Thumbs Down to Insurers’ ‘Rule of Thumb’

Thumbs Down to Insurers’ ‘Rule of Thumb’
By E. L. Eversman, J.D.
From BodyShop Business, 11/05/2012

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Paint and material payments have typically been tied to the number of paint-related labor units allotted for repair of a vehicle at half the body labor rate.

This method has come under criticism of late – with good reason. No one has ever demonstrated what relationship the number of work units has to do with the amount of paint and materials necessary to complete a repair. Likewise, no one has ever demonstrated how a value reflecting half the body rate multiplied by the number of refinish units is an appropriate measure of the goods incorporated into the customer’s vehicle or consumed during the repair. This method is simply a one-size-fits-all multiplication task that fails to account for any distinctions in the unique nature of each repair or other variables like differences in paint product price. Instead, this payment method is based solely on a “rule of thumb.”

It seems that the time to address the forced below-cost selling of paint and materials in the collision repair business is at hand. Such activity is not only improper but is typically illegal. Any repair shop, whether a DRP shop or non-DRP shop, needs to immediately look at its method of determining paint and material costs to ensure it’s not using a method that results in sales of these goods below the shop’s acquisition cost. Otherwise, shops may find themselves the subject of a criminal or civil investigation into improper selling activities.

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