Rip the Band-Aid Off: Divorcing Your Referrals

by Sean Preston, Coverall Law

Preparing to remove your shop from an insurer’s referral program can come with several mixed emotions and concerns. Most shops who have ended these relationships report some growing pains, but they also express that they would indeed do it all over again.

So, if you have been wanting to rip the Band-Aid off, you will want to develop a basic vision for (1) how you want to operate, (2) how you are going to market your shop and (3) how you are going to educate your customers and the communities you serve. With those established, you are ready for the referral program divorce – legally breaking up with the insurer.

First and foremost, which lists and programs are you even on? Several folks have reported believing that they were no longer part of a contracted referral or program relationship, only to find out years later that there was still an agreement in place.

These agreements never expire. They automatically renew (often yearly) and go on forever until one of the parties explicitly ends the relationship. Agreements like these are always slighted in favor of the party who drafted the agreement, this is nothing new or specific in our industry.

Any insurer which you have contracted with should have provided you with their contract of terms. Those terms dictate the steps you must take to end the relationship and are your clearest way forward. But be warned: insurers’ referral lists often come out quarterly, so you may find that it takes a while for the changes to be recognized.

The insurer should always be confronted as far ahead of time as possible, and your shop needs to let each customer know upfront that you are not part of their insurer’s program; you will be working for that customer and not their insurer. Let them know that it is their vehicle, their family and their safety which is always most important.

Your standard customer intake forms must make clear that the relationship is between you and your customer. It is the customer who is ultimately responsible for payment, and there is an option to direct their insurer to pay the shop directly any of the benefits under the customer’s claim which are relevant to the work your shop provides.

For a little background and perspective of referrals and programs, it’s enlightening to see the legal authority around referral lists in Massachusetts and how those referral lists have changed over the years.

Referral shops  are recognized under Massachusetts law as Referral Repair Shop Programs, pursuant to 211 CMR 123(6). These lists were part of the performance standards required by Commonwealth Auto Reinsurers (CAR), which is given statutory authority over the assigned risk pool of insurers, with the goal of cost containment. 

In theory, shops enjoy regulatory protection over their right to be included on a referral list or program. But earlier this century, to attract some larger insurers to the Commonwealth, the Massachusetts Commissioner of Insurance invited some of those bigger insurers to write their proposed direct payment plans. According to my sources, some notice requirements may have been missed, and the whole thing was a big mess and eroded many of those protections. Ultimately, shops who wanted to be on the referral lists were at the mercy of the insurers, rather than having an assumed right to participate.

For those shops in the readership looking to join a referral list, this is the new reality you face. Getting onto a referral program may be closer to a job interview today. But if you can find an insurer in serious need (without enough reliable coverage for your geographical area), you may have some bargaining power.

Insurers need referral shops. Joining a referral list or program is practically the only way to have an express contractual relationship with an insurer, and those contracts give insurers a lot of control. But if you can stay busy and avoid the inherent liability issues that present when you’re not able to call all your own shots, then it may be feasible for you.

I tell all my shop clients the same thing: I don’t want you to be the cheapest; I want you to be the best. My experience with referral programs is that shops are treated closer to one-size-fits-all, and insurers refuse to account for any of the investments individual shops make in themselves and their craft to go above and beyond the bare minimum repair. And I think you deserve better and would urge you to evaluate whether you want such a relationship…or if it’s time to rip off the Band-Aid.

Want more? Check out the November 2023 issue of New England Automotive Report!