How does car accident insurance work?
People often ask “how does car accident insurance work with the collision repair shop?” It’s a process that involves many different steps. In this article, we’ll share the process and then we’ll share two key things that will help you understand the way money flows in this industry:
Every business needs to earn money to pay it’s employees and perform it’s services. Otherwise, collision repair shops like ours wouldn’t be in business to help you recover from an auto accident. Understanding how the money flows is important to understanding how car accident insurance works.
Here’s how car accident insurance works in NC
The accident
The North Carolina General Statutes define the conditions where a person is responsible to make an accident report to the police. There are some situations where you are not required to get a police report. For example, if there are no injuries, deaths, or damage of more than a pre-determined amount.
We recommend that you always get a police report when your vehicle has been involved in an accident – even if the damage doesn’t look bad. Otherwise, your insurance company may delay or deny your repair claim – especially if the damages are more significant than you originally thought they would be.
Towing and storage
If your vehicle is no longer drivable at the accident scene, a tow company may transport it to their yard. They will hold it until someone comes to claim the vehicle or they are directed by your insurance company to take it to a collision repair shop. In some cases, the tow company may transport your vehicle directly to a body shop.
We recommend that you always ask the tow company where they are taking your vehicle before they remove it from the accident scene.
Insurance company acceptance of responsibility
The next step is to report the accident to your insurance company. That may be through an online mobile app or by calling a phone number on the back of your insurance card.
We recommend that you follow the accident reporting process your insurance carrier and policy specify.
The insurance company will review the information you provide and begin their own investigation. Your insurance company will determine whether or not they are responsible for the repair claim or if the other driver is responsible. They will notify you when they are for you to get an initial estimate.
Getting an initial estimate
You will most likely be asked to either:
- submit a claim through the insurance company’s online application, or
- have your vehicle evaluated by an “in-network” or “preferred” collision repair shop.
In North Carolina, you have the right to have your vehicle repaired at the shop of your choice. You are not required to choose a repair shop recommended by the insurance company. You should be aware, though, that the insurance company will likely pay less for your repair and you will have to personally manage more of the process if you choose an out-of-network repair shop. You can learn more about why they do this by reading How car accident insurance companies make money below in this article.
The repair process starts with an initial estimate which helps the insurance company know whether or not your accident resulted in a total loss. At the time of this writing, that amount is 75% of the cash value of the vehicle at the time of the accident.
Supplementals
If the insurance company approves the initial claim, the selected auto body repair shop will begin to remove parts and look for additional damage. This additional damage is called hidden damage because it is not visible during the initial estimate.
When the repair team finds hidden damage, they will report it to you (if you are managing the claim with your insurance company) or to the insurance company in the form of a “supplement”. In some cases, the hidden damage may cause the repair estimate to go over the amount set for your accident to be considered a total loss.
If the claim amount is still below that amount, the insurance company will evaluate the supplement and determine how much of it they will pay.
Repairs
When you or the insurance company have approved all estimates and supplementals, the repair shop will order replacement parts and complete all required repairs. This includes everything from removing the rest of the damaged parts, installing replacement parts, painting, and calibrating all affected safety equipment and systems.
Final payment
At the end of the repair process, the collision repair shop will notify you or the insurance company that all repairs are complete. The repair shop must receive final payment before they can release the vehicle to the owner.
If there are delays between final payment and the return of your repaired vehicle, you may be responsible for additional reasonable storage fees. The repair shop will not release your vehicle while waiting for the final payment to arrive from your insurance company.
When an insurance company delays final payment, it can seem like the auto body repair shop is being unreasonable. However, once the vehicle is released, it is often very difficult for repair shops to collect final payment. That is why the industry best practice is to only release the vehicle upon receipt of final payment for the entire claim amount due to the repair shop.
Warranty
Most reputable auto body repair shops provide a warranty for the work they perform on your vehicle.
If you have chosen a “preferred” shop at the recommendation of your car accident insurance company, you will likely have the warranty period associated with that company’s negotiated agreement with the shop. That warranty period may be shorter than you would have from a non-preferred shop.
We recommend that you you check the warranty coverage period before you make a decision on who will repair your vehicle. At Automotive Collision Specialists in Fuquay Varina, NC, we stand behind all our work with a limited lifetime warranty. We will manage your claim with our preferred insurance companies because they are reasonable and know how to work with independent collision repair centers like ours.
How car accident insurance companies make money
Car insurance companies work by charging monthly premiums from all their subscribers. As you already know, the price of your monthly or annual premiums depends on a lot of things ranging from the state in which you live, your age, coverage options, driving history, and the number of claims you have made.
All the premiums are grouped together into what’s called a shared risk pool. Whenever there is a claim, the insurance company uses this pool of money to make a payment to repair the vehicle.
By combining a relatively small amount if money from a lot of individual policy holders, the insurance company has enough money to pay for all the claims as well as the costs to operate their business. Their other normal business expenses include their employee salaries, office expenses, and other traditional business costs like reinvestment into their own business. The insurance company’s profit is whatever is left over after the normal business expenses and the claims payouts.
Here are some statistics that might help put this into perspective:
- CollisionWeek, an industry news outlet, reported that the total cost of collision repairs were up by 3.7% in the first half of 2024.
- Some estimates say the average accident insurance claim in 2024 is estimated at around approximately $5,500.
- Bankrate.com reports that the national average for full coverage insurance in 2024 was $2,543 per year.
Parts and labor costs are on the rise. Many parts require full replacement rather than repair. Almost all replacement parts – even brand new, OEM parts – require minor dent removal and touch up. Aftermarket parts often require adjustments to correct bad alignment or other fit issues. Salvage parts usually require the most repair and adjustment. All pre-installation repair work adds to the cost of labor on a claim.
After everything is re-installed, the shop must calibrate a vehicle’s safety systems. In many cases, this also requires fine-tuning adjustments to ensure everything works properly. Many insurance company adjusters do not provide labor time for calibration and fine-tuning adjustments the shop must make in order for your vehicle to be safe.
All these factors combine to create cost pressure on insurance companies. They manage it by raising insurance premiums and reducing claims payments to auto body repair shops like ours.
How auto body repair shops make money
In the past, auto body repair shops made money by adding a small fee called “markup” on parts. This allowed the body shop to look for replacement parts, coordinate shipping, touch up minor issues, and store the parts until they were ready for installation. There are still some shops that add markup on parts but that practice is not as common as it was in the past.
The other way collision repair shops made money was by adding a similar fee on top of their labor costs. According to Salary.com, the average auto body technician salary is $57,769 per year in 2024. In areas like Raleigh-Durham, the average base salary can be significantly higher. Along with base salary, the shop also has to pay for time off, holiday time, and other benefits. The shop’s employee count also includes estimators, project managers, accountants, and front desk schedulers. Staff costs are also significantly affected by the number of people available to do skilled labor in the local area where the repair shop operates.
The shop also needs to pay for utilities which include paint booths which have high energy demands for lighting, air handling (which is required to keep debris out of your new paint job), and heaters to ensure consistent temperature and humidity levels. Tools, training, equipment, and shop supplies are also major cost areas for auto body repair shops. As new vehicles come out with advanced materials and technologies, the collision center teams have to train regularly to know how to properly repair your vehicle so it continues to operate safely for you.
Major nation-wide repair shops accept lower payments from insurance companies because they are working on a volume-based business model. A lot of low dollar work creates more cashflow to cover their costs. They are also able to get slightly lower prices on parts because they buy so many of them. Their network of shops operate more like a repair factory.
In contrast, independent auto body repair shops like ours are focused more on quality of the repair and the relationship we have with our neighbors. You can find out more about why this matters in our article on 3 Important reasons you should work with an independent auto body repair shop. Independent auto body shops have all the same expenses that the large chain repair shops have. We make money in the same way but focus on quality over quantity. This results in far fewer call backs (warranty repairs after the initial job is completed) and less frustration for our customers. We manage our marketing and sales costs through word of mouth referrals to friends and family and recommendations in places like Google.
Our auto body shop is like any other business – they need to make money in order to hire the right people who can help reduce the stress from a car wreck.
About Automotive Collision Specialists in Fuquay Varina, NC
Do you want your car repaired correctly? We do too. That’s why we stand behind all our work with a limited lifetime warranty. We need to be sure your vehicle is repaired correctly when it rolls out of our collision center.
If you’re trying to find a good auto body repair shop near you to help, please give us a call. We’ve been serving neighbors in and near the local Fuquay-Varina, NC community for more than 30 years.
We’re ASE and I-CAR certified and offer a limited lifetime warranty on all the work we do. Call us today at 919-552-0333 to see how we can help!
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