"Cost containment" is not just a phrase developed by Massachusetts insurers as an excuse to pay less for auto damage claims. It was actually foisted upon the insurance industry by Massachusetts legislators and regulators faced with public outcry against high insurance premiums. Massachusetts insurers, despite initial resistance, were eventually forced into implementing cost containment programs. When these programs were put into place, they ended up being significantly more effective in reducing premiums than most observers believed they would be.
Some Practical Ways to Beat Cost Containment: Ignore It, Face It Head On, or Work Around It
One area that insurers were required by the Division of Insurance to implement cost containment has been "bodyshop payments". Among the results of this are that the body shop labor rate that insurers are willing to reimburse claimants has not gone up in ten years; that aftermarket parts, despite generally being inferior to OEM parts, have become quite prevalent; and that insurers have been resistant to pay body shop storage charges. If you own a body shop, then cost containment has hurt your bottom line.
Once you know what cost containment is, however, there are three possible avenues that you might choose to beat it:
Avenue 1: Ignore It
This avenue, from a practical perspective this avenue is a difficult one to follow. Yet, if you can do it, in the long run it is the avenue that gives you the most independence and the one that truly beats cost containment.
The essence of this avenue is to recognize that you really have no obligation or contractual relationship with insurers. Your customer is the only person or entity that you have a responsibility to or a contractual relationship with. As long as your customer agrees, you can contract for whatever repairs are truly appropriate, at whatever labor rate you believe that you need to get, utilizing whatever procedures that you believe are necessary. Ignore what your customer's insurer reimburses as a labor rate; ignore what parts the insurer wants you to use; ignore how the insurer wants the repairs to be accomplished. Make a contract for repair with your customer, and let your customer worry about how much his insurer is going to pay him.
Most of you are going to protest that this cannot be done in the auto body industry in Massachusetts. Most of your customers want to drop off their cars, have you fix them, have you deal with their insurers, and not have to pay anything more than their deductibles (or perhaps not even that). Most of you feel that you will go out of business if you take this first suggested avenue, because your customers will just go down the street to another body shop that will play ball with their insurer. And this may indeed be true for most of you.
But, note a couple of things: cost containment does not just apply to body shop payments; it applies to all auto insurer claim payments. As an example, it applies to medical payments. In a given situation, an insurer may only pay a "customary and usual" charge for a medical procedure. Yet, most doctors and hospitals have no qualms about "balance billing" their patients for amounts of their charges that an insurer will not pay. Why can't body shops have posted charges that they believe are fair and necessary, and then balance bill their customers as well? There is no reason.
And, do you specialize in repair of certain types of vehicles, or have equipment to do specialized types of repairs? Perhaps if you do, you can ignore cost containment and charge what you believe the market will bear - what your customers might be willing to pay out of their own pockets - for repair of those vehicles or utilization of that equipment. Certainly with regard to mechanical repairs, car owners are willing to shell out more money to repair a high end vehicle. Might owners of high end vehicles be willing to pay something out of their own pockets if they believe that they are getting a better quality repair?
There are several ads on the radio for body shops that want people to bring their cars to them because they will fix the cars the "right" way, not the way that the insurers want them to. Do these shops charge their customers for amounts that insurers will not agree to? After all, these shops are banking on getting customers who want more for their cars than their insurers will allow. It seems that, with the right marketing that attracts the right customers, ignoring cost containment (at least to some degree) just might work for some body shops.
Avenue 2 - Face It Head On
Massachusetts body shops can face cost containment head on, both as a group, and on an individual shop basis.
Because of antitrust constraints, group action is somewhat limited. Body shops cannot band together and agree to charge a certain labor rate, or to not use certain parts, or to make certain standard charges. But, body shops can band together to attempt to lobby for legislative or regulatory action that limits the right or ability of insurers to use cost containment as an excuse not to pay fair amounts for body shop services.
Because cost containment has been so successful in reducing insurance premiums in Massachusetts, there is probably little chance for complete repeal of the cost containment laws. Yet, there are individual issues, particularly issues that affect the safety and quality of repairs, that might be subject to legislative or regulatory change to your benefit. As an example, MABA has filed legislation that would limit the use of aftermarket parts. Have you talked to your legislators about it? This is an issue that exists only because of cost containment, it is an issue that goes right to the heart of safety and quality, and it is an issue that should garner great support from the recent independent Consumer Reports article criticizing most aftermarket parts.
Please do not underestimate the power of grass roots lobbying. Your elected officials stay in power only if enough people vote for them. Body shop owners, their employees, their families and their friends are constituents and voters. The economic power of insurers is sometimes overestimated; political contributions do not reelect legislators, voters do.
Insurers are not thrilled with all parts of the cost containment law, because it places huge burdens on them. Do not forget that the cost containment law allows for the imposition of significant penalties against insurers, penalties in the form of arbitrary premium reductions because of failure of the insurers to address the "bodyshop payments" issue in premium rate setting. There might be less opposition from the insurance lobby on certain cost containment issues than most might think.
The Alliance of Auto Service Providers of Massachusetts ("AASP MA") has a lobbyist on staff, and AASP MA annually has certain bills filed on its behalf. Making telephone calls to your state senator and representative, or writing them a letter, or meeting with them with a group of other local body shop personnel are some of the simplest, easiest and least expensive ways of facing cost containment head on and potentially improving your bottom line.
Do you think it doesn't work? Among the laws enacted over the years as the result of body shop industry lobbying are the establishment of the Auto Damage Appraiser Licensing Board, mandatory repair shop registration, claim payments by insurers required to be made directly to repair shops, strengthening of the garage keepers lien law (including the requirement that lien holders sign off on claim payment checks), mandatory inspection sticker removal from unsafe cars by appraisers, and required notification by appraisers when aftermarket parts are specified in an appraisal. Please think again.
Individual Shop Action
Whether you are going to try to individually face cost containment head on, and how you are going to do it is very much dependent on your personal business philosophy. Few methods are likely to get you a higher labor rate (but you won't know unless you try). Many methods may get you payment for an OEM part, or for a necessary procedure, or for proper repair times. Consider the following potential actions:
Negotiate to the Hilt
Do not be afraid to demand what you believe is right. Do not be afraid to call an appraiser over and over again. Take the time to document what is and what is not included in a particular operation, or to document what your actual costs are. Do not be afraid to call a supervisor, or a supervisor's supervisor. Perhaps this seems too basic. But, I can tell you from experience that I have talked to too many body shop owners that have complained to me that they could not do a proper repair because an insurer had allowed only a certain payment, but who had not bothered to aggressively attempt to negotiate for what they believed that they truly needed. You have a right to negotiate every claim that comes into your shop. Use that right.
Get your Customer Involved
This is another basic concept. Some shop owners seem afraid to get a customer involved in negotiating a claim. But, the reality is that insurers are generally more responsive to irate customers than they are to body shop appraisers. Besides, it is the customer's car, and he or she has a strong interest in seeing that their insurer is paying for proper, safe and quality repairs. Educate your customer as to what you need, why you need it, and what your customer's rights are. Head your customer in the right direction. Then set your customer loose. Or, if you can, just have your customer present to see what is happening when an insurance appraiser comes into you shop to negotiate the customer's claim. You might be surprised at what the appraiser allows.
Supplement the Insurance Appraiser
Okay, maybe you should not overdo it. But you have a right to request supplements, and insurers have an obligation to reinspect vehicles when a supplement is requested. Insurance appraisers hate coming back to a shop over and over again. But, if an insurance appraiser is not paying for something that is truly needed to do a proper repair, keep calling him back. Do not buy the line that you are causing him aggravation; it is his incompetence that is causing him aggravation. If he did it right in the first place, he would not have to come back.
Yes, it is a pain in the neck, and it can delay repairs, and there can be an expense. But the Massachusetts auto insurance policy specifically allows for it, and the insurer has to participate if your customer demands it. If you truly believe that you need to get paid for a certain procedure, or that an aftermarket part is inappropriate, or that paint times that an insurer is allowing are too short, then you can have your customer demand arbitration of the issue (or you can do it directly if your customer is willing to assign that right to you). And if you win once, you may get less of an argument next time.
You may have to get your customer assign to you their rights against their insurer. If an insurer has been particularly unfair, you might want to consider first sending a demand letter under the Massachusetts Consumer Protection Act, allowing a Court to potentially award you triple damages, costs and attorneys fees. If you are suing an insurer under collision or comprehensive coverages and your claim is under $2,000, or you are making a third party claim for any amount, then you can use small claims court, spend only a small amount in filing fees, and represent yourself. It is a pain in the neck for you; but it is a pain in the neck for the insurer too. If you are seeking greater damages and have a strong case, consider hiring an attorney. With the strength of the referral shop system it has been difficult to do over the last several years, but suing is actually your best shot of getting paid for an increased labor rate.
Avenue 3 - Work Around It
If you have made it this far into this article, then you are about to learn something that is not well known in the industry: When insurers have to make their annual cost containment filing concerning "bodyshop payments", there are only certain specified issues that they are required to address. If you can figure out ways to charge for items that are not required to be addressed by the insurers in their filing, then you may well be able to work around cost containment and greatly improve your bottom line to an amount which will allow you to make a decent living.
Have you wondered why insurers have been so militant about not paying a higher labor rate, or about insisting upon the use of aftermarket parts, or about paying "reasonable" storage charges? Take a look at 211 CMR 133. The most onerous standards were repealed (211 CMR 93 Repealed), but that has not stopped Massachusetts legislature from continuing to pass laws to control insurance payments to auto repair shops. These are all issues that the insurers are required to address every year in their filing with the Division of Insurance.
On the other hand, have you wondered why the body shop industry has found it easier to get paid for items in the procedure pages of the crash books, or why many shops can get paid for hazardous waste removal, or for increased paint and materials charges, or for washing of a repaired car? These are all issues that are not set out in these standards. How many other items can you figure out to charge for that are not targeted in these standards? If you can be creative, then you are much more likely to get paid for such items, than for a higher labor rate or an increased storage charge.
"Cost containment" has been the battle cry for Massachusetts auto insurers for many years, and it has been the bane of the Massachusetts auto body industry for the same period of time. But, if you understand what cost containment truly is, and if you understand what avenues that you might have open to you to fight it, then you just might be able to do something about it. Please try some of the methods suggested in this article, and see what works for you.