Collision Damage Steering

Steering is the directing of damaged vehicles to specific body shops for repair by an insurance company.

Before discussing the "hows" of steering it is necessary to review why steering exists.

MONEY!

Insurance companies choose to direct consumers in an effort to save money.

Body shops enter into a contract with insurance companies to receive additional work and therefore make money.

This arrangement is commonly referred to as a Direct Repair Program (DRP), although each insurance company has its own personal name for them. By design, poor quality repairs are not a desired result of what insurers are looking to receive? No, but they have no profit in receiving quality repairs either.

It is often argued that discounts are not a component of the DRP model. However, parts discounts, use of imitation parts and used parts are normally a part of the contract. With very finite targets of usage defined, monitored and scored. Future participation for a repair shop may hinge on maintaining desired imitation and used parts usage percentages.

Labor rates can be discounted by $2, $4 an hour or more with some companies receiving a discount of $28 or more. Yes in an industry that by and large has not yet cracked the $50 per hour mark for body and refinish labor rates, some shops may still be accepting work for less than $20 an hour for some companies. One major insurance company actually has a clause in its agreement/contract that the shop will repair vehicles for them at the lowest rate that they charge to any insurance company, fleet account or individual.

Paint and material caps can also be included in the contract between insurer and shop. What this means is that the normal method of charging for material is overridden at a set amount. When this cap is met, the shop is then expected to absorb the additional cost of materials in the repair.

Other considerations shops may provide for an insurance company include, but are not limited to, free evaluations and free storage for total loss vehicles. It is often agreed that the insurers’ repairs are given preferential treatment. This last clause has led to insurers holding shops responsible for delivery times. If the repair takes longer than the mandatory time the repair shop would then be liable for the cost of the rental car.

The consumer is told that the insurer “warranties” the repairs. However, closer inspection of both the insurance/body shop contract and the customer warranty finds that the warranty will be the shop’s responsibility.

Consumers need to question how they will benefit from the relationship of the insurance company and body shop. How will substandard parts, discounted labor, paint & material caps and time repair guarantees produce high quality repairs to their vehicles?

Radio Show

Thank you all for listening and a special thanks to those that participated by calling in and emailing.

Jeff a shop owner from Chicago calling in about liability insurance problems.

Peggy from Chicago calling in with her previous steering experience.

Mike calling in about how to protect themselves from insurance buy backs.

Kevin from Chicago, a previous client of mine who was kind enough to share what he had learned working with me in the past. What a marvelous consolation of the entire process. Kevin, if you are reading this I would appreciate your forwarding your email, entering it here in the comment section or both.

Dennis and Mike Orton from Missouri that emailed in. Dennis with a question about the National Motor Vehicle Title Information System that was the subject of an earlier blog. Mike's question was more legal in nature, but a wonderful question.

Participating on the show was much fun for me and while the time didn't allow the moderator to develop those questions as deep as they could have, I will answer them here in the near future.

Mike Harbor, the moderator of the show, has asked me to be back on soon and I will be looking forward to participating again in the future. I will let you know when I am scheduled to appear again.

Crashtalk Radio

I will be a guest of Mike Stroud on CrashTalk Radio, a show for consumers to learn about collision repair.

Saturday, December 13, 2008
11:00 AM – 12:00 Noon
http://www.am1090seattle.com/ “Listen Live” button top left
Phone in #: 1-877-753-1090
e-mail: crashtalkshow@gmail.com


Potential topics for discussion:

Diminished Value
Poor Quality Repairs
Insurance Steering/DRP
Insurance Buy Backs
Rebuilt Titles
Certified Cars
National Motor Vehicle Title Information System
Total Loss Vehicles
Appraisal Clause
Consumer Fraud – purchase of previous repair w/out disclosure


If you have questions about any of the above topics, or anything else collision oriented that may be on your mind, email them anytime or call in.

Hope you will tune in and enjoy the show.

Ten Worst Insurance Companies

It was recently brought to my attention that on July 9, 2008, The American Association for Justice (AAJ), an association of Trial Lawyers, offered its list of “The 10 Worst Insurance Companies.”

Allstate was selected as the worst insurance company in America. This is no surprise that a company that has been the subject of a book written by David J. Berardinelli. The title of his book is “From Good Hands To Boxing Gloves.” Originally released as a handbook for Personal Injury attorneys and now a hardcover book that documents Allstate’s claim handling process is a very interesting read in either version.

The complete ten were in order:

1. Allstate
2. Unum
3. AIG
4. State Farm
5. Conseco
6. WellPoint
7. Farmers
8. United Health
9. Torchmark
10. Liberty Mutual

Many will recognize several of these companies as relating to auto insurance while others represent health, life and disability insurance. We have heard for years what health insurance companies will do to us with regard to our bodies, so why would we ever be surprised by what they do to us with regard to our property?

The AAJ repeats one constant throughout its report. That one constant is industry wide greed. It reports financial wealth beyond what normal people could ever fathom while producing profits over policy holders rights. This industry uses a method of Deny, Delay and Defend.

This method has been exploited in From Good Hands to Boxing Gloves, as well as Vulture Culture: Dirty Deals, Unpaid Claims, and the Coming Collapse of the Insurance Industry a book by Eric D. Gerst. Further evidence has been the portrayal of insurance companies in movies such as Rainmaker and A Civil Action. Both movies were adapted from books, Rainmaker was written by John Grisham and A Civil Action by Jonathon Harr. Even a cartoon movie, The Incredibles, takes a shot at insurance company behavior when the hero works as an insurance adjuster and is reprimanded for paying claims.

What the AJJ doesn’t disclose is a Ten Best Insurance Company list. I am not certain that one exists. How about it readers, any suggestions as to who belongs on a 10 best or comments on the 10 worst list? Share positive or negative claim experiences.

To read the AJJ report: “The 10 Worst Insurance Companies.”

Certified Used Cars

You think “I’m going to buy a Factory Certified Used Car so I don’t need to have it inspected by an independent inspector.” Not so fast. That Certified Used Car may have had a 100+ point inspection or something comparable, but it may not have a complete warranty.

It is fact that prior accident damage history, no matter how severe, will not eliminate it from “Certified” status. However, accident damage history will void the warranty were ever applicable. Meaning if the passenger’s fender was damaged and repaired, the factory paint and rust through warranty is void on the passenger’s fender. The more severe the damage the more of the “Certified” warranty is voided. If the repairs included replacement of the air conditioning condenser with an aftermarket condenser (editor’s note; an aftermarket part is a part made by someone other than the Original Equipment Manufacturer [OEM]) the entire air conditioning system is at risk. Likewise if the radiator is replaced with an aftermarket unit the cooling system in its entirety is at risk. The greater the amount of damage and repair a vehicle has sustained, the greater the risk of lost warranty.

Frame damage is not one of the points listed on the Factory checklists at last check.

Certified Used Cars are marketed as “almost as good as new.” As a result purchasers take that for granted, do not look closely enough at them and pay a premium for them, often higher than top dollar. However, when they have a prior collision damage/repair history that has not been disclosed, consumers are over paying. You should always have a professional inspect your potential purchase to protect your pocketbook and safety.

Additional information is available at MSN Money's article "Are Certified Autos Worth the cost?";

Body Shop Labor Rates

As a consumer, what concern should body shop labor rates be to you? After all, collision repairs are very expensive and often the cost of the repair is paid for by an insurance company less any deductible that might be involved. Because of the importance of the safety involved in collision repair and the post repair value of the vehicle, it is an area that bears looking at.

If you have made a trip to the New Car Dealership recently you would find that the labor rates in the Service Department are $90 and up while a peak inside the Dealer’s Body Shop, if they even still have one, are below $50 an hour. How can a business under the same roof have such vastly different rates? Are the service rates unrealistically high? Are the real estate taxes less in one area than another? Are the costs of heating and electric less? Are the skill levels less? The answers to all of those questions is no. Then why is there such a large disparity in labor rates? The simple answer is insurance companies.

After an accident you may have taken or towed your car to a shop that you have experience with before you contact the insurance company. Then when you contact the company they may “suggest” using one of its repair shops. How strongly they make this suggestion varies from company to company. However, if you are persistent they will send an appraiser (read cost containment officer) to assess the damage. By this time a reputable repair shop will have already prepared a damage estimate for you. The repair shop’s estimate is actually required in the State of Illinois as a consumer protection under the Collision Repair Act.

Although your chosen repair shop has prepared a detailed repair estimate it is extremely rare that the insurance company representative would accept that or write one of its own that mirrors your professional’s opinion. But for today’s exercise we will only consider the labor rate. The insurance appraiser uses the labor rate approved by the insurance company.

When questioned by a claimant, every insurance company will parrot the same excuse, “we pay the prevailing labor rate in the area.” Who establishes this prevailing labor rate? Each individual insurance company does, that’s who. They do this by writing its own estimate and refusing to pay any rate above its chosen “prevailing rate.” If it is a true prevailing rate, then every company would pay the same rate. But they don’t. One company might pay $48, another $46 and others $44 or $42. Some sub standard insurers are still writing $22 to $24 and as recent as 2007 I saw one company write an estimate at $18 an hour. Clearly there is no such thing as a prevailing rate.

You may ask doesn't quality stand for something? Not to an insurance company. While they will say they want quality repairs what they really want are company profits and it doesn't matter who pays. And ultimately it is the vehicle owner who will pay. Controlled labor rates control the quality of repairs and ultimately the safety and value of the vehicle.

National Motor Vehicle Title Information System (NMVTIS)

In 1992 Congress passed legislation for a comprehensive database of used vehicles that were stolen or so badly damaged that they were declared total losses. The Department of Justice (DOJ) has, by court order as a result of being sued by a consumer group, until March 31, 2009 to implement this long overdue system. The DOJ is currently taking comments regarding the implementation of that system with the current cutoff of midnight, Friday November 21, 2008. The following comments were filed by me on behalf of consumers benefit.

As one who inspects collision damaged vehicles for consumers before purchase, after purchase and after collision repairs, I can attest to the importance of thorough title information to the public being monumental in terms of the public’s safety and financial loss.

When a vehicle is declared a total loss by an insurance company, it means that a business decision has been made. Although a total loss does not necessarily equate with damage exceeding the value, it might as well. Most insurance carriers will “total” a vehicle at eighty percent (80%) of its retail value and send it to the auction. If 80% or better of the value is damage, how can a vehicle properly be repaired profitably? And that is a key for a consumer’s safety.

It was recently reported by Channel 10 News in San Diego, California, that 2.5 million cars are totaled by insurance companies every year and more than half are returned to the streets. Over 1.25 million totaled cars returned to the street, that fact is staggering.

Potentially, salvage value to an insurance company drops when a salvage vehicle exists, as it does to the salvage yard and potential salvage buyer/rebuilder. Kelly Blue Book estimates that a “Rebuilt” title alone makes a car lose thirty-three percent (33%) to fifty percent (50%) of its retail value. Quite obviously a vehicle with 80% damage cannot be properly repaired if its retail value will only be 75% in a best case scenario. This alone should indicate that corners will be cut in the repair of the salvage. Unfortunately these cuts are usually in areas that cannot be seen such as improper frame repairs rather than in cosmetic areas as that would be a give away as to the history of the vehicle.

That loss in value is circumvented when a totaled vehicle retains a clean title. What can occur, in some cases, is some insurance companies have sold vehicles with clean rather than salvage titles. This certainly helps the bottom line for those companies that do this. And I must stress that not all insurance companies are guilty of this, but cases of this have surfaced.

Another scenario has the salvage buyer take the car to a state where it can receive a clean title.

In some cases, even when a car has a branded rebuilt title when it is imported into a state, it is given a clean title. Part of that problem might be that even when the vehicle receives a rebuilt title it isn’t that clear on the title itself. When one is looking at a title a branding does not stand out that well on most states’ titles and it has to be looked at very carefully.

Consumers need a place to go where they can get accurate title information by Vehicle Identification Numbers (VIN) to protect their investments and safety.

To read the regulation or to post a comment:
http://www.regulations.gov/search/search_results.jsp?css=0&&Ntk=All&Ntx=mode+matchall&Ne=2+8+11+8053+8054+8098+8074+8066+8084+8055&N=0&Ntt=nmvtis&sid=11DBA3145300


To review the Channel 10 News video:
http://www.10news.com/news/1796008/detail.html#-

Ethics

The 1963 Consent Decree is the product of the U.S. Attorney General's Office under the leadership of Robert F. Kennedy and is still in Full Force and Effect today. The 1963 Consent Decree can be read in its entirety at: http://www.ican2000.com/documents/1963/

My understanding of the 1963 Consent Decree is that nearly every known insurance company operating at the time (see note at end) which combined to account for “ Total direct premiums earned in the United States by all insurance companies in 1960 for automobile property insurance amounted to approximately $3,327,815,566” signed the decree.

Among other things, the insurers are accused of having formed an association in early 1940, the purpose of which was ultimately “intended to depress and control automobile material damage repair cost.”

While all of the intentions and means of the 1963 Consent Decree have interest and merit one sentence from one paragraph has captured my attention. Paragraph 16: “On March 12, 1942 the CCC passed a resolution which provided for the organization of Casualty Insurance Claim Managers’ Councils (hereinafter referred to as “Councils”) in various areas of the United States to act as sub-committees of and under the direction and control of the CCC, then known as the Joint Claims Committee."

Of concern to me is primarily the date of March 12, 1942 barely three months after the bombing of Pearl Harbor on December 7, 1941. How could an American Industry, as suggested by the list of companies that signed the Decree, be concerned with claims administration at our Country’s darkest moment? This was an industry that was concerned with personal profit in a time of crisis. Has anything changed?

The ethics established in the early 1940’s should be a caution to us all in how they deal with us in the contracts we have with them.

To see the list of companies that signed the 1963 Consent Decree go to the following linked page and go to the bottom of the page to acquire a Word or Text document. http://www.consentdecree.com/documents/documents.htm