This is just a quick summary of how the Auto Body sector operates in the province of Alberta.
Years ago, in order to curb insurance costs and streamline operations, insurance companies got together and required that repairers use of one-two estimating systems designed by the former. Most Auto Body repairers operate with both estimating systems in order to satisfy as many insurance companies as possible. The cost of running systems is borne by the repairer. It runs not usually less than $13,000 per year.
When a shop prepares an estimate for vehicle repairs using the system preferred by the given insurance company, the estimate is prepared at the repairer’s expense. The estimate must include, as per the insurer, digital photos of a prescribed nature – all angles of the vehicle, detailed photos of the damage, photos of the interior, mileage, VIN, etc. Depending on the damage of the vehicle, an estimate may take up to one hour to complete.
When an estimate is prepared by an independent appraiser, the same is paid by the insurance company. Most (+90%) of independent appraisers or those responsible for approving estimates have never repaired a vehicle and are not Journeyman Auto Body Technicians. This is by design. We have seen letters to independent appraisers from insurance companies, instructing them to eliminate a certain dollar amount/and/or a certain number of labour hours from every estimate in order to save the insurance company bottom line. The independent appraisers do so in order to keep their job. Those letters cannot be included in this information for the same reason. Similarly, when a repairer submits an estimate to the insurance company for “approval”, the estimate will be reduced 100% of the time and then “approved”.
While the insurance company indiscriminately reduces an estimate in materials, labour, or cost of parts, it is the repairer who is responsible for Transport Canada to ensure proper repair and safety of the finished product.
Once the estimating systems were adopted by the insurance companies and repairers were forced to adopt and pay for them, the insurance companies began restricting labour rates, markups and material costs.
Although Auto Body repairers carry some of the highest operating costs and Journeyman Auto Body Technicians are some of the most highly skilled and educated of all tradespeople, they remain among the lowest paid due directly to these restrictions.
Repair facilities must operate within these limitations because the insurance company will NOT pay anything other than their designated labour and other rates. The repair facility must then absorb all incoming rising costs, such as carbon tax, minimum wage increases, changes in payroll liabilities, property tax increases (100% in the last 12 years), insurance cost increases in line with cost increases. Modest operating margins are becoming non-existent.
Some insurance companies put ceilings on material costs. One insurance company has a $350 cap on materials. If the vehicle requires extensive paint or other materials, the insurance company pays 350$ even if the materials cost the repair facility $1,200. The repairer cannot make up the difference by charging the insured or vehicle owner for the balance because the insurance company will then tell their customers that they have a problem with that repair facility and they would be best to go to their preferred shop. In addition, removal of certain items once provided as standard has become vogue for cost-saving measures for insurance companies and further cost-increasing measures to repairers. Items such as cleaning a vehicle after repairs are being removed by many insurance companies. Even though some insurance companies provided a mere $20 to clean a vehicle, which in no way will cover the cost of labour, liabilities and overhead costs of the clean, it is being removed or “no longer covered” by the insurance company. That is one of many costs to repairers being removed by insurance companies.
These are shops that have been designated by insurance companies. To the general public, a preferred shop might sound like a superior repair facility. Commonly, an insurance company adjustor will advise a client that if they do not take their vehicle to the insurance company’s preferred shop, they will not be able to warranty the repairs. Insurance companies never warranty repairs unless a repair facility goes out of business or the client has moved to another jurisdiction. Repair facilities are required by insurance companies to provide a lifetime warranty. Currently, insurance companies are looking for repair facilities to provide a lifetime national warranty.
Preferred shops are preferred by insurance companies not because of the superior ethics or finished product, but because they bow to the demand of insurance companies to provide kickbacks to the insurance companies. We have seen itemized kickbacks in the range of 2 – 15%. Kickbacks are described as discounts that purportedly save the insurance companies money that they can then pass along to their insureds in the form of reduced premiums. Insurance premiums rise every year despite this practice. The insurance companies’ primary responsibility is to the shareholder. Any profitability that is gained by an insurance company is a gain for shareholders as any policyholder can attest.
Even though Alberta Legislation provides the vehicle owner with the right to have their vehicle’s damage estimated and repaired at the auto body repair facility of their choosing, the insurance companies consistently thwart this law. Insurance companies consistently drive traffic to “preferred” facilities. The reasons aren’t hard to determine. They get a kickback (discount); they claim the centralized accounting practices of some of the box stores ease their administration costs (it’s also easier to claim the kickback amount from a single payee who is agreeable than a number of payees who are not); control mechanisms and changes benefitting insurance companies are facilitated.
In some jurisdictions, the insurance companies have had customer service centers built (mostly at the expense of the repair facilities) whereby a person involved in an accident will be required to report with their vehicle to initiate the repair process. The customer will hand the keys to their vehicle to the customer service representative but will not know where the vehicle is being repaired. He/she will also receive a rental vehicle.
As of today, Wawanesa, one of the largest insurers in Alberta, has removed without notice all directly linked contact between the insurance company and independent Auto Body Repairers, effectively removing the insured’s right and ability to have their vehicle estimated and repaired at a repair facility of their choice. Vehicles are being towed from independent shops to “preferred” shops sometimes hours away.
The list of industry manipulation is a long one and cannot be covered in one short passage.
There has been a national conversation occurring among Auto Body Repair facilities regarding the ability of this sector to operate in a free market economy. If measures are not taken to make changes to the relationship between the insurance companies and repair facilities, the increasing overreach by the insurance companies will result in the complete crippling of the industry. Alberta can be a leader in this effort.
Every independent operator in every region of this country is being targeted and as representatives of what we hope will be our next provincial government, it should be important to place this issue on your radar. If this can occur within one sector of the economy, it will occur in others and we will have choked one of the largest contributors to the provincial and national economy – small business.
An ultimate desired solution to this morbid problem is to completely remove the Auto Body Repair sector from the control of the insurance companies in the same that the dental sector has managed to achieve; a market economy, whereby Auto Body Repair can set prices the market will bear.
Most repairers understand the shock to the economic system that such an approach might have and are willing to make incremental changes. Such incremental changes might include, but are not limited to:
Absolute and immediate cessation of insurance companies driving traffic, which is currently the common practice, and in contravention of standing legislation.
Immediate 10% increase in labour, materials and parts pricing rates with yearly incremental rates to follow until on par with Auto Mechanic repair rates within 3 years
Elimination of kickbacks
Insurance companies pay for real costs of repair including sundries (clips, bolts, cleaning, transport for sublet items, environmental fees, etc.)
If you have any questions, feel free to speak to us today and we will provide a detailed explanation.