If you were to look at the system for repairing damaged vehicles on paper, it would appear to be a good design. Here’s what the car insurance industry will tell you happens:
• you report damage to your vehicle which is covered by the policy;
• a claims adjuster examines your vehicle and, assuming the cost of repair is deemed reasonable, the insurer will authorize the repair;
• the auto-repair shop does the work and returns the vehicle to you in top-class condition;
• you are satisfied;
• the auto-repair shop submits the bill to the insurer for payment.
Of course, there can be a dispute about whether the policy covers the damage, there can be a big argument with the claims adjuster as to whether it’s economical to repair the vehicle, there can be problems with the auto-repair shop which fails to do a good job (and the insurer delays or refuses to pay the auto-repair shop).
If you were not already nodding your head in agreement that, in many instances, this process is broken, here comes news from Orlando. A major class action has just gotten underway with auto-repair shops from across America suing all the major auto insurance companies. The case particularly features State Farm which, as America’s largest insurer, is identified as leading the rest of the insurers in setting the amount paid to repair vehicles at unreasonably low levels. This is not their only claim to fame:
As an aside, this week has also seen Louisiana Attorney General Buddy Caldwell file a state civil lawsuit against State Farm essentially making the same argument. This is not just the repair shops in a large federal case. This is a groundswell of opinion that the car insurance industry is endangering their policy holders by placing unreasonably low caps on the amount repair shops are allowed to spend.
It’s fair to predict that a small army of attorneys are going to be traveling down to Florida for this law suit. This is a real issue about public safety. The lower the amount of money the insurers are prepared to pay, the more the repair shops will cut corners to stay within the budget imposed on them by the claims adjusters. This often means the vehicle is returned to the owner in an actually or potentially dangerous condition. The pleadings filed in Orlando allege that the auto insurance industry is out to keep the labor rate at a minimum. If any repair shop questions these low rates, State Farm and the other insurers refuse to deal with that repair shop. Indeed, as the bottom feeders are the only repair shops left, they are easily bullied into doing work for less money and in the arbitrarily short times imposed on them. In effect, these short periods imposed for performing the repairs cap the amount payable to the repair shops and almost guarantee shoddy workmanship. Needless to say, State Farm has also entered a stop defense deny any and all liability. GEICO has filed a motion to dismiss. It’s going to be very interesting to see what happens.