Just the other day a colleague of mine spoke with an auto body repair facility who is a DRP for several insurers and a few “claims vendor and repair management” firms. In the course of conversation, the repair shop mentioned the network process and the “discount” they have to provide to the claims management firm to become part of the “network”.
After getting a general idea of the entire process, it seemed a little strange. In a nutshell, the claims management firm has accumulated a “network” of auto body shops who agree to take a discount on the final repair bill. It could be as low as 5% or as high as 15% depending on the arrangement between the claims management firm and the shop.
The insurers who sign up with such claims management firms are sold the idea that the claims management firm has experienced in house personnel who work to monitor and reduce the repair shops repair estimates to an acceptable amount thus saving the insurer thousands of dollars.
The puzzling fact to me is that the claims management firm receives a percentage cut of the discount the shop “agrees to” in order to become a network member. In my opinion this is a direct conflict of interest as the claims management firm’s job is to represent the insurer. For example, if a vehicle is at a “network” shop and the estimate is at $3,300.00, the in house auditor may whittle the repair to $3,000.00. The insurer sends a check to the claims management firm for $3,000 to pay the shop. The claims management firm in turn sends the shop a check for $2,700.00 and the claims management firm pockets $300.00.
While the insurer may feel they are getting a good deal as the claims management firm lowered the cost from $3,300 to $3,000, I question if the shop is over inflating the original estimate in order to settle at the figure they would have expected in the end with the claims management firm leaving $300.00 in leakage to the insurer.
The insurer could have simply paid an independent appraisal firm to inspect the vehicle in person at a mere fraction of the cost and settled the file for $2700.00 from the beginning. Based on my initial analysis of this “repair network…. claims management” style program, I would venture to say that insurers who are utilizing such an arrangement may not fully be aware of how it works. It’s much like the fox guarding the hen house.
We intend to conduct a full study in the future on claims management programs such as these and will publish a detailed article at a later date.