Allstate Insurance Buys Sterling Body Shop Chain
Tempe, AZ. 05/14/2001 - A watershed event took place this past Tuesday (April 08, 2001) when Allstate Insurance confirmed rumors that it was buying Sterling's chain of thirty nine (39) collision repair facilities. Sterling's locations breakdown as follows . . Atlanta  - Chicago  - Cleveland/Akron  - Detroit  - Houston  - Jacksonville  - Philadelphia  - and Pittsburgh . The purchase price has not been disclosed. Expansions are expected.
. . . Some Troubling Observations !
Three days prior to the official announcement, Crash Network broke this story as a "Rumor" in their weekly fax updates. This weeks Crash Fax goes further into internal details which would be of interest to Collision Repair Facilities everywhere and of Critical interest to Collision Repair Facilities in the cities referenced above. Collision industry entities are encouraged to subscribe to this service. Those interested can contact the Crash Network online by going to www.CrashNetwork.com.
Sterling has DRP (Direct Referral Program) relationships with multiple insurance companies. However, when the announcement of this purchase was made, State Farm announced it was severing its relationship with Sterling. Other similar announcements are expected.
While this purchase is expected to have severe consequences for non-Sterling Allstate DRP collision repair facilities, I-Can's Mission requires we examine this event from the perspective of potential implications for Insurance Consumers.
Is This Legal . . .
While I-Can does not presume to have the legal expertise to answer this question, our efforts relative to the 1963 Consent Decree and our rudimentary understanding of the Sherman Act (anti-trust) and the McCarran-Ferguson Act (anti-trust exemption for "Business of Insurance"), gives us pause to ask this question.
The McCarran-Ferguson Act allows insurance companies to enter into Horizontal Relationships with each other thereby allowing limited Price Fixing in deference to the benefit of Consumers having a financially sound insurance industry. However, in 1963, the US Department of Justice (at the direction of then US Attorney General Robert F. Kennedy), brought suit against the insurance industry alleging a conspiracy to engage in Vertical Relationships with service providers designed to defraud Consumers by artificially suppressing insurance claim settlement values. That suit was resolved by virtue of entering into a Consent Decree which, in effect, said . . "No we didn't do it, and we promise to not do it anymore".
The 1963 Consent Decree document is published to the I-Can web site for your review. Online readers of this Press Release can simply Click Here to access it. Those interested in joining an effort to see the 1963 Consent Decree enforced are encouraged to go online to www.ConsentDecree.com.
Since 1963 the auto insurance industry has become heavily involved in DRP relationships with service providers which has again worked to artificially suppress claim settlement values. While this practice is widespread throughout the auto insurance industry, I-Can views Allstate's outright purchase of Sterling's Collision Repair Facilities as the most recent, most flagrant and most defiant example of a Vertical Relationship precluded by the 1963 Consent Decree. "Is This Legal"? Read the 1963 Consent Decree and decide for yourself.
What Does This Mean to Consumers . . .
It is necessary to be said here that I (Dennis Howard) started my insurance career with Allstate in 1965 and have spent the past 15 years assisting Consumer involved in claims with Allstate. This may give me either an insight or a prejudice as the reader may impose.
Over the past 35 years I have seen Allstate introduce bold innovations in the field of insurance claims. I have also seen some of those innovations evolve into instruments of fraud and abuse. I have seen Allstate's arrogance at work and am aware of their often flagrant use of power to subdue those who would stand up for their legal and contractual rights. In short, my suspicions here go to "Motive".
It is no secret that ownership of a non-profitable subsidiary can provide some attractive tax benefits to the parent company. All insurance companies, including Allstate, are consistently involved in cost containment efforts. Some insurance companies take a more reasonable approach to this issue than do others. Lesser known among Consumers is the auto policy language referencing "Prevailing Rate". In effect, the "Prevailing Rate" clause in your auto policy means your insurance company owes an amount to repair your vehicle that is consistent with what 51% of service providers in an area would charge to perform appropriate repairs. It is also a given that those who purchase Parts, Materials and Equipment in High Volume will realize a significantly lower Unit Cost.
Assumptions . . .
Now stay with me here while we examine a debatable hypothesis. Consider the possible consequences based upon the following assumptions. Assumption # 1 - Sterling, with Allstate's backing, enters into volume buying contracts that enable Sterling to purchase Parts, Materials and Equipment even below that which local wholesalers would have to pay. Assumption # 2 - Allstate finances Sterling's expansion with funds loaned at a rate below even that which Banks have to pay the Federal Reserve. Assumption # 3 - Allstate is able to "Steer" the majority of their repair work (51% or more) to their Sterling facilities in a given market area. Assumption # 4 - Allstate chooses to interpret their policy's "Prevailing Rate" clause as meaning 51% of THEIR OWN work performed in a market area. Assumption # 5 - Sterling operates at a Loss.
Potential Consequences . . .
Potential Consequence # 1 - Would it be reasonable to assume that such actions as outlined above would drive Competing Body Shops out of business? Potential Consequence # 2 - Would this absolute authority over a Vertical Relationship be leveraged to artificially suppress claim settlements even further by requiring Consumers to pay "Out of Pocket" to have their damaged vehicles repaired at non-Sterling facilities? Potential Consequence # 3 - Would this absolute authority over a Vertical Relationship exclude Consumers from the repair decision making process? Potential Consequence # 4 - Would Allstate leverage their authority over this Vertical Relationship to suborn inferior (or unsafe) repairs? Potential Consequence # 5 - Once Allstate had realized their maximum advantage from this Vertical Relationship, would they "Shell" and then Bankrupt their Sterling subsidiary? Such a move is not without precedent in the corporate world.
Preliminary Conclusions . . .
Because of the extraordinary influence Allstate would have over the collision repair industry (by virtue of this Sterling acquisition), and the extraordinary potential for future Consumer abuses, it is our lay opinion this development is worthy of closer examination by Federal Authorities and the Mainstream Media. This is EXACTLY the right time for enforcement of Federal Regulations and a renewed regard for Consumers' Rights.
Recommendation . . .
Until Allstate's motives have been examined, and the legality of their conduct has been examined, we at I-Can recommend Allstate policyholders "Shop" for a replacement auto policy when their current policy comes up for renewal. We see some very real "Pot Holes" down this road Allstate has chosen to travel.
The Insurance Consumer Advocate Network is an InterNet based consumer advocacy effort designed to Increase Consumer Awareness as to Insurance Related Issues, Encourage Consumer Involvement with Insurance Related Efforts and Facilitate Consumer Contact with Pro-Consumer Entities.
The InterNet web site for the Insurance Consumer Advocate Network is www.iCan2000.com.