Due to my executive position and the company I am employed by, I have not been able to share my views publicly or within the confines of my corporation. Don’t feel bad for me. That’s why I write these articles. I can share my thoughts and experience without placing my job in jeopardy. I can only imagine what would happen if I decided to challenge “The Institution” and talk about what is widely considered heresy amongst insurance executives.
Several decades ago, it was common practice for shops to help customers with their “out-of-pocket expense.” Shops would attract and assist their customers by paying a tow bill or a portion of their rental car expense. Some shops went further and decided to cover the customer’s deductible.
How was this possible? It was because there weren’t a lot of laws and regulations strictly prohibiting the behavior of cost-shifting. Insurance companies knew about it, although we didn’t take direct action to address it.
It was easy to cost-shift 40 years ago because OEM sheet metal parts were very expensive. Parts were three times the price they are today. They were also three times the size and weight. OEM parts were expensive because there wasn’t any real competition. (The aftermarket parts industry was still only in its infancy.) If you had to replace a fender, you ordered a genuine OEM part from the dealership. Because parts were expensive, shops could write for a new part and repair the old one. This allowed shops to make a lot of money on labor, save the customer money and still do a safe repair.
Life was much easier for body shops back then. Direct repair programs didn’t exist, which facilitated the body shop industry accepting the widespread adoption of cost-shifting. Now, because of legislation, cost-shifting is considered fraudulent.
What about deductibles? There is legislation in many states that prohibits a shop from “saving” or “reimbursing” the customer’s deductible. Here is where I am going to stray from the herd: I believe shops should be able to advertise and implement deductible saving programs. Shops should be able to decide whether or not they want to offer incentives to their consumers as a means of gaining business. I think we refer to that as competition in the marketplace.
I do not believe I would find a colleague here in the insurance industry to support my ideology. The problem is trust. I suppose this cunning old wily insurance veteran still believes that shops have some integrity. But every piece of legislation ever proposed or enacted was put in place because generally my industry doesn’t trust shops to do the right thing. Nobody will publicly make that statement, but it is fact. Insurers believe that it is impossible for a shop to offer a significantly discounted deductible without cost-shifting.
I agree to some extent because the profit margins in the shops are certainly not what they were in the 70s or 80s. But if a shop decided they wanted to reduce their profit margin to gain a customer, why should it be illegal? Isn’t that the true definition of a direct repair program? I am not sure how providing a discounted deductible is any different. After all, shops agree to provide a parts discount or reduced labor rate in exchange for being on a direct repair program in order to gain business.
I am not advocating for “cost-shifting” or committing fraud. I am not supporting shops writing all OEM parts so they can repair them or replace them with aftermarket parts. I am suggesting that shops should be able to offer whatever discount they want to customers, up to and including reduced deductibles. Considering today’s economy, customers may be more apt to have their vehicle repaired rather than cashing out.
If it was up to me, I would trust you to do the right thing. You should also know that I do not employ enough adjusters to reinspect every vehicle we insure, thus rendering my opinion moot.
But I trust you.