster/company that they’re "the only one who charges for
    that." If we break that out into DRP shops and non-DRP shops,
    DRP shops were more likely to be told they’re the only one: 76.9
    percent of DRP shops have heard that line, as opposed to only
    56.5 percent of non-DRP shops.

    What were the shops asking to be paid for? Examples given include:

    Hazardous-waste removal

    Masking

    Color matching

    Color sanding

    Blend time

    Buffing

    Trial fit trimming of welded structural panels prior to welding
    in place

    Paint and materials

    R&I parts for paint

    Diagnosis

    Road test for safety

    Clean and prep for delivery

    Detailing

    Feather edge and fill

    Sound deadener

    Weld-through primer

    R&R times for glass

    Seam sealer

    Towing charges

    Prefit time on aftermarket parts

    Pinch-weld repairs

    R&I moldings, door handles, emblems

    Mechanical labor rate for mechanical items

    Bench set-up time

    Four-wheel alignment

    Corrosion protection

    Handling fees for returned aftermarket parts that didn’t fit

    Bolts, fasteners, etc.

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    Despite being told they were the only ones charging for that particular
    operation, most respondents weren’t discouraged. In fact, 49.3
    percent always charged for the operation anyway – "Ask and
    you shall receive," said one shop owner – 16.4 percent still
    charged for it 75 percent of the time and 19.4 percent charged
    for it 50 percent of the time. On the other hand, 9.7 percent
    of our respondents charged for the operation only 25 percent of
    the time after being told they’re "the only one," and
    5.2 percent never charged for it at all.


    Even after being told they’re "the only one," a whopping
    93.8 percent of respondents continued to work for that insurance
    company. Why? Reasons varied, but the most common reason was:
    "What choice do I have?" Also troubling was how many
    shop owners responded that they’ll somehow "make up"
    the money elsewhere in the job.

    Comments included:

    "Alone, I can’t change it, so I have to go along with it."

    "Business isn’t booming, and I need as many chances to
    sell my business services as possible."

    • "They need us, we need them and we’re able to compromise."
    • "I’m still in the growing stages of my business and can’t
      afford not to do work for them."
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  • "I don’t consider it like I’m working for the insurance
    company. I work for customers. The insurance company just pays."

  • "It’s work, and we’re slow."
  • "Shop owners should look at everything and hold their
    ground. Some insurance companies cut costs and don’t look at the
    end result. DRPs aren’t the problem."

  • "There are other ways on some jobs to make up the difference."
  • "I’m not losing a $5,000 job over $10."
  • "They’ll overpay on something else, and I’ll use the
    money as I see fit."

  • "It’s a matter of survival."
  • "It’s fun to play the game. I win 95 percent of the time."
  • "The insurer is too big to ignore."
  • "We collect what we can and move on."
  • "I proved it was needed and done, and I got paid."
  • "I now itemize materials to get paid for them."
  • "We still do the jobs as specified and don’t charge the
    customers. But we explain to them the practices of their insurer."

  • "The adjuster puts time elsewhere."
  • "They eventually pay."

    This leads to an interesting point: 49.3 percent of our respondents
    still always charged for the operation in question, and 93.8 percent
    of respondents continued to work for the insurer in question.
    So, charging for the operation in spite of what the insurer said
    doesn’t appear to seriously affect the relationship between shop
    and insurer. It would seem that the shop owners who don’t charge
    for work performed are only hurting – and underpaying – themselves
    because insurers are still working with the shop owners who do
    charge.

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    "I didn’t back down and went to bat for my customers and
    my business," said one shop owner, who recently began always
    charging for work performed. "I ended up receiving payment
    for my time, parts and work – and respect for standing my ground."

    Maybe that’s the one lesson to be learned here: Shop owners need
    to respect themselves before they can expect respect from anyone else.

    Writer Georgina Kajganic is editor of BodyShop Business.

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