Not Again!?!

Posted on 19. Oct, 2007 by biggs in Body Shop Advocate, Collision Industry News, Consumer Advocate, Industry Op-Eds, Uncategorized

Just 18 days following the termination of Gil Palmer from the Auto Club, allegations of accepting bribes and abusing shops have surfaced around two more upper management insurance representatives in charge of direct repair programs.  The two have allegedly accepted bribes that include a large screen TV purchased by a body shop and loaded into her car, and the other for abusing shops and possibly accepting a 5-carat diamond ring and a lavish automobile!  These allegations are separate from any actions by Palmer, but they involve some of the same cast of characters.

Are they guilty or innocent?  Will we ever know and will they ever be brought up on charges?  Who knows, and does it really matter?   With all of the accusations flying and fingers pointing, even more insurance company staff have come under suspicion, and dozens of shops are now being interviewed by investigative authorities.  Some may be guilty while most will be innocent, but who really knows which is which?  Regardless, these two DRP managers remain in their positions of absolute power, reigning over shops even while the investigations in separate companies go on.  Somehow that seems so ironic since internal investigators are expecting shops to tell all, yet the “hammer” is still able to pound shops!

While the industry and Gil, Rick, Marie, Elaine and others wait for the other shoe to drop, one has to ask the question, how far reaching is this behavior?  Just how pervasive is the graft and corruption surrounding the direct repair programs throughout the country in general? The LA Times article on October 16, 2007 raised questions about other business practices surrounding direct repair programs of other insurers as well as AAA.  According to Carol Thorpe, Public Relations for Auto Club, there is an official investigation ongoing and there will be more details as events unfold.  There is certainly the expectation among shops that many others will be implicated, suggesting the matter is not isolated to one company.   There is evidence of widespread wrongdoing that includes many other insurers.

Over the years, I have personally reported several situations to key management of several companies. Less than six months ago, I reported a similar incident directly to Farmer’s management.  They elected to alleviate the problem by relocating the manager in question to another area.  In yet another fairly high-profile incident just a few years ago, the FBI was involved with a DRP manager in the Midwest for Allstate.   Based upon these facts alone, the problems exposed by this recent news is obviously not isolated to one area nor one insurance carrier.  Graft and corruption in the DRP system could be pandemic!

The real or potential implications of this problem point to a lack of controls, checks and balances, and monitoring.  It sheds light on the potential for abuse and corruption in any system wherein a single insurance company employee can make or break any collision business regardless of how many locations it operates!   It certainly is a glaring indictment of the limitations and inequities of the current system that most insurers have crammed into place.  These programs lack transparency, and the types of objectivity that might elevate them above reproach.  This current smoking gun story could have many more sequels if all stakeholders in this industry do not do something, and do it quickly.

It might sound alarmist to some, or too little too late to others, but the direct repair programs as they are administered today have become fertile gardens for corruption and abuse – whether visible or hidden, proved or not!  Some companies have implemented a variety of checks and balances, but they fall far short of adequate.  Now, a few simple questions can throw suspicion and a shadow of guilt over everyone involved in direct repair programs no matter how innocent they are.  Unfairly, it is a grand case of guilt by association!

ABUSE OF SELECTION

One of the prime areas of potential abuse is the selection of one shop versus another to be on a direct repair program in a system that lacks transparent rules.  What is the basis for selection?  What are the criteria and how does one actually become selected to be on the program?  Is it a legitimate process?  Is it legal from a consumer protection and fair trade practice viewpoint?  While many shops on the existing programs are top-shelf and operate stellar businesses, those factors may not have been what got them on the DRP.  There are certainly many cases where the best shops according to performance indicators, credit rating, years in business, tools, equipment, training, etc. are passed over for some business that does not compare.  Why and what was the criteria used for selection?

When one evaluates existing relationships between insurers and repairers in any market, there are many questionable situations and dubious bedfellows.  Objectively, no one could support why a shop is put on the insurer referral network while consumers are steered away from others?  Are the circumstances above board?  Can an area manager objectively show why one shop was selected and another passed over.  Can anyone show the existence of transparent set of criteria that is fair and equal to all potential players? Insurers will point to their hidden or secret criteria for selection as the foundation of who is or is not on their referral list.  They may even suggest it is a matter of compliance to key performance indicator (KPI).  However, not all shops are allowed equal access and opportunity to participate.  Why not?  Even in State Farm’s recent rollout of their new Select Service, shops were picked based upon who was willing to sign the agreement – an agreement that may be potentially fatal to their business survival!  But even then, not all shops were given the chance to compete for the referral account.

Situations such as these, that exist in all DRP programs, raise the question as to whether the criteria really amounts to a legitimate form of “qualification” or simply the willingness to comply to concessions on pricing or repair standards. If selection is really only “concession based,” then how is that any different from other forms of grease, graft and payola!  Is agreeing to a concession the same as bribery, but just in another form?

Of course, every insurer would say no.  However, under a blind analysis there is little difference.  Insurers gain a direct monetary benefit that is just as real in dollars and cents as Elaine’s new TV, or a Rolex watch or leather jacket that Gil might be sporting today!  What is the difference?  Perhaps it is only that an individual received the inurnment (gratuity) versus the corporation and the stockholders collectively!  Isn’t agreeing to a concession that results in a lowering of costs to an insurer another form of pay off?

The exposure of these cases leads anyone to believe the questions has been altered from “who do I have to pay” to, “how much!”  When one has to give a concession, isn’t that paying, too?  In the old days, most shops gave some kind of gift, gratuity or incentive to an insurance agent, adjustor or someone in the system to win favor.  Now, far fewer play in the game, but ultimately, the concessions amount to hundreds of thousands of dollars per year – far higher than the good ol’ days!

One might counter this argument that at least the concessions are above board, but they are not.  There have been many who question whether corner cutting is a form of consumer fraud that jeopardizes vehicle safety.  Other than Gieco’s direct repair program, few if any others have any kind of true performance incentives and rewards so what is a shop really paying for when they agree to concessions on other insurer DRP’s?   They may or may not be above board.  Regardless, these program may not make the grade legally, ethically, or morally.

To truly make the selection process beyond reproach, it must be transparent.  The criteria must be objective, available for public scrutiny, and open to evaluation by all shops.  There must be independent selection, evaluation, and an appeals process for being added, omitted, and suspended.  Without these critical elements, all of the programs leave themselves open to suspicion and susceptible to fraud.

Another aspect to consider is that the DRP managers should not be able to be arbitrary about suspensions and who gets kicked off the program.  This practice is at the foundation of another recent incident where a shop was being pressured, with the help of a DRP manager, to sell their business below value under threat of losing a major DRP program.  While one case has become highly visible, how many have gone unreported?  What gives anyone the right to lord over independently owned businesses and make decisions without clear and objective criteria and standards.  Who reviews this and what is the appeals process?

As a result of the incident at Allstate, they overhauled their direct repair program.  Now, no specific person has total responsibility for any one shop and they are rotated randomly.  While those measures may help to avoid another kickback scheme in their program at one level, it does not elevate their program above scrutiny.  Like all the rest, their criteria are not objective, open to all and based solely on standards and advanced performance issues.

From some perspectives, all of the programs boil down to cutting costs and the willingness to repair for less and comply to ridiculous requirements like arbitrary percentage use of non-OEM parts and caps on paint.  Now, State Farm has pulled in the purchase of OE parts and the use of yet another system.  Nearly all of the programs require the use of a certain estimating system, special CSI program or some other arbitrary requirement.  Over the last several years, insurers aligned themselves with shop groups and networks, and allowed those organizations to use the promise of their referral work to recruit new members!   All of the programs that follow any of these are nothing more or less than a way to funnel money back to the corporate pocket.

In the weeks following the breaking of this story, at least 75,000 people have read the article just from the hits on the website.  Some have attempted to suggest that this is an isolated incident.  A few others have even resorted to accusing me of being anti-insurer and having a hidden agenda.  It is always convenient to shoot the messenger, but that will not make this potential crisis vanish.   Many people outside of the collision and claims world may begin to ask questions as the LA Times and the other press outlets run with the story.  As the California State Attorney General and the legislature consider this issue, consumers and policyholders may have questions, too.  At that point, the industry had better have answers or everyone will once again be splashed with the mud from this dirty incident.

If insurers really want to fix this, they could start by making sure that every insurance company with a DRP should have a published, easy to find phone number that shops and others can call to report abuses.  Make sure it is anonymous!  Currently, the phone numbers are unlisted or do not exist.  An abused shop has to ask their abuser for the correct phone number to register a complaint against them!

Secondly, all insurers should create a review board made up of industry professionals that will tell them the truth.  They may even want to include a majority of advisers that have nothing to gain or lose from the answers and feedback they give. While insurers obviously use these DRP’s to reduce their costs, that objective does not have to be lost.  The advisory group and consultants can look for other means to achieve the objective of reduced costs without having to use a system full of fraud and abuse.  There are many new and improved methods that insurers are not considering because the current “good new boy” networks have allowed them to achieve financial gains while just turning a blind eye.  Those days are hopefully over!

Thirdly, insurers should completely overhaul their DRP’s to be fair, based upon standards and a criteria that is transparent, objective and open to public scrutiny.  The rule of thumb on this should be that the standards and criteria used should be able to be published in tomorrow’s paper and serve as a marketing benefit to all concerned and not an embarrassment!  All insurers should adopt measures similar to Allstate- rotating area staff so that no one person has authority over any one shop.  Insurers should also consider tying real benefits to performance, like GIECO has done.  The basis is that if a discount is given, at least it is based upon a price for volume business approach.  The compliance and concessions should be motivated by gains in efficiency and improved consumer treatment.

Most of all, the insurers should remove the DRP vendor selection and decision-making power away from a single individual toward a board of independent individuals. A board that can not have too close of a relationship or gain any inurnment /gratuity in any way shape or form.   Lastly, state laws need to be strengthened to make the activities conducted by these nefarious individuals obviously illegal, and any violation must carry heavy penalties.  The laws must have a definition of the behavior and hold responsible any party that aids in the violation, even if it is by malfeasance, nonfeasance, or misfeasance of their duties!  If such a law now existed, nearly every insurance company executive, staff and management would be guilty for having allowed a system to exist that is obviously filled with inequities, graft, corruption and fraud!  They would not instantly retort that a whistle-blower only has an axe to grind or a personal vendetta against the person they are reporting.

“And, that is all I have to say about that!”  Forest Grump