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All in the Family . . .
Some Allstate / Sterling Observations by James Lynas

Tempe, AZ, 05/28/2001 - On this Memorial Day we are reminded of how diverse efforts can come together for a common good. While I-Can is an effective voice of reason working on behalf of insurance consumers, we are clearly not a lone voice in the wilderness. We are proud to work closely with other efforts in our common mission to bring about beneficial changes.

Among those with whom we network is James Lynas of Wreck Check, Inc. Mr. Lynas is a dynamic personality with a unique talent to see both the Forest and the Trees.

Jim has put a pen to some of his observations on the Allstate Insurance purchase of the Sterling chain of body shops and has given us permission to share his thoughts with you here. The following is brought to you by James Lynas of Wreck Check, Inc.


All in the Family

Allstate recently announced the acquisition of Sterling Collision Centers, Inc., a consolidator with 39 locations across the United States. As in most cases within the collision industry, this tidbit of information has many second-guessing the ramifications of Allstate’s action. What will this mean to the average shop owner or consumer?

The Allstate policy has not been re-written to require any insured to take their car to a “preferred provider” as in an HMO type policy. Unlike medical coverage where the effects of denying human medical treatment cannot be accurately measured, collision repairs are quite easy to inspect for remaining ailments and injury. Continuing the repairs to pre-loss condition or paying DV are two methods consumers can use to resolve the issues inherent with a cheap repair. Collecting this data from the post repair inspections is an important anti-steering tool in battling the insurance industry’s claims that the “other shop will do it just as good for a lot less.” Showing your customers actual pictures of the repairs you have inspected, and allowing your new client to contact the DRP’s old client can’t be beat. It would not matter if the shop was owned by Allstate by purchase, or owned by Allstate by virtue of a DRP agreement. The results will be the same.

The Threat of Consolidation . . .

A few years back the collision industry (the vast majority of whom were single store operations) lamented over the impending doom of their enterprises at the hands of consolidators. Consolidation was launched like a rocket, only to find out they had not calculated for the atmosphere and gravity. As it turns out, producing high quality collision repairs in large volumes is easier said then done. The main stumbling point has been the availability of qualified technicians to staff these centers. I recall one consolidator announcing that he would be implementing a program to fully train new technicians in a few short weeks! Qualified inspection of the repairs produced by these consolidators proves that the process leaves much to be desired. Just because it looks repaired does not mean it is repaired.

Most of the consolidation groups have failed to meet their model of self-funded expansion and have required tremendous influxes of cash. Growth of the consolidation movement has slowed dramatically and some insurers have even withdrawn support from some of these entities, and for good reason. Just as with the defective imitation parts, without support of the insurance industry, these entities would not survive.

There is much at stake for the insurance industry in the consolidation concept. With a “Home Depot” of collision repair, parts and material purchases could be minimized and the profits funneled right into the pockets of the insurance industry by lowering claims payments to these entities. Negotiating the discounts or free services with the management of Sterling is much easier than negotiating them with each of the 39 individual locations. And now of course, if Allstate owns the entity they don’t even have to ask for the discounts, they can just take them. Many argue that these shops will be the model by which all shops will be underpaid because Allstate’s own shops can operate at a loss which will be covered by the insurer. Allstate in essence can run a zero profit string of shops and tell the rest of the world that this is all they will pay anyone.

State Farm does not like the plan and has reportedly cancelled any relationships they had with the Sterling shops. Why would State Farm clear away like a crowd that retreats from immanent danger? If State Farm has no confidence in these facilities, why should the consumer?

What About Liability ?

I believe that the Achilles heel of the purchase of any group of shops by any insurer will be the liability of all of the shops as one sole entity instead of individually owned shops. When a few Sears Auto Centers were found guilty of fraud (billing for more hours than it actually took to do the repairs) it sent a shock wave across the nation. The Sears fraud story ran on every network coast to coast. Sears has still not fully recovered from that debacle and there hovers a lingering question of doubt over the chain to this day. The Sterling acquisition makes Allstate and Sterling a prime target for any actions of one facility being held against the entire entity. If one Sterling shop is found guilty of defrauding a consumer, then they are all guilty of fraud, including Allstate.

During post repair inspections it is easy to determine if there have been negligent repairs, fraud, and violations of the consumer’s rights. The cozy relationship will expose both entities to a series of legal questions over who has the right to contract for the repairs, and does Sterling have any legal right to negotiate any insurance settlement on behalf of its customers. Any unsatisfied consumer can argue that Allstate interfered with their sole legal right to contract for the repair of their vehicle. It can also be argued that the shop interfered with the contract of insurance and negotiated the consumer’s claim without the legal authority to do so. With the combined resources of both the Sterling group and Allstate as a potential prize to a victorious plaintiff, those questions may be asked sooner than later.

Consumers are developing an intense mistrust of insurance companies based on either their own personal experience or press reports of the failed HMO concept. Widely publicized cases like the California earthquake claims and the State Farm imitation parts case have added to this mistrust. It is a widely accepted fact that insurance companies do not have your best interest in mind when involved in your health care decisions, home losses or collision repair. That mistrust in consumers will intensify when they realize their insurer owns the repair shop. Based on the universally poor quality of the average collision repair, and the growing mistrust that consumers have of insurance companies, the post repair inspection industry started a few years ago by Wreck Check, will be in a unique position to capitalize on these developments. Post repair inspections are here to stay.

I believe that the most important lessons to be learned from this acquisition still remain to be taught. I feel that Allstate may learn directly what every shop across the country already knows, and that is that collision repair is a much harder business to master than you would think. Unlike a Home Depot, you don’t just stock similar products in identical stores. There is intense mechanical and artistic ability required to repair each vehicle. That takes a lot more than knowing what isle you keep roofing tar in while smiling at your client.

The proof of success or failure of this endeavor will be the vehicles repaired by this two-headed entity. The eyes of the courts, consumers, and post repair inspectors will be watching and waiting.


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.

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