Is Every Appraiser Really Your Enemy?

Published in New England Automotive Report – Thomas Greco Publishing

Want to watch a shop owner or estimator’s blood pressure rise? Merely utter the phrase “insurance appraiser!”

Many shops engage in contentious dialogue with appraisers during the appraisal process. As the expert in the repair, it can be quite frustrating to have your Labor Rate be challenged, to have OEM required and recommended procedures be rejected or to be told you’re “the only one.” On the other hand, appraisers argue that they can’t pay more because the Labor Rate is set by the insurance company, they uphold viewpoints that seem contradictory to conducting a safe repair, or sometimes they merely seem uninformed about the repair process in its entirety.

Are they even aware of the complexity of modern vehicles? Do they know how heavily shops invest their time, energy and funds into training, tools and equipment? Are they capable of “getting it,” or are they truly clueless? Do they even care?

Inspired by our recent feature, “Does the Consumer Know What You’re Worth?” (available at bit.ly/NEARconsumer), New England Automotive Report reached out to several insurance staff and independent appraisers who anonymously shared their thoughts on Labor Rates, OEM procedures and the best ways for shops to negotiate an estimate.

Not surprisingly, most appraisers think that insurance companies set the Labor Rate.

“Labor Rate is set by the insurance industry or by the individual insurance company,” expressed a Massachusetts-based former staff appraiser who now works in a shop. “They all go by the ‘prevailing rate’ which is currently in the $38-42 range in Massachusetts.”

“It varies by state to some extent. New England has a lot of exceptions, which is why it’s notoriously difficult to get appraisers up there, and in Massachusetts specifically, there are strict laws about Labor Rates; I believe they’re set by the insurance commissioner,” proposed an independent appraiser from Virginia. “Often, the shop has a posted Labor Rate, but the insurer provides us with a rate that we cannot exceed. ‘Prevailing rate’ is the key phrase insurance companies use.”

At that point, the appraiser’s job is to negotiate the price between the shop and the insurer, and if no agreement can be reached, “we inform the vehicle owner that they’ll be responsible for paying the difference, or they can choose to take their car to another shop – but it’s 100 percent the vehicle owner’s decision where their car is repaired,” he explained.

Some appraisers recognize that shops set their own Labor Rates, though they acknowledge the challenges that simultaneously inhibit shops’ ability to do so.

“Shops set their own rates, but the insurance companies want to adhere to the prevailing rate for the area because they don’t want to pay much,” admitted an independent appraiser based in West Virginia. “Shops try to raise their prices, and insurers try to keep costs down.”

An independent appraiser from New Jersey clarified:

“If the insurance company rejects the shop’s posted rate, the insurer has no problem telling the vehicle owner they’ll be responsible for the additional $25 hourly charge unless they move it somewhere else. The shop then has to make a business decision: Do it for $40, charge the balance to the customer, or have them seek services elsewhere. Unfortunately, a lot of shops aren’t in the position to tell customers to pay the balance or take their car to another shop, so effectively, the insurance company sets the Labor Rate. They claim that prevailing rates are developed based on an audit of all the shops within a market, yet if they only survey all the DRP shops contracted to work for $40 an hour, what do you think that survey is going to reflect as the set ‘prevailing’ rate?”

“Insurers collect enormous amounts of data to determine those rates, but it’s usually older data, and it definitely includes DRP rates,” agreed an insurance staff appraiser from Pennsylvania. “Right now, everybody is facing the impact of the workforce shortage, which is pushing wages up, but unfortunately, insurers’ operations do not take that into account. That’s a major frustration point for the folks trying to get the job done.”

A retired staff-turned-independent appraiser residing in Missouri offered a historic outlook. He recalled that shops determined and raised their Labor Rates yearly when he began in the 1960s, but as insurers began establishing preferred networks, they were able to negotiate preferred rates, providing leverage to dictate the rates they’re willing to pay.

“The collision industry walked into their own trap,” he indicated in reference to shops eagerness to join DRPs in the early 1990s. “Shops got what they wanted, but a company sending a significant volume of work tends to insist they deserve this or that. These days, insurance companies set the rate 85-90 percent of the time, but some shops are holding the line and setting their own Labor Rates.”

Shops should get paid for everything they do to repair a customer’s vehicle, yet often, insurers object to paying for OEM procedures. Do appraisers recognize how important it is for shops to adhere to the OEMs’ guidelines in order to ensure a safe and proper repair?

“Any procedure that ensures the vehicle is being properly repaired to its safe, pre-accident condition should definitely be done, but the point of contention comes when certain recommended items could be argued as unnecessary,” the Virginia appraiser said. “The OEM has all the information about the vehicle, so doing what they say makes sense, but it seems like they intentionally make vehicles difficult and expensive to repair because they’re the ones selling parts and services. Likewise, shops always want to do those things because they get more money. That inherent conflict of interest is why the role of appraiser exists in the first place.”

“Should they? Yes, but some obviously don’t,” pointed out the West Virginia appraiser. “Lower end shops aren’t up-to-date on some of these procedures; education isn’t a top priority for them, so they’re just doing things the way they’ve always done them.”

Repair shops should “absolutely” follow OEM procedures, according to the Massachusestts appraiser. “When I was writing appraisals, I never ran into an instance where we did not pay for that. We recently had a huge job in the shop, and though we could have sectioned a part of the repair, the OEM guidelines instructed us differently. We followed their procedures, and the carrier didn’t have a problem with that.”

“OEM recommended and required procedures should be followed 100 percent of the time,” expressed the New Jersey appraiser whose secondary business focuses on diminished value claims. “People don’t know what they’re entitled to, and though the insurer knows, they won’t mention their obligations. When does it become unethical? Successful shops focus on education, yet insurance companies hire an inexperienced college graduate to write an estimate and tell you how to fix that car. When I ran a shop and consumers told me, ‘The insurer says you don’t have to do this,’ I’d ask if they wanted the guy with the pen to fix their car…or the one with the proper tools and equipment.”

The Pennsylvania appraiser took a stronger viewpoint on the matter:

“The shop has to watch their own back legally, so if an OEM says, ‘Do A, B, C and D on this vehicle,’ I strongly advise them to do A, B, C and D! If not, they open themselves up to liability. Unless the insurance companies are willing to sign off and accept liability, shops have to follow those guidelines, or they’ll wind up in front of a judge being sued and possibly even losing their shop. Running a collision shop in the current environment is one of the most difficult jobs in the world, and I have a lot of respect for those guys.”

An appraiser’s job is to negotiate the cost of the repair, but shops often complain that negotiations never occur. If that’s their primary purpose, why are they neglecting to perform their duty? Or are shops even attempting to negotiate?

“Some shops attempt to negotiate pretty frequently,” the appraiser from Virginia acknowledged. “Here’s the thing: The insurer and the appraiser also want the repair to be performed per OEM procedures, but arguments arise when those procedures are unclear or the shop doesn’t provide clear documentation. Some shops are notoriously difficult to deal with; they refuse to play ball with insurers, but if you want to do insurance repairs, you have to deal with insurers.”

The West Virginia appraiser agreed.

“Some shops are laidback and will take whatever you write and supplement it later, but others are real sticklers for every dollar. I want shops to receive everything they’re entitled to, but these days, the estimate is just a starting point. Nine out of 10 times, we’re going to have a supplement. My ability to negotiate the claim depends on the insurer. Some grant me the authorization to approve Labor Rates that exceed the prevailing rate, and others require me to obtain their approval first.”

“Shops often asked to adjust their Labor Rate, but rates were set by my employer,” recalled the former Massachusetts appraiser. “Only one company allowed me to negotiate rates but only on the mechanical side; body repairs were still set at a fixed rate.”

The Pennsylvania appraiser recognized how frustrating negotiation attempts can become, especially since “the folks they deal with daily have no authority. They may want to negotiate, but their software platform prevents them from inputting rates outside of certain parameters. Appraisers are increasingly limited to what they can and cannot do based on the technology they’re using. They literally cannot negotiate beyond a certain point because the insurer’s software won’t allow it.

“Regional managers have the authority to make those decisions, and that’s who shops should negotiate with,” he recommended. “Larger shops have more opportunity to do that because they have more influence than smaller facilities. In our current situation, we’re experiencing hyper-inflation, supply chain disruptions, a workforce shortage and all sorts of pressures that don’t normally exist, which are complicating matters significantly. Trade groups have a great opportunity to advocate for their members by engaging with regional executives for insurance companies.”

“The big ones – Caliber, Maaco, Crash Champions – never seem to fight us. They just write it up and don’t ask for anything…they’re giving away the farm!” The New Jersey appraiser added, “But those conglomerates are 30 percent of the market. Another 30 percent of shops try to get the work away from those conglomerates, so they’re bending over backwards too. That leaves the last 30 percent of shops that are fighting to get it done right. Too many shops depend on insurers for work; insurance companies have body shops cannibalizing themselves.”

So, shops can negotiate with appraisers, but some negotiations are obviously more successful than others. What’s the most effective way for shops to negotiate with insurance adjusters?

“Yelling doesn’t work,” stressed the Massachusetts appraiser. “I’ve had shops scream at me, so I’d leave and tell them to call me when they want to have a reasonable conversation. Write estimates fairly and accurately. Be reasonable and credible, and then stand your ground. In a lot of cases, the appraiser will agree with you as long as you explain and document it well.”

“The best weapon a shop has is the recommendation or requirement from I-CAR or the OEM,” according to the West Virginia appraiser, who offered a caveat, “But the shop needs to have supporting documentation and photos to negotiate successfully. Some are extremely aggressive and seem to go out of their way to drive up costs, but I can’t just give them carte blanche to do whatever they want without evidence of why it’s needed.”

The retired Missouri appraiser offered some unique insights.

“The time-honored way to negotiate is all about reasonableness. Bring it up, and discuss it. Why be bashful? I recently took my own vehicle into a shop, and when they told me the insurer wouldn’t pay for something, I questioned them, ‘Did you ask for it?’ They did three months ago. Well, if you need to get paid for it, you may have to fight for it. Adjusters don’t always understand because they’ve never been taught, but shops try to bill a procedure once, get told ‘no’ and never try again. Whose fault is that?

“Have the business decorum to step up and explain that the manufacturer says you need to do this,” he continued. “The adjuster may not believe it, but if you start laying the documentation on the counter, that’s all we can ask – you’re providing what we need to explain to our supervisor. If you don’t provide evidence, we won’t pay for it. If the stream flows downhill, you need to build a solid dam to hold water; it won’t hold anything if it’s not solid. Likewise, the adjuster needs solid documentation to protect themselves and justify their decisions.”

Suggesting that it’s important for shops to know what they’re doing and to stand their ground, the appraiser from New Jersey mentioned several shops in his area that are willing to “stick to their guns.”

“They have no problem telling an appraiser, ‘This is my Labor Rate, so this is the amount you’re going to pay me.’ I’ve watched appraisers take an estimate to their car, call their supervisor and then pay exactly what the shop asked. Insurers only allow one specific adjuster in many of these shops because they don’t want anyone else to know what they’re paying him. These are the guys who document, send pictures and provide a parts invoice when asking for anything. They meticulously repair vehicles the right way, and if a customer wants something done differently, they’ll tell that customer to take it somewhere else.”

“Shops should ensure that the people handling their insurance negotiations understand how the process works,” suggested the Virginia appraiser. “Many people deal with insurance repairs every day and don’t understand the first thing about the claims process, how it works and even who has the authority to do what they’re asking. If an insurer rejects a rate, the shop often takes it as a personal slight against them. It’s not my decision – a lot of insurance companies have set rates, and arguing for a higher rate might be a lost cause unless you talk to someone who has the authority to get you what you want. As appraisers, we’re the middlemen who communicate the insurer’s intent and rules, but we don’t make those rules.”

As the Pennsylvania appraiser already stressed, appraisers don’t always have the authority to negotiate as much as they’d like.

“Shop owners can call the large insurance carriers they work for and ask to talk to the manager, so you can share evidence that their estimates don’t align with your actual costs. If you have a reasonable relationship with the insurer, there may be an opportunity to make a change, but it takes time to contact them and provide that evidence. That’s frustrating for a guy who is just trying to run his shop, but it’s really the way to do it. Shops and insurers should come together to look at some of the challenges and identify possible ways to fix them. Both entities want cars fixed and returned to their clients. Communication and discussion builds relationships which can provide better solutions.”

Negotiations in Massachusetts are often particularly polarizing due to collision shops in the Commonwealth receiving the lowest labor reimbursement rates in the country, despite having one of the highest costs of living. New England Automotive Report asked appraisers one more question:

Do you believe that insurers’ insistence on paying Massachusetts shops a labor reimbursement rate of $40 an hour is sufficient for those shops to maintain a high level of repair?

“That’s really low, so I don’t see how they could,” admitted the West Virginia appraiser.

“That’s terrible! That’s so wrong!” exclaimed the appraiser from Pennsylvania. “I cannot believe they’re able to find competent shops at $40 an hour. My sense is that it’d probably take twice that…and that may still be too low, particularly given the workforce shortage that’s going on.”

The Massachusetts appraiser owned a collision shop in the late ‘80s and shared his remembrances of that time in relation to the question:

“The Labor Rate was $26 an hour then, but that was over 30 years ago. Based on the normal cost of living increases over that time period, the Labor Rate should be $65-70, but it’s only gone up $12 in 35 years. Everything else constantly increases by 12, 15 or 20 percent every year.”

“That’s a much wider-reaching problem in general in the sense that rates, wages and fees aren’t keeping up with inflation,” the Virginia appraiser pointed out. “Shops used to increase their rates regularly, but every extra cent is like trying to pull teeth with the insurance company who constantly battles to keep severity down and judges the appraiser by how much they pay out on each repair order. If your salary doesn’t increase yearly to keep up with inflation, you’re essentially taking a pay cut. Body repair has gotten more difficult, but shops shouldn’t be doing harder work for less money. Vehicles are getting more expensive, and more vehicles end up being total losses. That doesn’t benefit the shop, the insurer or the vehicle owner. It’s becoming impossible to repair any vehicle through the insurance process.”

He also expressed concern with the impact that low Labor Rates have on the ongoing technician shortage:

“If repair capacity falls below a certain threshold, that could fundamentally change what it means to own a car, so if you’re a vehicle owner, the tech shortage is your problem too. Insurers need to pay shops more so they can adequately compensate their technicians, but then it becomes more expensive to buy and insure a car. Where does it end? It’s a feedback loop that’s going to cause massive disruptions in the automotive and collision industries.”

“The quick easy answer is ‘NO’ based on today’s costs and complexity,” the Missouri appraiser hedged. “But the correct answer is a little harder. Why is the rate still that low? Honestly, the collision repair industry could make more progress in the right direction if they learned to work together, not as consolidators but as individual shops. Many shops are afraid to say they need something and have an insurance company get mad at them; they shy away from charging what they should for their business because they’re scared to be rebels. So, they’re at fault too.”

With a firm answer of “absolutely not,” the New Jersey appraiser challenged “anyone to tell me of another industry that works for $40 an hour…you can’t even get your lawnmower fixed for that. That’s ridiculous to charge such a low rate. Shops that buckle aren’t doing any favors for themselves – or for anyone else! If shops would only realize that they have all the power, this would be a completely different industry, but body shops are their own worst enemy.”