Louisiana Voice

The brewing legal battle between Louisiana automobile body shops, represented by the Louisiana Collision Industry Association (LaCIA), and a couple of dozen insurance companies has far reaching implications that go much further than just the current dispute between the LaCIA and the insurance companies, according to information obtained by LouisianaVoice.

Efforts by the automobile insurance companies, led by industry giants State Farm, Allstate, Progressive and GEICO, date back to the 1990s and continued through Hurricanes Katrina and Sandy and now the companies have moved into what one LouisianaVoice reader calls managed care for the auto repair business by the insurance industry.

Along the way, the insurance companies received invaluable assistance and coaching from McKinsey and Co., the company for whom Gov. Jindal worked for several months in his only private sector gig before entering public service. The advice provided by McKinsey came at a steep price but in the end, it helped the insurance companies to reap record profits, even in the wake of Katrina, one of the worst hurricanes in terms of dollar cost to ever strike the U.S. mainland—at the expense of thousands of homeowners in New Orleans, New York and New Jersey and the Mississippi coast.

Between 1992 through 1997, Allstate executives and their consultants from McKinsey met at the Allstate’s Northbrook, Ill., campus, to develop a complete overhaul of Allstate’s claims system. What emerged was the now infamous policy of “from good hands to boxing gloves” method of dealing with policy holders/claimants who refused the company’s initial settlement offers, which typically were far below replacement costs.

In 2003, the largest wildfire in California history destroyed 2,232 homes, including Julie Tunnel’s $300,000 home. Her insurance adjuster, from State Farm, offered her $184,000 as a cost of rebuilding. http://www.bloomberg.com/apps/news?pid=nw&pname=mm_0907_story1.html

That “deny, delay, defend” strategy was revealed in its stark nakedness when it was learned that McKinsey was coaching Allstate and State Farm on methods to delay and/or deny claims of homeowners in the New Orleans and north shore areas and along the Mississippi Gulf Coast who suffered devastating property losses during Hurricane Katrina. One of those victimized by the less-than-good-faith-dealings was none other than then U.S. Sen. Trent Lott of Mississippi.

It was in the wake of $4.2 billion in claims stemming from 1989’s Hurricane Hugo which battered the Carolinas that Allstate first sought the services of McKinsey and State Farm quickly followed suit. McKinsey subsequently generated 13,000 pages of documents, including PowerPoint slides in developing the strategy for higher profits which would quickly give the two giants the distinction of ranking among the worst insurance companies in America. Those rankings placed Allstate at the top of the worst list and State Farm fourth. http://www.justice.org/cps/rde/justice/hs.xsl/2323.htm

With Allstate’s CEO proclaiming that the company’s mission was “to earn a return for our shareholders” (as opposed say, to such a radical philosophy as customer service, good faith settlements and claimant satisfaction), Good Hands adjusters worked under strict guidelines to protect the bottom line or risk losing their jobs. http://stlouis.legalexaminer.com/automobile-accidents/allstate-you-are-not-in-good-hands/

So by virtue of its adjusters’ adoption of the fundamental mantra of “Allstate gains—others must lose,” the company reaped $4.6 billion in profits in 2007, even as it was still denying, delaying and defending against record property loss claims from Katrina just two years before and Hurricanes Gustav and Ike in 2006. http://www.huffingtonpost.com/2011/12/13/insurance-claim-delays-industry-profits-allstate-mckinsey-company_n_1139102.html

Almost unperceptively to all but auto repair shops and their customers, the insurance companies also embarked upon a similar ploy to increase profits in the area of auto insurance while at the same time forcing auto body shops into accepting considerably lower profits or to use less desirable after-market, or generic, parts.

New Jersey auto repair shops have sharply criticized State Farm’s cozy relationship with a company called Parts Trader, an online procurement program out of Illinois. Spokesmen for auto repair associations in both New Jersey and Mississippi claim the forced implementation of the Parts Trader program is in direct violation of a 1963 Consent Decree and is State Farm’s way “to get back into the aftermarket parts business and not have their handprint on it.”

“The profit we make on our parts goes to offset the insufficient labor rate,” said Jeff McDowell, president of the New Jersey chapter of the Alliance of Automotive Service Providers. “Materials go up, and we don’t get an increase.” http://onlinedigeditions.com/article/Partstrader+In+New+Jersey%3F++Not+Without+A+Fight!+/1519060/0/article.html

In October of 1999, CBS News reported that an Illinois judge awarded $730 million to State Farm policyholders whose vehicles were repaired with after-market parts. It was the second such decision within a week. Just days before, a jury awarded $456 million in another case involving knockoff replacement parts. http://www.cbsnews.com/news/state-farm-loses-big-in-court/

Immediately following the two adverse decisions, State Farm announced it would temporarily suspend the use of the after-market parts in favor of parts made by auto manufacturers—the moral equivalent of a politician’s apologizing for his inexcusable behavior only after being caught in an extra-marital affair.

The generic parts have come under criticism from auto body shops as being cheap, flimsy, imitation parts that don’t fit and which have poor finishes, don’t hold paint, have little, if any, corrosion protection and which lack structural integrity.

But in the interest of their own bottom line, the insurance companies were perfectly willing to foist these parts upon their unsuspecting policyholders who simply grit their teeth and write the checks whenever premiums increase.

But with the filing of lawsuits last August in Mississippi http://partschecklive.files.wordpress.com/2013/10/partstrader-ms.pdf and in Florida here and Indiana here earlier this year by auto repair shops—and the expected filing in Louisiana—the repair shops are teaming up to present a united front against yet another profit-driven tactic by the insurance companies: forcing shops to either reduce their hourly labor charges or risk having business directed to other shops by the insurers.

The Society of Collision Repair Specialists (SCRS) issued a strong statement in opposition to the practice of the insurers last September in which it said the organization “takes exception to business mandates that property and casualty insurers impose upon collision repair businesses. http://www.fenderbender.com/FenderBender/September-2013/SCRS-Releases-Statement-About-State-Farm-PartsTrader-Lawsuit/

Apparently the insurance companies have no problem with the concept that auto repair shops should be prohibited from making a fair profit—especially if benefits their own shareholders.

Complaints to the Louisiana Department of Insurance, meanwhile, have fallen upon deaf ears, according to several shop owners.

Small wonder. As might be expected, Insurance Commissioner Jim Donelon derives the bulk of his campaign contributions from the companies his office regulates. Who else, after all, would be motivated to contribute to the campaign to elect an insurance commissioner?

But even Gov. Bobby Jindal has benefitted from the generosity of the insurance industry to the tune of $119,000 since his initial run for governor in 2003. Of that amount, at least $15,000 came from three companies named as defendants in the Florida and Indiana lawsuits: $5,000 each from State Farm, Allstate, and Zurich American.

Donelon, who would be expected to fair even better from the insurance industry, did. He received $30,000 from defendants in the Indiana and Florida lawsuits—Liberty Mutual ($5,000), Progressive ($6,500), Allstate ($2,500), GEICO ($11,000), State Farm ($2,500), Security National ($1,500), and Travelers ($1,000).

Overall, Donelon has received more than $675,000 from insurance companies just since 2006, the year he took office.

Attorney General investigator Randy Ishee has been looking into the practice, called program agreements, whereby the insurance companies are demanding that repair shops enter into agreements to lower their hourly rates or be faced with blackballing by the insurers. One representative for the repair shops said a State Farm representative became belligerent while making his demands.

Alysia Hanks, executive director of the Louisiana Collision Industry Association (LaCIA), said Ishee’s probe has developed so much information that he found it necessary to recruit a second investigator to assist him.

LouisianaVoice was told that Ishee had communicated in writing with the Department of Insurance on at least two occasions concerning the program agreements but when a public records request for those communications was made of the Insurance Department, we were told the department was in possession of no such documents.