Sunday, 30 June 2002 10:00

Ultimate DRP - Insurer ownership of shops

Written by Dick Strom

From my perspective, ASA's official response to the Allstate Insurance buyout of Sterling Consolidators is a weak effort at appeasement of concerned/infuriated collision repair members of that Association. This response, obviously aimed at alienating as few as possible of their collision and insurer constituents and associates, reads: "ASA ardently supports consumers' unequivocal right to choose their collision repair facilities. ASA has grave concerns with controlling ownership of collision repair facilities by insurance companies. We are uncertain that the economic interests or the safety requirements of the American driving public can best be served by this type of vertical relationship. 

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Independent business repair men and women of the collision repair industry have proven to be the best advocates for the consumer's safety and protecting their personal financial interests. Just as our country was founded with separation of branches of government to assure a system of checks and balances, this industry needs to continue a similar system of checks and balances that can only be achieved through an independent provider of services." To the casual observer, it sounds pretty good, but...

ASA's response makes no statement at all. "ASA ardently supports consumers' unequivocal right to choose". Why not 'cut to the chase' with "ASA knows A/S's main goal in shop ownership is steering of work to their own shops?" And "ASA has grave concerns with controlling (insurer) ownership of shops" is, or should be, the repair industry understatement of the year. "Controlling interest" I take to mean above a 50% financial interest in the repair facilities or consolidation, a gargantuan loophole in a supposed strong statement, considering it is supposedly directed at an industry with the resources and clout of insurers.

Any insurer ownership interest whatsoever, whether controlling or minority, in collision repair is too much. And ASA should have somewhat more than "grave concerns" over this largely unchallenged trend; anyone want to bet on ASA's future following a large insurer buyout of repair shops? I doubt insurer-owned shops will be seeking ASA's "guidance."

It continues, "(ASA is) uncertain (that the true interests of the public will be preserved with insurer ownership of shops)." Uncertain?... Uncertain?? ASA's tail is between their legs on this one! How can the interests of the public possibly be preserved when one industry controls two sides of the repairer-insurer-consumer triangle? When they control both the repairer and insurer sides, they also control the remaining side… the consumer. How unfortunate they didn't state the truth - insurer ownership of shops is destroying the rights of the consumer to a quality repair. But then would we really expect that of them?

ASA did admit that this is "a vertical relationship" [basically, "a merger between businesses occupying different levels of operation for the same product" (Blacks Law Dictionary, 7th ed.)], but immediately dropped the ball again with its 'pretty please' ending… "Our (collision) industry needs to continue a system of checks and balances". I think I need to get sick!

ASA's statement made no mention whatsoever of what we all know is the true intention of insurer ownership of shops... steering of as much work as possible to insurer owned shops. That must have been too controversial for them, so I have a suggestion: Every collision shop owner (that's you) needs to inform his/her industry leaders, including ASA, that these associations either will take a pro-shop stand on this issue, and others, to the Supreme Court if necessary, or risk massive defection. Period! A straight and sharply worded condemnation and statement of intent along the lines of "Back off completely now, or we'll see you in court" would have better served the collision industry. At least it would have brought this boil on our back to a head where it could be decided one way or other in a court of law.

Which is what the California Autobody Association (CAA) did in proposing SB1648, introduced by Senator Jackie Speier. This bill would make it unlawful for an insurer to acquire any ownership interest in an auto body repair shop in the state of California, while allowing an insurer that has a current interest in a shop there to divest itself within three years (since changed to eight years - editor) of the effective date. "The bill would additionally make it unlawful for an insurer to offer an incentive or provide compensation to any person for the purpose of rewarding that person for referring an insured to an auto body shop that the insurer maintains an ownership interest in. (3/2002 Bodylines, Santa Clara Chapter).

According to CAA Director, David McClune, "The CAA recently surveyed its member shops and it was overwhelming that they felt this was a conflict of interest for insurance companies to own auto body repair shops... Everyone we discuss this issue with - consumers, manufacturers, suppliers - say the same thing: 'Shouldn't that be illegal?' It's similar to having insurance companies owning the doctors in the medical profession."

California shops may face an uphill battle getting this passed into law and maintaining it should it pass. But at least it has some teeth to it and I commend those who've introduced and promote it. The repair industry has its eyes on the outcome. Views concerning support of Senate Bill 1648 are encouraged, and should be addressed to senator.speier@sen.ca.gov or write to Senator Jackie Speier, Chair, Senate Insurance Committee, State Capitol, Room 2032, Sacramento, CA 95814.


As reported in Auto Body News (www.autobodynews.com) Speiers' chief of staff in Sacramento, Richard Steffen, said that the Senator is "pretty firm on this (SB 1648), she doesn't like the conflict of interest [that insurer ownership of shops includes]." Speier also authored the California law that prohibits a physician from referring patients to medical labs in which the doctor has a financial interest. "We see another dilemma here, as well. If an insurer does DRP business with an independently owned shop, and the shop messes up a lot, the insurer drops the relationship. If the insurer owns the shop and the work quality is poor, what do they do?" Steffen asked. Speier has also talked with consolidator Caliber Collision and Automobile Club, according to Steffen, but "they don't see the conflict, and say they are able to deal with it internally if there are any quality issues at Caliber. They told us that right now they don't refer their customers to certain Caliber locations."

Interestingly, as reported by in the May issue of California-based Autobody News, Caliber Collision Center's Costa Mesa (Calif.) location was recently closed for a week and fined $8000 by the California Bureau of Auto Repair (BAR) for allegedly "invoicing for parts not actually provided, the use of unclear abbreviations on an invoice to describe service work, failure to state clearly if a part was new, used, rebuilt or reconditioned, failure to identify all crash parts used in the repair as OEM, or non-OEM aftermarket parts, failure to obtain a vehicle owner's permission before repairing the vehicle, and failure to properly annotate a repair order when a change to the original estimate was authorized verbally by a customer."

Caliber Collision Centers, the nation's largest consolidator with 62 shops in California and Texas, has come under increased scrutiny since it accepted a financial investment from the Inter-Insurance Exchange which operates insurer Auto Club in California and Texas." Maybe Caliber isn't as good at dealing with their quality issues internally as they thought.

Brian Sullivan, editor and publisher of Auto Insurance Report and Property Insurance Report, recorded in Hammer and Dolly (1/02) stated in part, "The insurance industry is not (the collision industry's) friend. The insurance industry is not (the collision industry's) partner… but you have to deal with them… Somehow, some way, insurers are going to tie shops more closely to them… you are, at some point, in some way, going to have to get in bed with the insurance companies, because they have the money, and they will control the customer relationship."

Time will tell, and our time is running out. But, in the spirit of getting into bed with insurers, it was reported by Michael Liedtke of the Associated Press that Farmers Insurance Companies was tapping their business partners (automotive repair shops in particular) for contributions to the campaign of Democratic Assemblyman Tom Calderon (who eventually lost badly in his primary bid for Insurance Commissioner of California).

According to Tony Bairos, Santa Clara Chapter President of CAA in the March 2002 Body Lines, "One of our own (shop) association members was quoted as saying, 'It's kind of like you are not given an option; you are just expected to (contribute)'. Other auto repair shops say they felt pressured to contribute or risk losing business referrals from Farmers Insurance" (a letter from Farmers denied this) but "in Al Capone's time it was called protection, or just a wise business decision.)"

Bairos continued, "The last insurance industry-backed Commissioner was Republican Chuck Quackenbush who resigned in July of 2002, having taken $9 million in campaign money from insurers during his six years in office, which he left before the legislature could impeach him for allegedly waving up to $3 billion in insurer fines in return for political favors. Not a bad return on one's investment! Maybe all us (shop) 'partners' out there could hit up those Farmers Agents (for support of) the California Autobody Repair Political Action Committee (CARPAC) so they can 'partner' up some bucks for us! That's what 'partners' do, right? I'd pay to tag along and see the expressions on their faces when asked! Please remember that when we vote for our next Insurance Commissioner we might want to vote for someone who does not have the support of the insurance industry" (not a bad plan of action for the rest of us too!)

Never one to let the meat settle in their caldron, Chad Bray (Dow Jones Newswires, 4/1/02) in his article Allstate Cutting Loss Costs Through Innovation, Alliances, reported, "Allstate is mapping out a plan possibly to expand the Sterling (Consolidators) brand into other markets. Allstate also is toying with the idea of forming a relationship with one of the nation's larger electronics retailers or a manufacturer to offer discounts on replacement items [Allstate Corp. already has a relationship with Home Depot for items such as home carpeting, the article reported.] Though Allstate's vice president for claims, George Ruebenson, stresses their line that "policyholders still have the option to (choose)… the insurer hopes it can offer time-saving options that also reduce its loss costs by steering [Bray's wording; my italics] policyholders to trusted partners. The purchase of Sterling gives it an in-house option where Allstate can control costs [again, Bray's wording; my italics]… Ultimately, Sterling won't account for more than half of the insurer's business in any state where it operates, Ruebenson said. Allstate also plans to rely heavily on fewer PRO shops (in the past 18 months, Allstate has closed or severed ties with about 1,000 PRO shops), creating a stronger relationship and the opportunity for deeper discounts."

On the bright side, individuals and some collision associations are making progress. Staff writer Linda Miller for The Cherokee Scout (Murphy NC), reported collision shop owners "Tommy Green and Ed Stecher began a crusade almost two years ago that ended in the enactment of House Bill 13, which went into effect April 1, 2002." Green and Stecher went against large insurers on the latter's practice of "steering their collision customers to their preferred repair shops. HB 13 states that no insurer or insurer representative shall recommend or in any way encourage that a claimant use a particular motor vehicle repair service or source for the purpose of obtaining an estimate of the cost of repairs or repair services."

According to Mike Causey of the Independent Auto Body Assn. (IABA - a state-wide group in excess of 200 shop owners), "Many consumers feel that their rights have been taken over by insurance companies and their network of preferred body and auto glass shops." In the bill's unanimous passage by both Democrats and Republicans in both the House and Senate, collision shop owners were able to help assure consumers' right to choose the repair facility they want." In March, thirty-five North Carolina collision shop owners met with Senator Bob Carpenter and a representative from Congressman Charles Taylor's office to discuss HB 13 and other issues. And Causey went to Washington DC "to talk to key officials about the 1963 Consent Decree, a much debated law that already prohibits insurance companies from steering their customers. Enforcement of the new law and monitoring insurer compliance is the next step for consumers and shop owners. Any time an agent violates the statute, it will be monitored. The statute provides for a fine of up to $2000," Causey added.

Dick Strom, Modern Collision Rebuild, moderncol@aol.com


Editor's note: In fairness, we note that after Mr. Strom submitted this article, ASA did issue a statement in support of the California Autobody Association's legislative initiative to outlaw any financial interest by auto insurers in collision repair companies. That bill has now passed the California State Senate.