One Individual's opinion on what has transpired in our industry over a period of time

The collision repair industry is one beset with fracture and no leading purpose. It is beyond cohesive action, resulting from the individual nature of the business and the individuals involved and most assuredly prevalent, a concerted infiltration by insurers. The majority of repair business evolved from individual workers, many with no formal business training or experience, but knew they could do better as an owner not just a worker.   This lack of a more formal business understanding some over came, but the vast majority of owners did not, leaving the industry open to those that had ulterior purposes.  I remember going to my first local association meeting in 1996 when I was discussing first party and third-party processes.   An owner of a decent sized shop in the collision business all his life stood up and asked me “what is first party”.  At that time, not too long ago, this lack of knowledge was normal and routine, and still exists to a great degree.

I came to the industry as a restorer after exiting the corporate world, starting collision repair as an extension due to requests for repairs to my restoration customer new vehicles.  This was one of those mistakes you make, realize it soon but reluctant to let it go if you think you can make the industry a better place for business owners. From referrals only, person-to-person, my collision business grew from zero to nearly $1 million in 6 years. Our reputation in a very large market was one doing the best work, which at that time was new or nearly new European models that were coming into favor in our market.  We charged essentially what others were in the area. I gave no concessions to anyone including insurers’ as I knew my duty was to the consumer. Inevitably the insurance industry, most notable was Nationwide, Farmers, USAA (my insurer for 40 years at that time) and GEICO, had other ideas.  State Farm was reasonable, and I worked with some decent people. 

But then after the inception of the State Farm Service First, (We were one of the first of 15 shops ‘invited’ in a market with 1800 shops, recruited by a superintendent no less) I finally began to realize we were working at cross-purposes as they began to demand concessions. Not just direct monetarily by adhering to their “prevailing rate” but repair content.  Of course, I was using Mitchell estimating and figured that while I was not taking much profit (some years none) and paying my seriously qualified employees ample, more than others, eventually I would reach a point where ROI would start turning around.  Before the advent of the computer and computer-generated data, some variation based on needs of the repair was possible, but more and more insurers demanded acquiescence to the exact time and operation as well as use of data to form the estimate.

Because of the pressure and methods employed by insurers I decided to spend more time researching laws, policies, and practices so that I could counter those demands through legislative means, later legally.  Little did I realize, for lack of a better word, the conspiracy that was already in play that would ultimately lead the industry to where it is today.

Texas is a bi annual schedule session state. In 1997 I did not attend, didn’t have any idea that I ever would but a friend brought by a proposed change to the regulation that governed the relationship between the insurer and repair shop. At that time, the regulation read, here paraphrased: “no insurer may enter into an agreement with a repair facility”.   The propose change was to include “but if an agreement is made, the rights of the consumer shall not be reduced”.  Honest that is correct.  It was too late, but after passage I began to look more closely at how this came about.

At that time the collision industry was represented by ASA, the national Auto Service Association, the largest such association, and there was a state association as well.  I heard rumors that the state association had approved this wording and ASA also supported the change, which was completely at odds with what most rank and file members wanted.  So, I joined both the associations, and others including CCRE and SCRS, and began to try and figure out whom what and why.  To make a long story short I found through their financial documents that the executive director of the state association had made a very decent living over the years and he in fact, made the decision all on his own. I began to travel and visit the board members to get their input and realized they were culpable.  With my attorney I began to push for more answers, which resulted in this long-time association dissolving in a very short time. A year or two later at the 1999 session, we had hired a lobbyist, a former state representative who knew about the inside deal. The ED was paid by outside interests and he later associated with the group mentioned below.

What I had learned was that ASA’s national collision division director had a couple of shops in Ft. Worth, and while he was publically adamantly opposed to insurer’s owning shops or controlling shops, he had a secret deal.  One of his major customers was a very wealthy oil family that had interests in a collision chain in California.  Immediately after the regulation change become effective in September 1997, he announced that he was resigning from ASA, and concurrently that he was now part of that collision repair chain.   He later became the national president of the chain and has since retired.

Later it appeared that a European insurance conglomerate was also involved with the oil family that funded the collision chain that later purchased Farmers Insurance.

These actions led to a nationwide change in how collision repairers became a direct contractor with insurers.  As well as the eventual consolidation of most repair shops in major markets, rendering the individual shop powerless in determining their own pricing.

In the Legislative session 1999, I wrote several bills that were sponsored by both the House and Senate to do several things. One was to remove insurers from directly contracting with repairers. Another was to prevent insurers from forcing repairers to use estimating platforms. The third was to prevent insurers from presenting their estimate of repairs to consumers and repairers as the only way a repairer would be allowed to repair the vehicle in content and pricing.  At the onset of the session I met with USAA, Farmers, Texas Farm Mutual and Allstate employee/lobbyists to discuss our concerns at the request of ASA, but they didn’t realize we would be successful even getting legislative sponsors.

 We were very successful getting it past committees despite most members being insurance agents.  A week or so before the end of the session, we had enough votes (two thirds majority required to hear, simple majority to pass) for the Senate to hear the bill; the House was very favorable.  Over the last weekend, USAA sent every Texas USAA insured a letter stating that if this bill passed “USAA will be unable to help insureds with their claims”.  The next Monday the Capital phones system shut down there were so many calls supporting USAA’s position.   There had also been an investigative piece in the Houston Chronicle discussing the proposed changes.

The next morning our sponsoring Senator called in our lobbyist and told him Bush had called him and told him to pull the bill. He did, and that was the last opportunity anywhere to stop what was to come.

I found out later that the ASA representative had a meeting with insurers and told them what was about to happen; the insurance lobby did not grasp the importance of what we were attempting to the insurance industry. They in turn spent a reported $1mm, hiring the best-connected lobby groups to pound the ground during that last week.

Of course, these proposals were nuclear that would have changed the relationship from an illegal one to a legal relationship. But by then many large and influential shop owners, mostly in Austin, had become DRP’s for insurers and they saw the threat of no more direct referrals (steering by) from insurers.

It is a fact that Texas was the proving ground for the nation in implementing market manipulation to coerce compliance with the real aim of insurers, to control the price they would be charged for repairs. Much as Tort Reform was initiated in Texas where Bush then took it to the national level.

I saw then that I would either run my business as one for my customer or I would not be in the business and took on State Farm as they were quickly reducing my SF customers from about 55% of my business to eventually zero in about 3 years.  We were not successful, not because we weren’t going after the right things but did not have the resources to prevail, but that is another story.   I closed my collision business on August 31, 2002.

There has been a plan to be where the industry is today going back to at least the late 80’s but starting earlier with Mitchell, and their infiltrating Mitchell back in the late 70’s by providing funds for their expansion.  The insurers (State Farm is without a doubt, the most sophisticated and other insurers rely upon SF to form their practices; SF is the template) saw then, there was no control over what repairers could charge and there were many crooks out there. And they were correct. They figured that if there was extra money flowing around, they had every right to claim it for themselves, and to a point they were correct.  However rather than instigating controls that comported with contract law, the contract between the consumer and the repairer they decided to control the entire process of repair, yet not be a party to the contract.

To me it is obvious they chose this plan because they saw that the principle of insurance, indemnify, was a closed loop. That is they were limited by what they could wring out of a consumer and still meet their duty under their contract, or not violate the policy. There were no such limitations about what they could wring out of repairers since they were the party repairing and the insurer had no such obligation to treat them fairly.  And if the repairer did not properly repair a vehicle, saving both them and the insurer money, they, the insurer, was insulated from any downside. And they were right again and have been able to exploit repairers fully.

So here we are. A fully functioning scheme where one party that is not a party to a contract, but is the payer in all honesty, controls the content of the repair (the operations) as well as the cost of those repairs, and the amount of value added by the repairer.  Certainly, insurers have an obligation that their money is spent properly to achieve their duty:  no more, no less than required.  The question is however, how far can they go in controlling the contractual duties of the collision repairer? Apparently, whatever they can, and that is considerable, backed by massive expenditures for advertising, elections at the state and federal level, providing work in the off session times for legislators, and cozy relationships with legislators and judges.

Today, given major consolidation in every state, recent infusion of major investment capital by large investor groups to consolidation, and the actions by courts in virtually every state, these practices are acceptable. So is there a vulnerability that can be exploited?  Frankly, I think, given the current state of our state and federal legislatures, as well as the courts there is little hope of change where the collision repairers can compete in a market absent a direct involvement of the insurer.

However, there is still hope despite recent and what I consider seriously flawed attempts that have failed, so far. In part I think there are two basic reasons. The first does not fully understand the history, the power of insurers, the breadth, depth and acceptance of illegal control by the public, the legislatures, the courts and even the collision repairers themselves.  The other is, the inability to work though the morass of the controls and focus on the most vulnerable of all controls, the one that is most egregious, the most provable the least acceptable in interstate commerce, but the most important to insurers:  the control of price and work content when they have no standing in the repair contract.  The data used to determine those parameters are universal and unprecedented in a free market economy. As stated a multitude of ways over many years, the data is neither scientifically, legally or statistically supportable. Yet we are on the cusp of not just data but analytic evaluations of the data will very soon, be proof of what repairers charge is in fact, a correct method for determining the price.

So objectifying data is extremely important, yet time is not on the side of change, even if that weakness can be exploited.

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