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Auto body fraud: stop the bleeding.

For over twenty years, I have been inspecting and analyzing vehicles for repair-related issues. Through these inspections, I have observed countless examples of auto body fraud and waste. Much of this fraud is perpetrated against insurance companies, who foot the bill for most repairs at body shops. The traditional model of one entity fixing the car (the repair shop) and another entity paying for the repair (the insurance carrier) has contributed to the problems in detection and punishment of fraudulent and wasteful activity.

Unfortunately, detection and punishment of fraud and waste is often difficult, expensive, and largely ineffective.

Types and Cost of Repair Fraud

How is auto body repair fraud committed? My investigations of 1,000 fraudulent auto body repairs have revealed multiple avenues by which a technician or shop can engage in auto body repair fraud. The most prevalent are:

* Repairing a part, yet charging for a replacement part

* Charging for one type of part, but instead installing a cheaper part

* Charging for labor and services not provided

* Charging for repairing non-existing damage

I have found evidence of fraud or waste in the vast majority of vehicle inspections I have performed. The improper repairs, coupled with remnant damage, frequently compromises the ability of the vehicle's energy management system to properly respond during a vehicular accident. In the event of a subsequent accident, there is an increased likelihood of occupant injury or trauma.

For example, I recently inspected a 1991 Plymouth Voyager for a suspected improper deployment of the driver's side air bag. The air bag deployed as the driver of the vehicle pulled up to a stop sign. As the air bag suddenly deployed, the driver's left arm was slammed into the windshield, shattering his wrist. My examination of the vehicle revealed the airbag deployed as a direct result of improper collision repairs made in conjunction with an earlier accident. To cover up the faulty air bag system, the technician had removed the airbag warning light. Upon further examination of the vehicle, I also discovered remnant buckles in both front rails and significant structural misalignment, indicating prior improper repairs and raising significant safety concerns.

Not long ago, under California Senate Bill 1988, the California Bureau of Automotive Repair (BAR) conducted an Auto Body Repair Inspection Pilot Program study of auto body collision repairs. The focus of the program was to identify auto body repair work that was not done according to specifications in the final invoice. The findings are alarming. The BAR's inspections showed that 42 percent had parts or labor listed on the invoice that were not actually supplied or performed. The average overcharge per vehicle when this occurred was $811.93.

Underlying Reasons for Fraud and Waste

There are many underlying reasons for the rampant fraud and waste in the auto body repair industry:

* Since body shops want the highest possible return for their services, they have an incentive to inflate the repair bill.

* Body shops are often ill-equipped to perform certain repairs. Many skimp on repairs because they do not have the facilities, equipment, or training to complete repairs properly.

* The "one-technician" repair structure of the typical shop can contribute to fraud and waste.

* The costs of preventing and detecting inflated estimates and improper repairs to insurance companies are steep.

* Typical customers are ill-equipped and lack the incentive to detect fraud and waste.

A technician who is improperly trained or does not have the correct tools and equipment available may not be able to properly repair a collision-damaged vehicle, resulting in repair shortcuts. Or, the technician may simply choose not to perform a complex aspect of the repair process in an attempt to complete the job more quickly. This often results in an insurance company paying for repairs that were not properly completed, or paying for parts or materials that were not used.

The technician's pay structure and the organization of most body shops can easily lend itself to waste. Often, a repair technician's financial gains rest on the speed at which a repair operation can be completed. Most technicians are paid a flat rate based upon the hours allocated to perform a repair operation. If the repair job is allocated five hours and the technician finishes it in three, the technician would be paid for the five hours. If a repair step is skipped or if the repair is not properly completed and the job is finished more quickly, more money can be made. Of course, auto body repair fraud is not restricted to only technicians. Fraud can take place at any level of a body shop operation.

Attempts to Reduce Fraud and Waste

Insurance companies have made various attempts to reduce the costs associated with fraud. In the 1970s, insurance companies and auto repair shops began the use of Direct Repair Programs (DRPs). These programs were designed to curtail fraud and waste. Unfortunately, for a variety of reasons, many shops participating in DRP continue to engage in fraud and waste. According to the California BAR, there is no significant difference between the number of complaints against a DRP versus a non-DRP collision repair shop.

The steps taken by insurers to reduce the costs of cheating can themselves be expensive. Insurers perform inspections on a certain percentage of vehicles repaired by DRP shops. Even if the inspections pay for themselves by reducing the costs of fraud, such inspection costs still represent a wasted investment that the insurer would not have to pay for if it did not face the prospect of dishonest shops and the associated fraud and waste in the first place.

Insurers have attempted to cut down on fraud in other ways, too. Nationwide efforts to combat auto body fraud have included increased enforcement activities, stricter regulations, and the development of Special Investigation Units (SIUs). The SIUs provide insurance claims departments with expertise in investigating suspicious claims and often work in conjunction with the National Insurance Crime Bureau (NICB) and law enforcement to investigate auto body fraud.

The use of DRP and the investment in SIU can have some effect on the amount of fraud and waste in the collision repair industry. However, based upon my experiences, auto body fraud remains rampant.

Reducing Fraud Incentive

Insurer ownership of auto body repair facilities and the utilization of the Team Repair Method holds the promise of reducing auto body repair fraud and waste.

Today's modern vehicles often require specialized equipment and technician training for repair after a collision loss. Proper facilities are critical in reducing waste and incentive to commit fraud. A proper facility should be a clean, well-lit, organized, environmentally sound facility that contains the latest equipment and technicians properly trained on their use. Facilities lacking these qualities are more likely to do poor or dishonest work. This is a function of modernization, and, by their very nature, many smaller shops are ill-equipped to keep pace.

An insurer-owned body shop has the ability and incentive to invest in its facilities and keep pace with the latest technological advances. In doing so, the body shop's potential to engage in cutting corners and producing poor, wasteful, and even fraudulent repairs is substantially reduced.

In most auto body shops, when a damaged vehicle is brought in for repairs, a single technician is assigned the job. The technician is solely responsible for repairing all of the body/frame collision damage. Once the technician has completed this, the vehicle is then sent to the painter for refinishing. In this type of repair process, there are very few checks and balances. In my opinion, the common thread linking production inefficiency, waste, and fraud is the "one technician repair" structure and a failure to provide for checks and balances in the process.

In contrast, incorporating the Team Repair Method in the collision repair process addresses a wide range of fraud issues, specifically, the "one technician repair" structure. The Team concept allows technicians with specialized skills to move vehicles through a disciplined, multi-step process with several built-in quality control checkpoints with signoff sheets. Under the Team concept, the overall repair operation is divided into specialized steps. At each step, a technician is responsible for a specific task. Upon completion of the task, the vehicle would be forwarded to the next repair step and its respective repair technician. As an integral component of the Team concept, a comprehensive damage analysis and parts procurement occurs before repairs begin, thus curtailing delays and bottlenecks.

A major factor in the presence or absence of fraud and waste in repair shops revolves around the type of quality control in place to ensure the job is done in an honest and efficient manner. The problem with the one technician structure is that the technician generally audits himself. The Team Repair Method effectively addresses this issue because, as the vehicle is moved along through the collision repair process, a manager is reviewing the completed repair operations at each step. If the work is satisfactory, the vehicle is allowed to continue through. If some aspect of the repair is less than satisfactory, the concerns are corrected at that step of the repair process. Also critical is the final quality control check. This final check would address fit and finish issues and a final detail of the vehicle.

Unfortunately, rampant auto body repair fraud is a national epidemic. The cost to insurers and the public is in the billions of dollars a year. Through insurer-owned body shops and the utilization of the Team Repair Method, auto body repair fraud can be effectively reduced.

Most Prevalent Types of Auto Body Fraud

* Repairing a part, yet charging for a replacement part

* Charging for one type of part, but instead installing a cheaper part

* Charging for labor and services not provided

* Charging for repairing non-existing damage

* Charging for repairing pre-existing damage

* Charging for repairing pre-existing damage.

Dr. Kenneth Zion, Automotive Collision Consultants, Long Beach, California
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2005 Gale, Cengage Learning. All rights reserved.

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Author:Zion, Kenneth
Date:Apr 1, 2005
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