To get things off with a bang, let me ask, “Why is steering bad?” But before I get any shoes thrown at me, let me first inform you of several facts about steering that I’ve gleaned from studying it for way too many years.
Good vs. Bad
First, steering has always existed in the collision repair industry in some form or another. Second, there seems to be two types of steering: good steering, where a repairer is the recipient of the steering, and bad steering, where the work is directed away from another repairer.
Another fact: what the collision repair industry has termed “steering” occurs in other industries as well. For example, the referral programs on the homeowner’s insurance side. But what we call steering would be more accurately termed “deceptive referral.” Sociologically, it could also be referred to as “behavior modification through misleading statements.” These misleading statements are not necessarily untrue, but often fail the test of full disclosure.
So, I ask again, “Is anything wrong with someone referring a customer to your door?” Think about it: Don’t you at some point during the day refer someone to another business?
Nothing Will Change
Considering how long steering has been around, the answer to the question, “Will there ever be a change to the system where free choice by the vehicle owner is a given?” is easy: probably not.
The reason is because deep down, even those who are the most radically opposed to steering practice it almost every day. Also, it’s endorsed and practiced in different degrees by everyone. Finally, insurers have spent hundreds of millions of dollars researching and developing DRP referral programs, and they’ll spend just as much to maintain the status quo.
There isn’t one person in this industry who doesn’t like to have a job referred to him or her. Some shops’ business plans specifically mention word-of-mouth as a legitimate marketing strategy. Sorry, but for those of you who are heading off to get a rope, horses and guns, the newsflash is that this, in slang terms, is what you call steering.
Everyone gets upset when deceptive things are said or half-truths are used because this reflects negatively on their businesses and results in vehicle owners going to other shops. This is deceptive referral, and I believe everyone can agree this is not a positive thing. This is what we’re really opposed to, isn’t it?
Even repairers on preferred lists who think they’ll get work referred to them get steered against…and quite often, it’s done by those who claim to have those repairers on their preferred lists.
What You Don’t Know
So now we can hopefully agree that there are two conditions in steering: one where we get work referred to us, and one where we get work “deceptively” referred away. What’s not so evident is that these two things may occur to the same facility.
Most shops have no way of knowing the number of jobs they didn’t get because of deceptive referrals. The only incidents they know about are the jobs that are towed out of the shop, or when the customer came in with a driveable vehicle and said, “I want you to do the work,” and then never came back. Or the ones where the shops have signed work orders and still, the vehicle owners are “persuaded” to take their vehicles elsewhere.
Is it a reach to say that most repairers would agree that if negative comments weren’t used to influence the vehicle owner, there would be less volatility attached to steering? The practice would still not be accepted, but it would not be as harshly viewed.
We all know why consumers are so easily misled. They think they have to listen to their insurer. In some cases, they’re told where the vehicle is going to be repaired, and if they don’t do as instructed, they’ll have to pay for what the insurer says it doesn’t owe. Does that sound like the co-pay in the healthcare industry?
Insurers say this doesn’t happen and that the customer always has a choice, but for those who have been “given the choices,” we know that in some cases customers were coerced or scared into making a different choice than they would have otherwise made. For those who don’t believe this, there’s some oceanfront property for sale in Arizona I need to talk to you about. Whether this coercion is encouraged at the local level, a supervisory level or from the top, it’s one of the most unethical practices in the industry today. It’s like being the lone chicken in the chicken coop with two foxes and voting on what’s for dinner. Is that a free choice?
Many insurers have strict word tracks that their claims reps must follow when working with vehicle owners. These word tracks have all been scrubbed by insurers’ legal eagles to a “fare thee well” about how the customer always has the right to choose. Choose between what? What they’re told by the insurer, or accepting the uncertainty of not being informed of all options?
When many insurers find their numbers down on DRP penetration, they send out word that they better get the percentages up or else. That motivates call center management to “crack the whip” to increase referrals. The means by which that happens and how it happens is vague, but suffice it to say it works. So the numbers go up, and you wonder what the claims rep did that they weren’t doing before the “mandate.” Did they simply put more emphasis on getting the insured or claimant to “accept” their kind offer of assistance by offering a siren song of guarantees, lifetime satisfaction with the repair, shorter cycle time, better quality, “Your shop isn’t on our approved list,” etc.?
Course of Action
Hopefully, I’ve given you enough information at this point to make up your own mind on how you view steering.
First, I asked, “Why is steering bad?”, and the lynch party started. But then I hopefully convinced you to put away your guns by defining deceptive referral, establishing that it does exist and will continue to exist, and saying it was bad. Almost everything that has been said so far in this article strengthens the position that steering (deceptive referral) is not a good thing for the industry. So why, then, did I ask, “Is all steering bad?”
Take a hard look at steering, especially the way it’s administered, and see if you feel the whole concept or just parts of it are wrong. Maybe we should be looking for a way to level the playing field that’s a little outside the box.
Let’s look at what we’ve done in the past. For over 40 years, we’ve said that insurers should not be able to tell vehicle owners where they should have their cars repaired. But we should also remember that the repairer was one of the first to ask for the direct repair process.
Insurers refused until just the right moment and then said that it was a viable option. They wanted to eliminate the expense of having adjusters running around in company cars and sporting laptop computers with full benefits and paid holidays, not to mention the endless training and licensing for these employees. If they could get shops to do all the work the appraiser did but not have to pay for all the perks, in return for telling them they might send a few jobs their way, then why not? Insurers greatly reduced their loss adjustment expense, which was the primary reason for the DRP movement.
Now that those claims management personnel have retired, the new kids on the block are looking for even more ways to save dollars with DRPs. They have long since forgotten the huge savings made by allowing shops to write their own estimates. They figured that for the few final estimates that were a little more than the agreed price would have been in the “old days” of appraiser-shop negotiations, they could still go visit the shops and control indemnity that way.
Remember your mother warning you, “Be careful what you ask for because you just might get it”? Repairers asked for DRPs and got them. But their definition of direct repair wasn’t the same as the insurers’, or what the insurers’ definition became. So now we have a program that some like and some dislike, depending on your status.
The only thing we’ve done about steering over the years is complain. Oh wait, that’s not true. We’ve also worked toward passing legislation that makes steering illegal. At last count, there were more than 37 states with these laws. If the vehicle owner is truly given free choice, why do insurers fight so hard against this legislation?
The anti-steering bill A.B. 1200 in California would have helped protect both consumers and repairers, but insurers managed to amend the bill so that they would be able to pressure the vehicle owner into going to a repair facility of their choosing. They convinced legislators that they needed to give vehicle owners certain information so they could make informed decisions. Unfortunately, the amended version of this bill passed.
A member of my state’s (Missouri) House of Representatives asked me why they should have to legislate that a vehicle owner has a right to choose their own repair facility. His feeling was that normal business practices should be allowed to work this out. After some thought, my answer was that he was absolutely correct it was something that common sense should be able to handle, but in actuality, free choice was not what was happening. When I gave him examples of blatant steering, he was in total shock. I explained that the consumer was not only being shorted in the amount on the initial estimate prepared by the insurer, but also wasn’t being given a free choice of repair facilities, even when money wasn’t the prime concern.
So, we have lots of states that now have anti-steering laws, but insurers have found a way around them.
How many of you think that insurers are going to tell vehicle owners about shops not on their programs? Before any of you who are on preferred programs tee off on me, try answering this next question: How many of you think you’ll be the No. 1 referred shop, and that the insurer is going to protect you and do your marketing for you? Do you think you’ll be the one controlling the insurer’s production schedules and needs? If so, again, I’d like to talk about that oceanfront property.
DRPs can help some shops. Sometimes, it’s a good business decision. If that program ceases to be good business, that repairer will hopefully opt out of that program.
Repairers who say DRPs shouldn’t exist at all may have a point, but the fact is they do exist and will continue to exist, so we might as well get used to working with or without them as we choose. The decision must be made based on sound business principles, one of which says that there must be benefits for both parties.
A Tell-All Setup
The outcome of California’s A.B. 1200 got me wondering how best to solve the steering issue.
The one thing I’ve heard from insurers from the very beginning in our legislative houses is, “We want customers to have free choice and know all their options.” We can’t really argue with that statement. As reputable businesses, insurers have the fiduciary responsibility to keep their costs down.
If insurers really want people to make fully informed decisions about vehicle repairs, they should inform them not only about their preferred facilities but also of other qualified shops not on their lists: “We have XYZ Program, and also there are other quality repair facilities in your area that also can repair your vehicle at a competitive cost.” They should have to name the same number of participating shops as non-participating shops. By no means is this a cure-all, but it would at least let vehicle owners know that there are other qualified professional repairers in their market areas. It then becomes the burden of the individual shop to market itself to customers.
Insurers will argue, “We don’t know all the shops.” But why don’t they? They had to look at all the shops in the area in order to decide who to include in their programs. At the very least, they, in the normal course of business, have conducted business with a majority of the shops in the vehicle owner’s market area.
Under a “tell-all” setup, every shop would get equal billing, whether they were on an insurer’s program or not. Yes, it may include some shops that both insurers and repairers would rather not see on the playing field, but that’s better than not being on the field at all. Those bad shops would be found out quickly, and natural selection would lead to their demise.
Licensing of repair shops could be key to this tell-all approach. Unlicensed shops would not be considered, and it would be insurers’ responsibility to report those shops to the Board of Automotive Repair (BAR). This licensing could also include a clause stating that an insurer may only issue payment to a licensed automotive repair shop.
On the topic of licensing, many will say we don’t need more bureaucratic intervention in our business, but I see licensing as less of an intrusion into our business than insurers’ micromanagement of the industry today. Shop quality would increase because of continuing education requirements, apprentice programs and the simple ability to say, “I am licensed.”
The day is coming when licensing will be a requirement. If that does happen, let the industry be the one that writes the rules and manages the control of the BAR, not some entity that has no knowledge of the industry.
So how do we go about changing the status quo? No one has the silver bullet answer. We have to change our mindset that things are either good or bad and keep an open mind. The one thing everyone, even some insurers, agrees on is that deceptive referral is not good. You’re told in the next breath that insurers don’t do anything deceptive. That could be argued for years, but suffice it to say that vehicle owners do not get a full picture of all their options from some insurers. They get: “We have this wonderful program and you have to do nothing.” I was taught that when someone told me I could get something for nothing, there was probably a furry rodent in the woodpile somewhere.
Is the insurer always wrong? No, but they aren’t always right, either. The same goes for the repairer. Unfortunately, for those who try to do the right thing, we also have too many repairers and insurers who do things that make the professionals cringe.
Repairers need to know their business well enough to be able to make fully informed decisions. Even in these tough economic times, sometimes the answer has to be, “No, I can’t,” or, “No, I won’t.” The repairer has one customer: the vehicle owner and/or the vehicle owner’s lienholder. The shop’s responsibility by law is to the vehicle owner and no one else.
Although anti-steering (deceptive referral) might legislatively turn out only to be a “warm fuzzy,” we need to keep putting deceptive referral bills on the agenda. If one passes and doesn’t work, the worst that can happen is the industry gets a feeling of accomplishment. Many don’t want us to get that feeling. The industry has to weigh the cost of getting such a bill passed against what else it can do for the industry in the legislature.
If insurers are going to ask for concessions and list shops on their programs, then it should be on a goal-oriented basis. If insurers want discounts, then they should be able to guarantee a certain amount of purchases from the person they’re obtaining the discount from. Asking for concessions on a pie-in-the sky basis is fine, but it’s poor business on the repairer’s part to give concessions without receiving something in return. For those who say they do receive something in return, they should read their contracts again.
Steering Laws: Effective or Just “Warm Fuzzies”?
My personal attitude toward steering (deceptive referral) is that I’ll use all the skills and knowledge I have to get a deceptive referral bill passed in any state. Even though the insurer may find a way around it or ignore it, it’s still one more tool in our tool kit.
Repairers would find many tools in there now if they would just research their individual state laws and use what they find. Use of any law comes down to one simple word when repairers are asked to do something that violates the law or compromises vehicle owners’ repairs or their own business: “No.”
The vehicle owner and/or lienholder is the only customer you have. Keep in mind that a spokesperson for the Property Casualty Insurers Association of America stated on national television that the repairer is the final authority and expert on procedures and parts in the repair. This means that when push comes to shove, you alone are responsible to that vehicle owner.
Even though I said I would fight to get any anti-steering bill passed in any state, the only thing you wind up with is a “warm fuzzy.” In the states that have anti-steering laws, life goes on without much change. The industry has spent large amounts of money and dedicated much time sending bills to passage that have had minimal effect.
Some shops have elected to take insurers to court and use tools that already exist. This is good, but the problem is that all too often, they wind up fighting the bank. And the insurers’ bank is a lot larger than the collision industry’s. But this doesn’t mean we shouldn’t go this route we just need to have realistic expectations. Maybe we can win some small battles and push the sled of deceptive referral off course. It’s surprising what a small group of people can sometimes accomplish against Goliath.
Bob Smith is the owner of Storm Appraisal & Management Service and has 44 years of combined experience as both an appraiser and a collision industry and legislative consultant. He can be reached at (816) 519-5858 or [email protected]