Monday, 05 March 2007 15:32

Under-writing estimates leads to consumer fraud

    When the Collision Industry Conference (CIC) participants voted in opposition of holding a press conference about the CIC Anti-Fraud Committee’s findings on insurers lowballing initial estimates, a flurry of emails kept the issue alive.
   Many concerned with the committee’s findings - which revealed that insurers initial estimates account for about one half of what the final invoice is - planned two summits, one in Phoenix and one in Chicago in January. The summits were not a CIC function. Ohio attorney Erica Eversman was the common denominator as she served on panels at both the summits.
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 Erica Eversman and Gary Wano at the Phoenix panel, where Eversman said that any deliberate under-writing of estimates is a “breach of the insurance contract.”

 The Phoenix panel from left: Daryl Amberson, Roger Wright, Erica Eversman, Gary Wano, Nick Kostakis, George Avery, and Bill Graden.

 Illinois shop owner Wade Ebert joined Erica Eversman at the summit in Chicago, where both emphasized that an estimate is not a piece of real estate.

At the Phoenix summit Eversman said that any deliberate under-writing of estimates is “a breach of the insurance contract.” She added, “If insurers are in fact doing that, I believe that they are routinely breaching the insurance contract, and they are also potentially engaging in consumer fraud.”
    Eversman said state regulators typically are more interested in a “business practice” of under-writing more so than single incidents. She said that insurers hiring inexperienced appraisers and training them to write only the damage that they see is “a red flag for deliberately under-writing initial estimates.”
    In Phoenix, panelist George Avery of State Farm said insurers don’t want to take the risk of training new appraisers to underwrite estimates.
    “I don’t see any value the company would get... because of the risk of getting caught,” he said.
    In the interest of saving time, Avery said he likes to get everything on the estimate. “The next time we have to come out to the shop, those extra steps are extra time and extra manpower,” he said.
    Backing up Avery, panelist Bill Graden, also from State Farm, agreed that under-writing estimates is consumer fraud and can also lead to punitive damages against an insurer if a consumer fights it—another disincentive to writing lowball estimates.
{mospagebreak}    Darrell Amberson, a Minnesota shop owner and chairman of NACE ’07, said not all insurers perceive regulations and probability of risk the same way.
    “I have seen evidence in my own career that leads me to believe that some insurers in some situations do intentionally under-write estimates,” said Amberson.
    Gary Wano, an Oklahoma shop owner, agreed with Amberson as both served on the panel in Phoenix.
    “We do see original estimates that omit procedures that seem to be obvious from the beginning,” Wano said.
    Wano read from a document in which a manager (from an insurance company Wano didn’t reveal) instructed estimators to keep all labor rates, including mechanical, electrical, and frame, at the sheet metal rate. The manager also instructed estimators not to write to R&I any parts “if the preference for a shop is unknown” and to include a parts discount on every estimate.
    The 100 people in the room in Phoenix agreed that repair standards would make it easier to determine if estimates are being intentionally under-written.
    “It would be great to have standards, but this document isn’t about standards,” said Wano. “It is we know it is there, but we won’t pay for it.
    Eversman was joined by Wade Ebert, an Illinois shop owner, at the summit in Chicago in which about 40 people attended. It was part of the annual conference of the Alliance of Automotive Service Providers of Illinois.
    Eversman and Ebert emphasized that an estimate is not a piece of real estate. If a collision repairer is negotiating with an appraiser, without the car owner’s knowledge, the repairer and the appraiser may be engaging in the unlicensed practice of law.
    “The insurer is obligated to pay the true value of the loss,” said Eversman. “Negotiating stuff should never be happening.”
    “Does the insurance company only owe what it can negotiate?” asked Eversman. “Engaging in this behavior may be the unauthorized practice of law.”