Are Recommended Repair Shops Good for Consumers? 3 Key Questions

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This week, Pennsylvania District Judge Kim R. Gibson refused a request from Progressive Casualty Insurance Co. to dismiss a lawsuit against the company for alleged bad faith insurance practices. Ron Perretta, owner of two Pennsylvania body shops incorporated under the name Professionals Inc., is seeking $8 million from Progressive and more than 30 other insurance companies as compensation for denied and delayed payments, as well as his own legal fees. Perretta claims that these insurers refuse to pay his shop the amounts necessary to perform adequate repairs, forcing him to regularly do work at his own expense.

Perretta's dispute joins a nationwide trend of shop owners who participate in direct referral programs (DRPs) filing grievances against insurers. Shop owners claim insurers are breaching their contracts with policyholders by underpaying their referred body shops. These legal battles raise troubling questions for the millions of drivers across the nation who regularly follow their insurers' DRP recommendations to receive vehicle repairs. Here’s a rundown of what we think car owners should know about the DRP conflict.

What are DRPs?

DRPs are collaborations between insurance companies and auto body shops, which are meant to benefit all parties involved, including the driver. Body shops agree to the use of generic parts and lower repair prices, which are set by insurance companies. In exchange, insurers agree to refer local policyholders to that shop. Drivers, meanwhile, will have their car repaired more quickly. In some cases, they won't have to seek reimbursement for those repairs—the insurance company will pay for the work directly.

Many shop owners depend on DRPs for a substantial portion of their total business. However, some have claimed that participating insurers refuse to pay the amounts needed to purchase quality parts and perform adequate repairs. Instead, shops—such as Professionals Inc.—end up doing work without compensation. Some shops are even forced to cut corners. This is the claim made by John Eagle Collision Center, a Texas auto body shop that was ordered to pay $31.5 million in damages to a Dallas couple after the shop deviated from Honda's repair recommendations—a decision that led to fourth-degree burns to the car's owner. John Eagle was ultimately held liable for the inadequate repairs, but the shop's director suggested that the decisions they made were guided by what insurers are willing to pay for.

Are generic parts safe to use?

There's no evidence that generic parts perform more poorly than original equipment manufacturer (OEM) parts, according to the Insurance Information Institute (III). The risk for drivers emerges if shop workers feel pressured to get work done more quickly or cheaply, in order to save money. For example, in the case of the John Eagle Collision Center, the shop used glue, rather than a welding technique, to attach the roof to the car. This simple shortcut caused the car to buckle during a collision, leading to the driver's injuries.

Should I follow my insurer's DRP recommendation?

Insurance companies insist that DRPs are good for consumers. By participating in a DRP, policyholders will know that the repair shop they're visiting has been vetted and guaranteed by their insurer. After all, it's in the insurance company's best interest to ensure quality repairs are made to the vehicles it insures. And—while most DRP agreements do encourage the use of generic, aftermarket parts—the Certified Automotive Parts Association (CAPA) inspects and guarantees the quality of all generic parts typically used in a DRP.

Further, the use of aftermarket crash parts and DRPs substantially decreases the price of insurance for consumers, according to the National Association of Mutual Insurance Companies (NAMIC). NAMIC also claims that DRPs help to fight against insurance fraud, since they align the incentives of insurance companies and auto body shops.

However, car owners should familiarize themselves with their rights, in case they're uncomfortable with the repairs made to their vehicle. First, your insurance company cannot require you to use their recommended repair shop. You always have the right to go to the shop of your choice. Second, if your collision policy only covers generic parts, you have the right to request that OEM parts be used. However, you may have to pay the difference between the price of the generic and OEM parts. Finally, if you're unsure whether generic parts will be used in your vehicle, ask for an estimate from the repair shop. Many states require that the use of generic parts be disclosed in an auto body shop's estimates. If it doesn't, just ask the shop's repair specialist about the parts they're using.

The article, Are Recommended Repair Shops Good for Consumers? 3 Key Questions, originally appeared on ValuePenguin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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