Over the years shop operators have learned to write estimates with strict adherence to estimating guides and P-pages. In our attempts to play by the rules, we’ve written for every task we perform in order to get paid properly. But what do we do when insurance companies simply refuse to pay for what we know to be legitimate line items?
Body shops are on the receiving end of a system of third-party payment that has evolved over the last 50 years. While the first crash guides have given way to the familiar palm devices in use today, the idea of attempting to amalgamate the repairs of randomly damaged cars into a system of line items and arbitrary labor times is basically the same.
The frustration you encounter when an insurer capriciously departs from the rules by not paying for a line item of an estimate is understandable. This is particularly so when a shop estimator is making a good-faith effort to play by the rules.
But the simple fact is that the rules are their rules, and no legal authority has ever been established to force a payer to adhere to a labor guide or its underlying P-page structure. More importantly, there’s no legal authority governing body shops that says you must price jobs within the confines of estimating guides. While states usually require automotive service businesses to provide an itemized estimate and final bill, not one says you have to use a crash guide, its times or its provisions.
As you well know, the labor guides and their P-pages always seem to work for the payer. That is, if labor overlap is to be taken out, then it comes out. If an operation is clearly an included task in the removal and replacement of an assembly, then you can be sure there will be no labor allowance next to the line item on the insurance bid. However, if a procedure clearly isn’t included in a job by right of the labor guide, don’t count on the rules to get you paid. What’s good for the goose is … usually only good for the goose, it would seem.
Still, you aren’t at the mercy of insurance companies, despite what you may think.
Value of the Service
For years, body shop operators have complained about the fact that an insurance company will pay a local competitor with a dirt floor and an oak-o-liner the same rates as their shop receives, despite their superior equipment, training and experience. But the insurance company isn’t paying for fancy waiting rooms and an armada of sophisticated equipment. What they are purchasing (by way of their insured) is a service with a clear set of results. How an operator achieves those results is his business, provided he produces a safe and durable repair.
If Dirt Floor Dan can hang a front end on a Corolla, square the tweaked inner structure with the use of a Quadraclamp (and a series of come-alongs) and then spend two days buffing out all the dirt from clearcoat, what difference will that make to his customer? Not much in terms of appreciable aspects once the car rolls down the street.
If Clean Shop Ken, the well-equipped competitor, does the same job in half the time but produces results equal to Dirt Floor Dan, how’s the value of the service enhanced? It’s not. Ken’s efficiency is his own reward, but the value of the result is basically the same.
Still, the difference between the two operators raises some issues, such as the perception of value. Each shop can play off a customer’s perception. Dirt Floor Dan may charm his customers with his hands-on involvement in their jobs. And while Clean Shop Ken may not personally lay a hand on his customers’ cars, his operation may present well to his clientele. It’s a matter of salesmanship. Yet all of this is irrelevant to an insurance company, whose only role in the repair of the damage is to write a check.
Insurance companies seem to have forgotten this and have overstepped their bounds, I’m sorry to say. They’ve assumed the role of pricing collision repair work. We as an industry, however, have stood by and allowed this to happen. Over the last 20 years, insurers have gotten more involved in structuring prices for the repair industry than the industry itself.
To some extent, the body shop business has had its hands tied by fear of prosecution for antitrust law violations. While discussion of prices among competitors isn’t illegal, the act of discussion is taboo within the industry’s trade associations and events. And what this has done is left the substance of body shop income to the payers and their information providers.
Inside the Mind of the Insurance Industry
What spurred our interest in doing this story were comments made by an Allstate source about shops complaining that insurers won’t pay for this or for that. Check this out:
“I might say to a shop, I’ll pay you an additional dollar an hour for all your labor operations, but all of these labor charges include payment for bagging the car, hazardous waste removal, corrosion protection, etc. When you write the estimate, every hour of labor on the estimate earns you an extra dollar, but when you write ‘bag the car,’ you enter that item as ‘included.’ No separate dollar amount for that item.
“There can be a volume written about why this is good for both parties. However, the guy down the street wants the labor rate extra dollar, and he wants to add the line items as well. That costs more. If the line items are going to be added separately, then we should remove the extra dollar of labor rate. The shop wants both so it says we aren’t willing to pay for say, corrosion protection, which isn’t the truth at all.
“Or, the same shop where the owner agreed to include these items has an estimator who doesn’t like that pricing idea or is never told about that agreement. Or a technician who’s doing the work says he never gets paid for those operations when, in fact, he did, as part of the labor rate increase.”
This illogical arrangement is a good example of what’s wrong with allowing the insurance industry to price your jobs. Not only is the Allstate representative way out of bounds in terms of attempting to fix prices for repair work, but this suggestion is indicative of how little respect insurance companies have for the business of running a body shop.
Trading the ability to be paid for items needed in the repair for an incremental bump in labor rate is a proposal designed to lure shop operators who have no idea how to manage their businesses. And how much would the $1 concession yield on the bottom line of the average job? Twenty-five dollars? If that? The task of properly restoring corrosion protection alone would exceed that figure. That proposal should serve as a wake-up call for body shops that have abdicated their responsibility for writing their bids to the insurance industry.
Instead of casting blame on insurance companies (an all-too-frequent retort), let’s take a look at what we’ve done to foster the decline of our own industry.
Part of the problem is an ingrained belief system. There are those who will insist that by right of their substantial investments in their shop, they’re entitled to a return on their investment – a profit, in fact. However, no unregulated business is entitled to anything in terms of income, much less a profit. While a business should be free from interference that would prevent it from competing fairly, there are no guarantees in business, or in life for that matter.
Think of the insurance/body shop struggle like a tug of war. For every gain on one side, there’s an equal loss on the other. If one is to win, the other must lose (the classic adversarial relationship if there ever was one). While there are those who insist that the possibility of a win/win situation exists for repairers and payers – an idea upon which the entire DRP concept is founded – the possibility of there being two clear winners in a financial exchange is a virtual impossibility. This isn’t to say, however, that each party can’t come away feeling that they’ve been treated fairly. Equilibrium is possible, but it’s the duty of each party to attempt to gain as much as possible in each transaction. Insurance adjusters are supposed to beat you up a little. If they weren’t necessary to the process of settling claims, we’d just be sending in estimates and receiving checks.
Don’t misunderstand my references to adversaries to mean that each party can’t be professional in his dealings with one another. Both sides have a job to do, and it’s vital that neither one take any of this personally. In fact, the moment one does, discussions tend to degenerate quickly. You must bear in mind the interests of the mutual customer at all times, i.e. what’s good for the customer is generally good for both parties.
The nature of the relationship between insurer and repairer being understood, the idea of entitlement is non-existent with respect to dollars. Only one party is entitled to anything: the insured.
Who Owes What to Whom?
To get a handle on exactly why insurers won’t pay you, you first must understand that an insurance company has no duty to a body shop. Insurers don’t owe you a dime. A shop must present a compelling argument to support its prices. In so doing, it’s important to stress the idea that an equivalent repair in your local market would likely cost as much.
The notion that an insurance company must pay the cost of repair as defined by a particular body shop (whatever that may be) is ludicrous. Just as ludicrous is the idea that a payer can set the price of repairs. It’s the market at large that controls prices, the grasp of which can be a slippery fish indeed. How do we know what that is? More importantly, how do they know?
Under a contract of indemnity, the insurer must simply pay the cost to repair or replace the insured’s property. It’s that simple. Few insurance contracts stipulate the insurer must define the cost of repairs, although many will state that all repairs and supplements must be pre-approved for payment.
An insurance adjuster must walk a fine line in protecting the policyholder’s interests while maintaining a duty to the company’s shareholders in terms of the prevailing market for collision repair. No adjuster, of course, can definitively say what the cost of repair will be, which is why settlement checks are always accompanied by a qualifying statement that the insured should have his or her shop call the appraiser if there are any “problems.”
What that statement underscores is that insurance adjusters generally have a limited amount of discretion with respect to settling a claim, which is their primary objective. John Eager, a spokesman for the National Association of Independent Insurers, confirms this.
“The field adjuster does have some flexibility,” he says. “My feeling is that they do have the discretion because that converts to customer satisfaction.”
What Eager says is important to consider because insurance companies can ignore your demands for payment. But they can’t foster the belief that they won’t pay the fair cost to have their policyholders cars repaired. And according to Eager, this isn’t generally happening because his association tracks the number of policyholder complaints to the various state regulators and claims litigation.
“We don’t see much activity in small claims court, [and] if you’re not seeing anything there, you can assume they’re satisfied,” he says. “The friction might not be spilling over to the customer.”
Establishing Prevailing Competitive Practices
Establishing the prevailing competitive practices (PCP) has fallen to the property and casualty industry. In the old days, however, things were simpler because there were real competitive bids. Consumers went out and got two or three estimates for repair, and the insurance companies paid off the lowest bid. But this practice was scrapped long ago because it led to manipulation and fraud, with shops acting in concert and sharing each other’s estimate pads. Since then, insurance companies started bidding their own claim settlements in hopes of securing agreed prices from willing shops. This strategy worked well as evidenced by the tens of thousands of adjusters armed with laptops and check printers on the street today.
The advent of the insurance estimate eventually led to adjusters presenting their bids as unilateral non-negotiable settlements. And the more they got away with this, the more it happened.
But the practice of payers writing bids presents a problem in that it often makes the adjuster the arbiter of the local market, which in and of itself presents a clear conflict of interest. How can a payer pin the tail on the price donkey without allowing self-serving pressures from his company to influence the outcome?
So today we have an entire generation of shop operators accustomed to this style of claim settlements. Because of the prevailing belief that the insurer can determine the final price, as well as the methods to fix the car, there’s a self-fulfilling nature to insurance negotiations. That is, if an insurance company tells you that this is all he’ll pay and you accept that (however reluctantly), you confirm and perpetuate that price structure. And, as it happens again and again around the city, it adds fuel to that structure.
Also bear in mind that the insurance offer is based on an individual’s opinion that repairs can be purchased at that price. While an appraiser on the street – whose job brings him into contact with shops and pricing on a daily basis – clearly has the experience and knowledge of the local market to make such a call, the bid he offers in settlement of the claim is suspect. It is, after all, pure conjecture. Obviously none of the local shops that he refers to have intimate knowledge of the car in question.
Just Say No
It’s not so much what the insurance company will or won’t pay that’s important. Their offers are subject to change at the adjuster’s discretion. What controls the price is what your competitors are likely to charge for the same work, assuming it’s of equivalent quality.
What really gives power to the payers is the fact that many shops don’t even bother to write estimates nowadays. They simply get out from behind their desks and let insurance adjusters fly the plane. They might figure, “Why bother? The insurance company won’t pay any attention to it and they’ll write their own.”
Bad way of thinking!
Worse yet, many have forgotten how to say no.
Write your own bids, but be cognizant of the local market. Know what your competitors charge and encourage them to write their own bids for repair. Be careful, however, to avoid any appearance that you’re agreeing with competitors on what each of you will charge for services. That’s called conspiracy to fix prices.
On the other hand, a business is entitled to do research in the same way corporations are allowed to do market analysis. How would you know what to charge for a can of soup if you didn’t buy various soups and taste them before making your own minestrone?
Prices must be based on willing providers offering services to willing buyers. Any hint of coercion by a payer will taint the results of a survey. If, for example, a body shop prices its jobs with the understanding that Allstate has never paid their policyholders’ claims to include back-masking door jambs and purposely omits the line item from its estimates for those insured with the company, that price is coerced. And leaving that item off all your estimates will confirm that charging to back-mask jambs isn’t a customary charge. The point being, the repair providers ultimately determine the market.
What’s missing from the market are players with the willingness to say no. Most adjusters know they’ll come away from a body shop with an agreed price, regardless of what they write. When was the last time you dug in and said no, not here, not ever?
What many shop operators seem to forget is that the field adjusters have a certain amount of discretionary power to settle a claim, despite what they may insist is their company’s policy. They can pay you that $5 for a car cover. It might not appear as such on their bid, but you can get it nonetheless.
The labor rate/labor guide matrix used to settle claims is valid to the extent that it’s accepted by body shops. And that’s all that matters. Allowing yourself to become ensnared in the razor wire of the estimating game is to ignore the principle behind all of this: offer and acceptance. Put aside the line item arguments and the procedural picking. This is more of a bottom-line business than any of us ever thought possible.
Writer Charlie Barone has been working in and around the body shop business for the last 27 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at [email protected].
Why Won’t They Pay Me?
Lessons to Be Learned