Ask an Expert: Be aware of the problems in total loss insurance settlement practices

by John and Theresa Kightlinger

People are asking what is going on with the insurance industry.

It seems like every day I am hearing about less than ethical behavior as well as downright egregious activities by some insurance companies.

Claims people are constantly trying to mitigate and reduce claims expenses, and when feasible, they should. After all, we all pay for insurance and we all want the premiums to be kept as low as possible. Higher claims costs result in higher premiums, and as far as I’m concerned, they’re already too high. However, containing claims costs at the expense of others just ain’t right!

One prime example is a bad situation that’s gotten worse regarding total loss settlement practices.

Here’s one scenario: The consumer gets into a collision and the insurer inspects it and writes a lowball estimate in the hopes that: 1) The vehicle owner takes the settlement and doesn’t get the vehicle repaired, or 2) The vehicle owner goes to a low-quality repairer who will try to repair it for the insurer’s lowball estimate (rather than lose the job due to it being totaled).

However, when a vehicle owner wants his vehicle repaired and he goes to a quality-conscience repairer who prepares his own assessment, the insurer is faced with the option to either provide for a quality repair or to deem the vehicle to be a total loss.

Of course the most economic choice is the one that is often taken. In most instances, the insurer abides by state laws and regulations regarding economic thresholds whereas a vehicle must be deemed a total loss.

Once determined to be a total loss, some insurers attempt to have the vehicle removed from the repairer to stop storage charges and have it moved to a storage-free holding area, such as a salvage yard or auto auction facility. This is of course prudent and I support it. But what about making a total loss settlement offer to the vehicle owner for the replacement of the vehicle? Shouldn’t that take place first?

The conversation between the claims representative and the vehicle owner often goes something like this:

“Mr./Ms. vehicle owner, after reviewing your damages and the cost to repair, we have determined your vehicle, to be a total loss. We need to have you release the vehicle from the shop so we can move it for safekeeping and to stop the ongoing storage charges.

“Once you do, please call me so I can arrange a service to pick it up and move it. This will avoid you from having to pay for further storage charges out of pocket (but you do not pay the storage charges, they do), and by the way, we’ll need you to sign over your vehicle’s title so we can initiate the required paperwork and steps for settlement.

“Once we get it moved and secure the title, we’ll evaluate the vehicle’s value and be able to make you an offer for the pre-loss replacement value of your vehicle.”

At this point a wary consumer should be thinking…wait a minute here…if someone came to me and said: “Hey, I’d like to buy your car…would you consider selling it to me?” and I say: “Well…yeah, I would consider selling it.”

And the buyer then states: “Great, give me the keys and sign over your title, and I’m going to take it…and in a week or two I’ll let you know how much I’m willing to pay you for your car.”

Who in their right mind would agree to such an idea?

Well, it happens far more often than one would think simply because consumers have a belief that the insurers have to do things properly or they will get into trouble. After all, someone has to be overseeing insurers to make sure they do things properly…right?

Let’s continue on. So, the customer trusts the insurer and authorizes the release of the vehicle from the body shop to stop storage charges. After all, what could possibly go wrong?

The insurer then makes payment to the shop for their billing for services rendered (tow payout, labor, storage, gate fee, administrative activities, retrieval of customer’s license plate(s), and personal belongings, etc.) and have the vehicle picked up and relocated to a storage-free facility for “safe keeping,” where they may move it around the yard with a forklift!

Sometime later, the insurer provides the consumer with an offer for the pre-loss replacement value of the vehicle, which the vehicle owner finds to be considerably lower than anticipated. The vehicle owner raises concerns and the insurer sends him a multipage valuation report supporting the offer with quotes and comparables. The insurer  then advise the customer he has until the next day to accept the settlement offer or he will no longer have a rental car! This leaves the vehicle owner no time to check out the comparables provided in the insurer’s valuation to see if they exist, have been sold, or if they are even similar to owner’s vehicle, let alone the time to shop around for a replacement.

So, the vehicle owner, feeling he has no choice as he needs to purchase a vehicle to get his life back in order, begrudgingly accepts the insurer’s lowball settlement and then pleads to keep the rental car for a few more days to secure a replacement vehicle.

The insurer reluctantly allows him three more days of rental and then issues the “full and final settlement” payment to the vehicle owner. The only problem is, the vehicle owner finds the amount far less than he had agreed to accept. He is told that the insurer has deducted the amount that was paid to the body shop for charges the insurer didn’t believe they should pay for!

So now the consumer is left with less settlement and has only a couple days left of a rental vehicle. When complaining to the insurer, the insurer responds with:

“Unfortunately for you, your chosen body shop overcharged you for their services. No other shops charge for these types of charges or charge such high rates as they do. We only owe for what is reasonable and customary in the market area. This shop is known for overcharging and if you had asked us early on, we could have referred a dozen shops who wouldn’t charge you for such charges. You need to go see your shop to try and get your money back!”

You should never release the vehicle until you have settled with the insurance company. At that time, they will pay the body shop charges to pick up your vehicle.

Why are insurers often successful in such activities that harm consumers and repairers?  Because consumers are not being made aware of such issues and concerns or being edified as to how to protect themselves. Who other than the collision repairers know what is going on and who is in a better position to help them? The insurers surely won’t help and their insurance agent won’t help. Most consumers will not seek legal counsel, and quite frankly, most attorneys are unaware of such activities taking place, and as such,  are of little help and quite often provide poor advice in such matters.

Quality-oriented repairers will edify their customers in their time of need so they can know the facts and be in a position to protect themselves and their family’s personal safety and economic well being through receiving proper repairs with proper procedures, parts and materials and restoring their vehicle to its pre-loss condition to the very best of reasonable human ability.

Insurers are banking (literally) on the fact that many repairers don’t wish to expose the ugly side of the collision repair industry to their customers. After all, the customer comes to a body shop to fix problems, not cause more, right? Yes, they come to the repairer to put their lives back together and to do it properly and thoroughly. Believe it or not, customers expect the expert repairer to protect them just as they expect the best from their doctor, surgeon, dentist, pharmacist, banker, accountant, attorney and other professionals who have a profound fiduciary responsibility to their patients and clients. To do less and to not help them in their time of need is simply unacceptable.

Community members deserve the very best from an expert repairer. If repairers are not being totally honest and transparent with customers regarding the repair of their vehicle and sharing knowledge regarding the less-than-ethical practices of some insurers…they are failing their customers, the profession and the collision repair industry at large.

What if every quality-oriented collision repairer in the country started to expose to their customers whenever insurers fail to act in their best interest. Can you imagine how fast positive change would come and how quickly the industry would change for the better?

John and Theresa Kightlinger own My Body Shop at 401 N. Clinton St., Stockbridge. The couple have lived in the area and raised their children here over the past 20 years. John has been in the auto body business since 1985, and Theresa began work at General Motors after high school. Between the two, they have been working on cars for more than 75 years.