Is the Industry Suffering from Widespread Billing Fraud and Repair Defects - BodyShop Business

Is the Industry Suffering from Widespread Billing Fraud and Repair Defects

Editor’s Note: Some background: In 2000, California’s Department of Consumer Affairs, Bureau of Automotive Repair (BAR) launched an Autobody Inspection Program after Gov. Gray Davis signed legislation (2000-S.B. 1988) requiring the BAR to conduct a pilot program to determine the extent of autobody fraud in the state and to then recommend solutions to the legislature. Designed to document fraud in recently repair vehicles, the two-year pilot program gives consumers in the state the right to request a free inspection to verify repair work. In a Jan. 30, 2002, article, the “Los Angeles Times” reported that the inspection program has found that billing for 43 percent of repaired cars inspected so far show evidence of fraud – with an average of $586 in overcharges for parts not used or labor not performed.

Rocco Avellini, owner

Wreck Check

San Pedro, Calif.

Opinion: Yes

I’ve been involved in the collision industry and insurance industry for over 30 years. For the past six years, I’ve been involved in the Post Repair Inspection Industry (PRII) and have completed more than 800 wreck checks and car scans. Every vehicle we inspect has either billing fraud, improper repairs and, in many cases, both. Less than 1 percent of the consumers we deal with have ever had the ability to review the estimate before the repairs begin and have properly authorized the repairs. This practice transfers into the shop’s ability to cost-shift during the repair process and to take advantage of the unknowing and uneducated consumer. Time after time, consumers we assist who received improper repairs hear from shop owners that the insurers didn’t pay enough to repair the vehicle – so cost-shifting was the only option left. Why weren’t they told that prior to the start of repairs so they could have chosen a shop that would work for the consumer and not the insurer?

I feel the numbers mentioned in the “L.A. Times” article are low. I feel the BAR uses a different criteria to determine possible billing fraud and improper repairs. For example, when dealing with improper repairs, the BAR will use industry standards and not OEM guidelines. According to BAR codes, the consumer has the right to request that his vehicle be repaired according to OEM standards. However, not one consumer I’ve questioned knew he had that right. During our inspections with the BAR, we advise consumers that their vehicles were repaired to industry standards, and due to the concessions being forced upon shops by insurers, these standards are being lowered every day. We recommend that consumers insist that their vehicle be repaired according to OEM standards, which is their right as listed in the BAR codes.

I find that OEM standards usually specify and require higher-quality products and structural repair standards than what are now known as industry standards. OEM standards require certain grades of primers, sealers and corrosion protection; certain temperatures for welding; the replacement of certain structurally damaged parts; and usually never recommend sectioning of structural components – whereas I-CAR and industry standards allow these procedures.

Also keep in mind that the BAR can only inspect a vehicle with repairs over $2,500, the dollar threshold as mandated by S.B. 1988. With the average collision loss estimated at $2,300, I feel there are a large number of vehicles that aren’t being inspected, resulting in those numbers not being included in the report.

If correct, these findings verify the fact that the majority of the collision industry is made up of dishonest business people who make it even more difficult for the industry to remove its negative stigma. Because of the California Autobody Association’s position in the 1999 Senate hearings in support of the direct-repair program (DRP) system, the industry can’t put the blame elsewhere. CAA members specifically stated they can survive by making up profits by way of volume supplied to them by insurers. As for the insurers, they’re laughing all the way to the bank. They now have an industry at their mercy that must work longer, harder and cheaper and can’t complain about it. Ultimately, consumers will be damaged the most. As insurers insist on more concessions from their partner shops, the quality and safety of repairs will continue to diminish.

I feel insurers will use these findings – in conjunction with S.B. 1988 – to gain complete control of the collision industry. The industry will be looking at giving up more concessions to satisfy insurers, and as the insurers continue to purchase consolidators and increase steering, the number of pro-consumer, quality-minded shops will decrease.

This behavior will continue and grow because, presently, there’s absolutely no teeth in the enforcement of the law, and insurers play too big of a part in controlling the repair process of the consumer’s vehicle. Additionally, when faced with the facts that their partner shops are abusing the system, insurers side with the shop rather than assisting the consumer, who pays their premium. Furthermore, the shop has no governmental agency that will help defend it against the insurance industry, so it’s left with no choice but to sell out the consumer for a relationship with the insurance company.

This is a line from a Farmers Insurance letter to a consumer attempting to get them to a Circle of Dependability (COD) shop: “All COD shops are members of the CAA and have met strict requirements regarding equipment, training and repair quality.”

What are the “strict requirements” mandated by Farmers and the CAA? If the CAA is a pro-consumer organization, why are they lending their name to insurers?

The evidence [of the BAR’s fraud allegations] has been made public with the BAR’s report in 1984 and 1994, where the figures were similar. They’re just being reinforced now since last year’s inspection program has begun. Also, Wreck Check numbers support the BAR’s findings. But the CAA isn’t willing to face the fact that their members may be abusing the system because they may feel their members may be part of the problem.

In 1998, I attended a Foothill chapter meeting [of the CAA] and approached Bill Conway, the late executive direct, with the documented information about several member shops severely abusing the system. I asked if he would like the information and was told no. If the CAA is the association that represents the collision industry and they’re willing to sweep this under the rug, then how will the industry ever repair its negative image, let alone produce quality repairs? Remember, CAA members are supposed to be leaders and set good examples. The CAA is supposed to represent the consumer, not the insurance industry.

My experience tells me that the pro-consumer, quality-minded shops aren’t necessarily CAA members. Many former member shops and non-member CAA shops I speak with think of a CAA meeting as nothing more than a night to drink and pass time. They tell me very few industry issues get resolved in favor of collision repairers, and they constantly hear statements like “changes take time.” It appears that the only shops that benefit are the ones in high positions in the association, and that’s exactly what the insurers want. It’s like leading the sheep to slaughter.

Approximately 90 percent of the vehicles I look at as part of Wreck Check inspections have had repairs done at a DRP shop. The fact our numbers are mirroring the BAR report tells me that the DRP system doesn’t appear to be working and that DRP shops are a large part of the problem. Remember, most insurance companies are requiring a shop to be a member of I-CAR, ASE and, lately in California, the CAA to be on their list. Why are the insurance company DRP coordinators not identifying these improper repairs during the repair process? Are these inspectors not qualified to inspect and identify improper repairs or are they intentionally overlooking them?

Fraud and improper repairs are definitely on the increase for many reasons. First, insurers continue to force more concessions, and shops are left with no option except to cut corners. Many shop owners are beginning to face reality and realize that in order to keep their doors open, they must try to satisfy two customers. Unfortunately, the consumer usually loses out to the insurer, which can supply the shop with continued referrals.

Also, industry standards are being lowered every day by the poor-quality work being performed at collision shops. I’ve heard statements from insurers and shops such as “the repairs were done according to industry standards.” Unfortunately, we were inspecting a vehicle with weld burn holes large enough to slide a nickel through, no corrosion protection, no weld-through primer and remaining structural and unibody damage.

If insurers are allowed to purchase consolidators and enter the collision industry, the quality of repairs will decrease even more. The people collecting the premiums from the consumer will be controlling the percentage of profit, and their only motivation is to save money. If this trend is allowed to continue, industry standards will be nothing more than rubber bands and paper clips.

Shops need to take back control of the industry now, and hope it isn’t too late. You see what the insurers have done to the medical industry, and [now doctors are] also faced with trying to regain control of their industry. If the collision industry is truly concerned about quality repairs, then it must stand up now, close its doors to the insurers and service its true customer – the consumer.

Yumi Vaught, owner

Apex Auto Body

Huntington Beach, Calif.

Opinion: No

As president of the California Autobody Association (CAA), I’ve been personally involved with many segments of the industry, and I’m familiar with the allegations of fraud in the industry. First and foremost let me make one thing clear: The CAA does not condone fraud! The CAA has acknowledged that there are some bad apples in the auto body industry as in every industry (i.e. lawyers, doctors, contractors, etc.). However, CAA disputes the extent of fraud. Over the years, I’ve personally seen a “raising of the bar” in the collision repair industry. As such, the collision repairer is investing more time and capital in his business to make it more “professional.” Many of these changes have evolved over time, but top comments I’ve heard over the years have been:

  • How clean my facility is;
  • An apology for the state of cleanliness that the vehicle was brought in. Mind you, this is after we return it clean; and
  • How impressed people are with computerization. Many car-buff types enjoy looking at the parts pictures provided by the estimating systems.

I believe that most autobody repair facilities in the state employ competent and skilled technicians who treat consumers fairly and honestly.

The CAA worked closely with Senator Jackie Speier (D-San Mateo-San Francisco) in addressing various issues facing the autobody industry and was a primary supporter of S.B 1988. The intent of the Pilot Inspection Program was to conduct a study that fairly and accurately reflects the autobody industry. Unfortunately, CAA believes the final results of the study won’t accurately reflect the industry.

First of all, the BAR isn’t selecting vehicles on a random basis. Instead, consumers who may not be satisfied with repair work call an 800 number to have their car inspected by the BAR. From the “get go,” the cars inspected are from potentially unhappy consumers who feel the repair wasn’t done right. Hence, the BAR is much more likely to inspect a vehicle that has a problem. The CAA believes this method of inspection is negatively influencing the results of the study.

Furthermore, the definition of “fraud” is being defined overly broad by the BAR. From a legal standpoint, to find fraud you must find intent. The BAR defines fraud so broadly that it may include mistakes that were unintentional. Under the law, fraud is an intentional act. The burden of proof is for the BAR to prove intent. They don’t know if a shop simply forgot to put a part on the car (mistake) or whether the shop was intentionally charging for a part and not placing it on the vehicle. Mistake vs. fraud – there’s a difference.

Finally, put the number of cars inspected by the BAR in perspective. There are more than 2.7 million cars repaired annually in the state. The sample of vehicles inspected by BAR represents less than one tenth of 1 percent of cars repaired in California.

Unfortunately, the pilot program doesn’t represent a valid random sampling of the industry’s behavior and may give consumers and insurers the wrong impression of the autobody industry. The press will take hold of this information because it sells.

For the short term, the industry will be facing more questions by consumers. The CAA intends to be very active in educating consumers so they can protect themselves from unscrupulous autobody shops. Basically, we attempt to give them as much information as possible and attempt to dispel any preconceived notions that they might have:

  • Multiple estimates aren’t needed in California for your insurer;
  • You shouldn’t feel intimidated to use a particular shop; and
  • You should rely on questions like the ones the CAA has provided to consumers about choosing a shop.

Consumers should ask the right questions before selecting an autobody facility of their choice. For example, here are some consumer tips:

  • Ask friends and family for referrals;
  • Ask whether the repair shop is a member of the California Autobody Association and other trade and professional organizations;
  • Check for evidence that the technicians are receiving up-to-date training;
  • Check for technicians that are ASE-certified;
  • Make sure the shop is neat and clean;
  • Ask if the shop has the latest equipment to work on late model cars;
  • Ask if the shop offers a warranty; and
  • Ask to see examples of the shop’s workmanship.

The CAA has maintained that whether you’re a DRP or a non-DRP shop, the repair facilities are the doctors of the industry. As doctors, you, along with your customer, determine how best to repair the vehicle. If a shop has given the insurance company the “power” or “leverage” to allow the insurer to dictate the “method of repair” and to force a shop to potentially cheat and commit fraud, then that shop has placed itself in a dangerous corner.

The smarter we all are out there, the better we can be. The CAA will continue to be active in educating consumers about their rights. The CAA will work with the Department of Insurance to request that they enforce laws and regulations against insurance companies perpetuating fraud in the autobody industry. The CAA will also work with the BAR to develop regulations to prevent fraud in the industry and partner to promote and sponsor statewide educational programs and seminars for repair facilities.

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