Beating a Dead Horse

Well, if you read my blog about the Princess Gigi decision (and I hope you read the decision), then you probably got my point about how insurance companies are perhaps "predisposed" to fight a salvage claims. There is a misconception on the part of some members of our industry who continue to believe that the reason insurance companies will balk at paying a salvage claim, or even a large wreck removal invoice, is because a few bad apples have a long history of submitting exorbitant claims. I know I have whipped this horse before, but I want to beat this nag totally dead once and for all.

The misconception goes something like this: there are two kinds of salvage companies, those that send fairly priced bills (lets call them Base Hit Salvors) and those that send outrageously priced bills (we'll call them Home Run Salvors). Over the years, the Base Hit Salvors have found that many insurance companies continue to try and negotiate their invoices, or complain at the price even when the invoice was fairly priced in the first place. The Base Hitters feel that they are being forced to lower the totals of their invoices simply because of the history of the Home Run Salvors. In other words, The Base Hitters are paying a Home Run penalty.

To believe this, you have to believe that insurance companies have somehow adjusted their business practice to address this problem of Home Run Salvors, and now routinely quarrel with every salvage bill, no matter how reasonable the bill is, with the assumption that the bill must be too large. The blame for all the negotiating is placed on the Home Run Salvors, rather than on the insurance company, where it belongs.

If we are to accept that the Home Run Salvors have so much influence that their billing history has actually affected the way these huge insurance companies conduct their business, one must concede that insurance companies are comparing the salvage invoices they receive from Home Run companies with those invoices sent from Base Hit companies.

If they are not making this comparison, then the entire argument that one invoice could have an effect on another falls flat on it’s face, and this horse never left the barn. So, to buy into this theory that the huge claims make it hard to collect the small claims, you have to accept that insurance companies engage in invoice comparisons, if not between companies, then at least by looking back in time.

But wait a minute; wouldn’t the logical result of all this invoice comparing be that the insurance companies would recognize that the Base Hit invoices were more reasonable in comparison to the Home Runs? Wouldn’t the insurance company be more willing to pay those reasonable invoices, rather than less? (In which case Base Hitters would be thanking Home Runners for making their Base Hit prices look so good.)

And yet, this is not the case. Many of the Base Hit salvage claims are routinely challenged by the insurance companies; hence the complaints that it seems like insurance companies fight every salvage claim. The insurance companies are not more willing to pay the Base Hit invoices, and they continue to try and negotiate these invoices too.

We are left with only one conclusion: they are not comparing the huge, Home Run invoices to the Base Hit invoices they receive, and therefore the billing practices of the Home Run hitters is not logically the cause of all this contentious negotiating.

Perhaps there is some other theory that could account for all the negotiating, even when the invoices appear reasonable to the Base Hit Salvors?

I believe that the insurance companies should be attempting to negotiate practically every invoice they receive; especially those invoices that are by definition open to negotiations, like a salvage claim. They are large, publicly held corporations, and therefore their directors, managers and employees have a fiduciary, legally binding responsibility to do everything in their power to maximize the return to the shareholders. They are not in the business of paying claims, or to be friendly with outside contractors. Indeed, the large insurance companies have recognized the value of negotiations as evidenced by the rigorously and sometimes contentiously negotiated price lists for services like health care and automobile repairs. Allstate does not happily pay collision repair bills, they negotiate them: not because some repair shops always charge more than others, but because it is in the Allstate’s best interest to negotiate.

That is why the insurance companies try to negotiate lower prices; its good business.