Illinois AG examining insurer/repairer relationships: Knowing Who is Sleeping with Whom is Important
Don’t we all think it’s important to know who actually benefits from side deals before we give any company our business? You bet we do. I don’t think anyone liked hearing that commercial customers were paying substantially too much for insurance because of insurance broker/insurer arrangements that paid enormous commissions for fraudulently placing insurance with certain companies. It makes us all wonder if we are really getting a good deal on our individual insurance, too.
So, it’s about time some regulatory entity looked at the relationship created between insurers and collision repairers by “direct repair programs” that consumers are vigorously encouraged to patronize. The Illinois Attorney General’s Office, Department of Consumer Protection is looking at the agreements insurers get repair facilities to sign to become members of the insurers “network” of “preferred” shops. Insurers push consumers to these network shops for reasons that are good for the insurer, but not necessarily good for the consumer. To get into these networks, repair shops have to agree to give the insurer discounts, look for “betterment” (i.e. the flip side of diminished value), agree to use aftermarket (non-original equipment manufacture), salvage, or rebuilt parts, and/or agree to indemnify the insurer. The scary part of the indemnification provisions in many of these agreements is they require shops to indemnify the auto insurer for anything relating to the claim. That could mean intentional acts, attorney fees, inherent diminished value payments — all things not associated with whether the repair properly fixed the car. Most importantly, the way insurers market these networks is to tell customers how beneficial it will be to the customer — which may or may not be the case.
Certainly, an insurer will tell you that an adjuster will address the claim right away and you can get the repairs underway immediately. OK, that’s probably good for both of you. It saves the insurer money on the rental car expense and helps the customer obtain a prompt repair. Yet, sometimes the insurer uses this languange and deliberately withholds sending an adjuster to a non-network shop to impress upon customers how difficult it will be if they choose to have their vehicles repaired at these non-”preferred” facilitites. Nonetheless, insurers also typically say that you get a guaranteed pick-up date and that they will guarantee the repair. Well, that may sound good, but is it?
A guaranteed pick-up date is good for the insurer because it allows them to minimize rental car expenses and have certainty in the reservation of the claim. However, the insurer often determines how long it thinks the repair should take, not necessarily how long a proper repair must take. Customers assume that when they pick up the vehicle it has been repaired correctly and safely — which simply may not be true. Because the repair shop has to absorb any additional rental car expenses or other fees if they go over the projected ready date, they have every incentive to push the customer’s car out of the door by the pick-up date, ready or not, safely repaired or not. What if a part is on back order and it will take two weeks to obtain the necessary part? Again, the incentive for the shop is to find something, anything, that will substitute for that partt rather than be penalized by the insurer for failing to meet the deadline. Overall, the danger to customers likely outweighs the benefit of an artificial pick-up date.
Then there is the warranty/guarantee the insurer promises. Virtually all body shops guarantee their work. After all, just how long would a repair shop stay in business in a free market economy if they didn’t satisfy customers? (Of course, this has changed completely with insurers selecting repair shops because they don’t necessarily reward for the same things consumers do.) So, this alleged guarantee is nothing new, other than the fact that the insurer now says that it guarantees the repair. Well, the insurer typically sends the customer back to the same body shop if there is a problem — which is what the customer would have done if they had selected the repair facility. So, insurers are piggy-backing on existing repair shop guarantees. The hard part is to get an insurer to truly honor one of these “repair guarantees”, rather than just dumping the problem back in the lap of the customer and the body shop. Of course, the obvious question is, how well do you think the repair shop that butchered your car in the first place will fix it the second time around? Or the third? Or fourth?