The Not-So-Fine Print on Referral and Program Repair Contracts, Part 1

by Sean Preston, Coverall Law

Coverall Law’s Massachusetts-based team reviewed 14 unique insurer program contracts in preparation for a follow-up to our “Rip the Band-Aid Off: Divorcing your Referrals” article. (See 

The contracts reviewed were as old as 2010 and as recent as 2022. They covered repair programs and referral agreements, but they were largely hybrids, combining elements of the two. Perhaps most perplexing in our research was the Massachusetts Division of Insurance’s lack of any knowledge about these contracts at the outset of our investigation, whereas each contract is supposed to be approved by the Division of Insurance by law. 

While insurance referral and repair programs undeniably offer certain advantages to collision repair shops, it’s essential to shed light on the potential pitfalls that can significantly impact the traditional contractual relationships that repair shops enter into with vehicle owners. Let’s explore some of the challenges repair shops may face as they navigate these programs.

This is the first of two installments on the topic. This month covers insurers’ influence in the repair process and communication issues. Next month, we’ll talk about the ensuing financial issues and preserving repair shop independence.

Increased Influence of Insurers

The automotive repair industry’s landscape has undergone a significant transformation with the proliferation of insurance referral programs. While these programs promise streamlined processes and faster approvals, they bring along a complex web of challenges, notably the increased influence of insurers on repair shops. There are a few nuances of this influence and its potential ramifications for repair shops.Joining insurance referral programs often means repair shops work more closely with insurance appraisers. This collaboration can indeed facilitate quicker approvals and smoother interactions; however, a noteworthy shift occurs when appraisers, particularly those representing the insurer or their managers within the program, wield substantial authority over repair decisions. Insurers routinely promise a guarantee surrounding repairs made at a shop aligned with the insurer, but the contracts make clear that the repair shop is entirely responsible for holding the insurer harmless; when it comes to this empty promise, all repair shops are responsible for the work they perform.

Unlike standard repair scenarios where the repair shop and customer have significant input into the decision-making process, the insurer adjuster, appraiser or their manager often have the final say in program contracts. This dynamic alters the traditional balance of decision-making power in favor of the insurer, potentially compromising the repair shop’s autonomy. In fact, several contracts reviewed allowed insurers to dictate repairs and decide any need for re-repairs, at the repair shop’s cost of course.

Repair shops engaged in insurance referral programs must delicately balance the competing interests of insurers and vehicle owners. The pressure to align with insurer preferences, driven by the desire for smoother processes and continued collaboration, creates a difficult balancing act.

Conflicts of interest may arise when repair decisions deviate from what is genuinely in the best interest of the vehicle owner. The pursuit of efficiency and adherence to insurer priorities might lead to compromises in the repair quality or choices that prioritize cost savings over optimal outcomes for the customer. For example, any delay beyond the time allowed by insurers can result in the shop paying customer rental charges, potentially at no fault of the repair shop. 

Recall that per Massachusetts CMRs (211 CMR 133.04), non-OEM parts may be preferred for cost-savings, and repair shops must get reimbursed when they follow the insurer directive but end up with a non-conforming part. But in several of the contracts Coverall Law reviewed, repair shops are not reimbursed for following the insurer’s directive. Please beware: You can give up many of your legal rights with a valid contract.

Navigating the complex web of increased insurer influence demands a strategic approach from repair shops. Here are some considerations:

1.  Open and transparent communication with both insurers and vehicle owners is paramount. Repair shops should proactively communicate any deviations from standard and OE repair procedures, highlighting their commitment to prioritizing the vehicle owner’s best interests.

2.  Rigorous documentation of repair decisions and adherence to industry standards can serve as a shield for repair shops. Having a clear record of decisions based on safety and quality standards can be crucial when conflicts arise.

3.  Repair shops should take on the role of educators, ensuring that vehicle owners are aware of the dynamics within insurance referral programs. Informing them about the potential impact on repair decisions, the importance of advocating for their own interests can empower customers and the potential that their advocacy puts more money in their pocket. 

4.  Repair shops, individually or collectively, can advocate for maintaining a fair balance of decision-making power within insurance referral programs. This may involve negotiating terms that respect the expertise of repair professionals and prioritize the best outcomes for both insurers and vehicle owners. Massachusetts does have historical examples of shops flexing and receiving considerable concessions.

While insurance referral programs offer benefits, the increased influence of insurers introduces complexities that demand careful navigation. Repair shops must actively manage these challenges to uphold their commitment to quality repairs and prioritize the best interests of the vehicle owners they serve. Your shop’s forms can assert more control in your relationship with your customer. Coverall Law recently released their Massachusetts forms which can help. 

Communication Challenges

In the intricate dance between repair shops, insurers and vehicle owners within insurance referral programs, effective communication stands as a critical pillar; however, the increased involvement of insurers in the repair process brings forth a host of challenges, particularly in maintaining transparent communication with vehicle owners. Consider the multifaceted nature of these challenges and their potential impact on customer satisfaction.

The repair process often involves unforeseen circumstances, adjustments to the initial repair plan and/or unexpected costs. In insurance referral programs, where insurers exert significant influence, repair shops may find it challenging to maintain transparency regarding these deviations. Please note that the contracts reviewed grant broad rights for the insurers to audit many elements of your repair shop.

Insurers can impose specific protocols and guidelines, making it difficult for repair shops to communicate openly about why a deviation from the original repair plan is necessary. This lack of transparency can lead to confusion and frustration for vehicle owners, who may feel disconnected from an already overwhelming decision-making process.

Clear and open communication is the bedrock of trust between repair shops and their customers. When repair shops face obstacles in communicating deviations or unexpected costs due to insurer influence, it can easily result in a decline in customer satisfaction.

Vehicle owners entrust their prized possessions to repair shops with the expectation of being kept informed throughout the repair journey. A lack of transparency can leave customers feeling uninformed and isolated, eroding the trust that is crucial for a positive customer-shop relationship.

One significant challenge to communication is that insurance companies often act as intermediaries, controlling the relationship and narrative between repair shops and their customers. In Massachusetts, specific regulations stipulate that conflicts involving repair shops on an insurer’s program must be handled directly with the insurer rather than with the vehicle owner. This dynamic further limits the repair shop’s ability to communicate openly with customers when conflicts arise, but it doesn’t mean shops can’t talk with their customers.

Effectively navigating communication challenges within insurance referral programs requires a strategic approach:

1.  Repair shops should proactively communicate with vehicle owners, providing regular updates on the repair process, any deviations and unexpected costs. 

2.  Repair shops can take on the role of educators, informing customers about the dynamics within insurance referral programs and setting clear expectations about the repair process.

3.  While regulatory constraints exist, repair shops can advocate for clearer communication channels with customers, emphasizing the importance of transparency for building and maintaining trust.

The communication challenges within insurance referral programs demand careful attention. Repair shops must navigate these challenges while upholding their commitment to transparent communication, customer satisfaction and compliance with regulatory dynamics. Balancing these elements is crucial for fostering positive relationships with both insurers and vehicle owners. The ability to communicate with and advocate alongside the customer can further serve to ensure the customer’s best interest is served.

This analysis continues next month with the financial constraints and best practices for preserving independence where it matters most.

Want more? Check out the January 2024 issue of New England Automotive Report!