Monday, February 24, 2014

With Car Insurance Companies Profit Comes First; You’re Second

Like a good neighbor, State Farm is there. You’re in good hands with Allstate. Saving people money for over 75 years (GEICO). Think easier; think Progressive. Nationwide is on your side.  You’ve heard all of these slogans thousands of times and seen the warm and fuzzy ads on TV too many times. I can tell you from personal experience owning and operating body shops for 46 years, insurance companies are not like good neighbors.

Insurance companies are the most profitable companies on Earth, but you can’t always tell that by their tax returns or financial statements. Insurance companies are sheltered from paying taxes like other corporations must do because they can, and are required, to “reserve” large amounts of cash contingent to paying claims. Then they take those huge hoards of cash and wisely invest them in stocks, bonds, real estate, etc. so that they can grow those cash reserves. When you pay a monthly premium to your car insurance company, they don’t pay any income tax on that. They invest it and grow that premium, compounding it over the years. Only after years of accumulating your premiums and growing that cash through investments do insurance companies begin to pay income taxes. This continuous, compounding tax deferral is how Warren Buffet made the bulk of his vast fortune.

How did insurance companies come to win this great tax advantage over all other corporations? They can afford to pay the best and most powerful lobbyist, in Washington D.C. and all fifty states. When a big insurance company says “jump” our elected officials say “how high”. For a politician to vote against a bill that Big Insurance wants is political suicide.

I have nothing against profit and I applaud those companies that make large profits. Under our capitalist system and the free market place, those companies that can provide the best products and services and satisfy the customers the best should prosper. I have a problem with companies that make their large profits by distorting the tax code to favor their companies over others and that earn greater profits by exploiting their customers and associates.

Collision insurance companies pay body shops less than $50 per hour to repair your car after it has been damaged in a collision. Car manufacturers pay mechanical service departments over $100 to fix your car when it has a mechanical problem, more than twice what insurance pays for body repair. Mechanical and body repair technicians are typically paid a commission based on the amount of labor they perform. This commission is a percentage of what the insurance company or manufacturer pays the service department or body shop. It follows that body repair technicians earn far less than their mechanical technical counterparts.

Now, here’s the rub! Body repair technicians are at least as well trained and skilled as mechanical repair techs. In fact, there is a greater shortage of good body repair techs than mechanical. One would think that the laws of supply and demand would command a higher wage for body repair techs, or at least the same as mechanical techs. But they make much less. This is where you come into the picture. Let’s say your car has been in a bad accident incurring thousands of dollars in damages. You want it repaired right, not just so it looks as good as it did before, but, more importantly, so it’s as safe as it was before. You want to be sure that the technician who repairs your car knows and cares what he’s doing! You’ve heard the expression, “You get what you pay for.” This means that if you hire a plumber to fix your clogged sink because he agreed to charge you half the hourly rate of what all the other plumbers were charging, it’s likely that the problem wasn’t corrected the it should have been.

The reason that body repair technicians are paid so little is because the insurance companies mandate it. About 95% of all auto repair work is paid for by insurance. Insurance companies largely control which body shops repair the vehicle of the insured. Each insurance company has a list of “preferred body shops”. If body shops are not on the preferred lists of any insurance companies, it’s very likely that they won’t be able to remain in business. One of the requirements to be on that list is to charge the insurance company what they say you can charge. The insurance companies claim to arrive at these hourly rates by market studies, but the studies are bogus and rigged to come up with an hourly rate far below what it should be.
The body shops and the insurance companies know that it’s impossible to repair cars safely and properly at the hourly rate they pay so they “do what they have to do” to get around that rate. The insurance companies force the body shops to use cheap after-market or used parts when new original manufacturer’s parts should be used. Insurance companies also “look the other way” when body shops repair or straighten a metal part that should have been replaced, but cost more. Most of the damage that’s done to a car in a collision is below the surface and invisible after the repair is completed. This means that all visible evidence of substandard and unsafe repairs is hidden. The customer comes in to pick up her car and it “looks great”. She may never how many short cuts were taken so that the car could be repaired for what the insurance company was willing to pay.

My advice to you if you have a car in need of body repair is be sure that you choose the body shop, not your insurance company. Check out this body shop carefully, just like you’d check out a doctor or dentist for yourself or a family member. Ask for referrals, check with the BBB, and the County Office of Consumer Affairs. Google the company and check out their online ratings. Your insurance companies will try hard to persuade you to use their “preferred shop”. They will tell you that they won’t guarantee the repair unless you take it here. If you pick a good body shop, that shop will give you as good, or better, guarantee on their work than the insurance company. Be sure that the body shop you choose is on your side and not the insurance company’s. Explain that you want new parts, not used, rebuilt, or after-market. If the insurance company objects, stand shoulder to shoulder with your body shop and demand that the repair be done properly and safely. If the insurance company still gives you a hard time, tell them that you will take them to court and they will usually back down. Some body shops will do this for you, but you have to assign your rights to litigate on your behalf to that body shop.

If this sounds like too much trouble, it’s not as bad as it sounds. Insurance companies know that they are doing the wrong thing and they don’t like to go to court or attract attention. You will be surprised how often people like you who have the courage to stand up to Big Insurance will find them backing down.

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