A Correlation between Under-Indemnification and the Tech Shortage

by Burl Richards, ABAT President

As a shop owner, I constantly try to stay aware of the environment our industry is in, and I encourage other repairers to do the same.

But even the least observant among us would find it pretty hard to ignore the tech shortage that just keeps getting worse every single year.

Recently, it was brought to my attention that the auto body industry’s struggles are well-known to insurance companies as well – when one of my customers reported an accident and scheduled to bring their car to my shop for a repair, they received the following message from State Farm:

“Customers are experiencing delays in repairs due to parts delays and labor shortages. Consider calling your repair facility before dropping off your vehicle to minimize time without your vehicle.” [Emphasis added.]

I find it pretty interesting that an insurance carrier is addressing the fact that there’s a labor shortage in the collision repair industry because I think we all know that there’s a correlation between the lack of technicians in our field and the egregious under-indemnification that body shops encounter when dealing with insurance companies! Now, I’m not saying that the tech shortage is entirely their fault, but they are absolutely part of the problem that has caused these burdens, and they should share some of the blame.

How does the insurers’ refusal to properly indemnify their insureds for vehicle repairs relate to our industry’s labor shortage? Well, there’s a couple different ways it impacts our shops and our employees when third-party payers fail to reimburse vehicle owners for required processes and procedures.

Obviously, by refusing to respect and acknowledge a shop’s posted labor rates, the insurer creates a deficit in the business’ budget that inhibits some shop owners’ ability to pay their technicians competitive wages and benefits since they aren’t getting paid for those processes and procedures they should be able to bill for. Knowledge of the wages our industry can afford to offer certainly also impacts students’ willingness to pursue a collision career as well.

This is especially difficult in an environment where technology is changing so rapidly that we’re forced to invest hundreds of thousands of dollars each year to stay up-to-date with advancing vehicles. With those continued investments, we certainly have to adjust our prices to align with our costs, but how can we recoup our investment if insurers are refusing to pay for the procedures performed?

But the under-indemnification issue impacts technicians in an even more important way than their bank statements – it has created concerns with morality and with morale. When insurers reject a shop’s repair plan and refuse to indemnify our mutual customers for OEM-recommended processes and procedures, there are several ways it can be handled: the shop either does it for free, they bill the customer for the difference or they don’t perform the procedure at all.

At ABAT’s Capitol Day earlier this year, we had two technicians tell legislators that they simply don’t perform the processes when insurers refuse to pay for them…and that affects how they view their jobs. One of them is currently seeking another employer who will fight for their customers, but how many technicians simply leave the field? Craig and Rhonda Anderson joined us as well to explain to legislators how they had decided to sell their shop as a result of bullying from the insurance industry. For years, they fought to repair cars the right way and struggled to get paid properly to remain competitive, but eventually, they got so fed up that they decided to leave the industry altogether.

Why would that be happening? Well, it may seem like a novel concept to these insurers, but technicians have a conscience and typically want to do the right thing – they want to repair cars correctly and ensure that their customers are driving away in a safe vehicle. But when insurers repeatedly under-indemnify repairs, these professionals take a mental and emotional beating. They either accept financial losses, or they lose sleep at night because they’re unable to do what’s morally correct. Between all this fighting to get paid for their advanced skill set and pleading with an industry that knows nothing about that skill set to protect their customers, a lot of guys and gals are simply finding it easier to leave the industry and pursue a different career path.

So, it’s interesting that the same insurance industry that continues to deny shops’ requests to perform these necessary processes and procedures are then turning around and acknowledging the labor shortage in repair shops without recognizing how their under-indemnification practices contribute to that shortage. Shops need to be aware of how these two issues are related and take a minute to consider possible solutions. I’ve been asking insurers for many years, what are they going to do when there’s no one interested in fixing cars?

As a business owner or as a technician, consider how this issue impacts you and decide what you’re going to do about it. I challenge you to bring these matters to the insurers’ attention and make them aware that they’re part of the problem.

Want more? Check out the April 2023 issue of Texas Automotive!