Tuesday, 13 April 2010 09:51

Why Give Concessions to Insurers?

Written by Mike Causey


According to a recent New York Times report on the national health insurance debate titled Many small businesses can no longer afford to cover their workers, employer-sponsored group health insurance plans are foundering because of “soaring premiums.”

During the congressional hearings regarding national health insurance, insurers agreed to make some concessions. But only for individual private health insurance policies or the insurance plans of major corporations. The insurers “balked” at giving similar concessions to small business owners.

The insurers offered key concessions to make it easier for individuals to buy health insurance. Furthermore, the insurers, during the congressional hearings, said they will “sell policies even to people with pre-existing medical conditions, and to stop basing prices on how healthy or sick someone is.”

However, those same insurance companies “appear unwilling to give small employers the same break,” according to the NY Times.

Businesses with fewer than 100 workers employ 40 percent of the labor force in the United States. Small business is the backbone of the US Economy. Yet, insurers won’t even consider “concessions” when it comes to helping the business owners with the high cost of group health insurance.

Yet, insurers are quick to ask small business owners (body shop owners) to give them all sorts of concessions on parts, labor rates and any number of things.

Why Give Concessions to Insurers? Simple. It’s all about the money. If the shop is a Direct Repair Shop (DRP) it is a requirement of the contract. The insurer promises to “send” more business to the DRP shop when certain discounts are given to the insurer.

For non-DRP shops, the insurer simply “refuses to pay” above the amount the DRP shops are getting paid from the insurer.

Insurers are experts at “negotiating” DRP contracts and agreements that guarantee advantages and profitability for insurance companies.  After all, the insurers write the terms and conditions, and the body shops can “take it or leave it” as far as the insurers are concerned.

Insurers no doubt control the repair process today, but body shops can “stand their ground” and push back if they would just do so.

When the insurer wants to get rid of their “labor-intensive clerical work” and shift it to the body shop, they get away with it simply because the body shop owner “agrees” to do this in exchange for business being “steered” to their shop by the insurer. And in most cases the shop does get the business. But at what cost?

Many insurers only consider body shops for DRP deals that agree to buy a specific computer system and software favored by the insurer. After that is set up, the body shop has the responsibility to post schedules and routine clerical updates to the computer during the repair process, so the insurer can “monitor” a repair without visiting the shop.

When the claims adjuster does visit the DRP shop, they will be given that a “private office” and all sorts of office equipment, courtesy of the DRP shop.

Today the stakes are higher than ever. Many body shops are going out of business due to the Great Recession and heavy insurer steering to preferred shops.

The demands for concessions have escalated to levels never dreamed. Now,  State Farm demands EVERY concession a shop gives to other insurers. Which insurer will top State farm in their concession demands?
If the repair job in your shop is “delayed” for any reason, expect to pay the claimant’s rental car bill when the repair is finished.

One more thing:  body shops on some DRP programs are required to carry high limits of liability insurance, and sign an agreement to “hold-harmless and pay all legal costs incurred” on behalf of the insurer in the event of a dispute. What a contract!
Because of the tough business climate and the desire to get more cars to repair, some body shops give concessions they normally wouldn’t accept. Concessions such as discounts on labor rates and parts. The insurance industry has an iron-fisted grip on the collision repair industry, and it shows no signs of easing up.
A 2007 JD Power & Associates study, The Impact of ‘Customer Choice’ on Insurance Claims Experience, found the Progressive direct-repair program was “faster” in repairing vehicles than the industry average but had the second highest failure rate in the industry.
According to some, repair quality can suffer under a direct-repair program. Why? Because insurers refuse to pay for certain costs, the body shops won’t fight back and the body shop “eats” those costs.
The “costs” that the body shops “eat” are often little things that really add up over time. For example, $6 or $8 for flux additive for bumpers; If the shop does just 40 bumpers a month, that works out to about $3,000 a year on just one simple item.
“Multiply the ‘simple items’ not paid for by insurers and it’s a significant amount of money that a body shop is losing every year,” says Neal Nuce of Precision Collision, Inc. of Raleigh, NC. Nuce says “Many body shops are being forced to cut corners in repairs” because the insurer refuses to pay for what is necessary to properly repair the damaged vehicle.
“Giving concessions to insurer further empowers the insurers and harms the negotiating position of body shops,” says Nuce.
If body shop owners continue on this path of giving in to insurer demands for concessions, where will we be in the future? What will be the ultimate concession that the insurer demands—to perform the
work and pay the insurer for the privilege. What ultimate good can come from granting concessions to insurers? By saying “No” to insurers shop owners make it possible to compete on a level playing field.
Some insurers cross the line of ethical and fair business practices to the side of unfair and unethical behavior because of the willingness of some body shop owners to “get along” and agree to concessions.
Of course it’s not enough just to say “no” to the insurer. After all, the insurer is the party holding the checkbook and the pen that writes the check. The shop owner must know what a proper repair calls for and know the P-Pages for the major estimating systems.
As a State Farm adjuster once said, “Most shop owners don’t know how to get paid for all their work, parts and supplies because they don’t know how to document the requirements to show the insurer what is necessary to restore the vehicle to its pre-accident condition.”
It is a safe bet that the insurer knows perfectly well what is required to restore the vehicle to its pre-accident condition. But the insurers’ goal is to pay out as little as possible. That’s why they want cheap parts and quick turn-around time.
It’s a matter of survival for many body shop owners today. Ask yourself, “If not me, who? If not now, when?”