An insurance claim repair involves four parties: the insurance agent, vehicle owner, insurance company and repair shop. So why is it assumed that the shop will make up the dollar difference in a damage claim?
Asked Robert Yeske, owner, Bob’s Auto Body, Milford, Iowa
Robert, you stated that this question is important to you because you’ve had adjusters tell you on numerous occasions, “Oh, if we paid [the disputed price] on every claim, do you know how much that would add up to in a year’s time?” While I’m not sticking up for insurance companies and have personally been in the business of taking their money for more years than I care to admit, you have to remember one rule: Insurers are all about numbers.
A Numbers Game
They employ people known as actuaries whose sole purpose is to calculate the likelihood of a driver in a given age group, income bracket, social status (married, single, divorced) and living in a specific neighborhood having an accident or submitting a claim for a loss. They also factor in the car you own, its track record for damage, repair costs, injury to its occupants and overall safety. Does it have antilock brakes, stability control or an overabundance of horsepower? Their computations are called actuarial tables, and what they create will calculate the average costs of insuring you and/or your family members. Your premium will then be based on those figures.
Underwriting aside, repair costs must be managed to the fullest extent possible. That is, given state insurance regulations that govern how appraisers must conduct themselves and restrict their communications with policyholders to a degree, the appraisers must do their best to contain costs. It has been said that most insurance careers are built around the task of saying, “No.”
An insurance company’s only duty is to its policyholders and stockholders, not to the provider of services to their insureds, i.e. body shops. So unless you own shares in an insurance company, they have a right – no, an obligation – to behave exactly as you’ve described when they’re writing estimates in your shop. Of course, that behavior will vary from company to company, adjuster to adjuster. In fact, I recently had several experiences with the same insurer ranging from outright denial of a claim to a genuine cooperative spirit from two other adjusters at the same claims office. Go figure.
My point is that a body shop manager shouldn’t focus on what an insurance company allows; rather, he or she should focus on what the shop charges for goods and services involved in repairing customers’ cars. Wrapping one’s arms around that concept can be difficult for those who’ve been in this business for many years because it would seem then that it’s all about the bottom line on an insurance estimate. And some adjusters are more arrogant about this than others.
Back to 1996
In order to illustrate this, let’s get in the Way Back Machine and set it for 1996, which was a time when line items that are standard today, such as car cover, hazardous waste removal, set-up and measure, etc., were routinely disputed. Why aren’t these items big issues today? Because it’s all a game – the insurers’ game. The trick is not to play by their rules.
How do you not play by their rules? The first rule in this business is to always write an estimate prior to the insurance company’s initial inspection. In fact, get an authorization from your customer to repair their car and to do an initial teardown. Also, take photos of the car in its damaged state prior to teardown. This gets the “meter rolling” and puts the adjuster face-to-face with the prospect of having to pay for your teardown, estimate preparation (a task which is never free, just like the rest of your time) and parts ordering. This way, you’ll have a substantial bill that has to be paid if the car leaves your shop, which will add to the cost of another shop doing the work.
Ordering parts as soon as you prepare an estimate is simply good business and part of being efficient. After all, the customer is typically in a rental car at that point, and delays will add to that cost significantly. If the car is pulled from the shop due to the inability to secure an agreed price to repair it, the insurer will also owe for the parts or, at the very least, the costs involved in restocking them. Load them in the car when it’s picked up by the roll-back truck.
With the parts profit, storage fees and administrative charges, the profit you stand to make is likely better than it would have been had you repaired the car. While this may appear to be excessive and not insurer-friendly, keep in mind that an insurance company is as adversarial to a body shop as a highwayman was to a stagecoach. That is, one party is supposed to take money from the other. It’s genetic.
Any adjuster has to answer to a supervisor. If they have to pay 160 percent of a repair cost to get a car repaired and it starts to happen on a regular basis, something will have to give. As I said, insurance companies are all about numbers, and when they’re confronted with a situation that will always cost them substantially more, they’ll do what it takes to clear it up.
Up for Bid
Insurance estimates are also known as offers. While virtually no insurance appraiser would use that term, as it would imply the truth of the matter, they’re truly making bids subject to acceptance by a body shop. Think in those terms.
Naturally, when I’ve got an insurance-related question, there’s no greater authority on paying losses than State Farm. Their spokesperson to the collision repair industry is George Avery, whose response to your question on where their logic comes from was:
“State Farm pays what we owe based on the insurance contract. State Farm does not repair vehicles, but our obligation under the contract is to pay a competitive price in the market area for quality repairs. Procedures are in place for both customers and repair facilities to contact us in the event of a concern with the repair estimate or any portion of the repair process. In cases where there is a disagreement with the final repair amount offered by State Farm, the repairer has the choice to repair the vehicle for the amount offered by State Farm, charge the customer the difference or not perform the repair.”
In other words, it’s my way or the highway. However, that’s not really the case. In May 2002, I wrote a story for BodyShop Business titled, “Why Won’t They Pay Me?”, which addressed the very same issue you raise. I said it then and it bears repeating now: You’re not selling parts, paint and the labor to put them on a car. You’re providing a service – one that has value.
Where Does It End?
While you lament an adjuster’s unwillingness to compensate you for the items mentioned, where does it begin and where does it end? Why not, for example, charge for the solid waste accumulated from each particular job? After all, during the 20 years before hazardous waste removal became a standard line item on estimates, we had to bear the cost of having our paint waste and other hazardous materials disposed of properly. Now, even the skimpiest of sheets from the most miserly insurers include a hazardous waste disposal allowance of a couple of bucks. By the way, a lot of shops also get paid for the solid waste disposal of the trash that one can identify as being from a specific job (respirators, dust masks, masking materials, tape, etc.)
Some old-timers even tell me that, back in the day, paint and material allowances were not a given either. However, the determination of a number of body shops led to getting more fairly compensated today. While that may not seem very notable given that you’re still fighting for nickels and dimes, the point is that this business is constantly evolving.
This problem of not being properly compensated has its basis in the DRP system, which gives the adjusters the notion that they can simply pull a car from a shop and direct it to a willing DRP shop that will accept anything they write. Remember, however, that the car belongs to your customer, and that person gave you the authority to repair it. And if the car ends up getting pulled from your shop, it will cost them in a major way.
Picking over the bones that insurance adjusters throw to you is contrary to doing business the way it should be done. Take a look at the markets without DRPs (such as heavy truck repairs) and you’ll see that those shops aren’t arguing as much over line items with insurance companies. As I said years ago, this is more of a bottom line business than many of us ever imagined.
Charlie Barone has over 36 years of experience in collision repair. He’s an ASE Master Certified technician and a licensed damage appraiser, and has been writing since 1993. He can be reached at [email protected].
