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Cars are a beautiful symbol of the forces that are reshaping the economy.

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Key features that used to be owned, such as heated seats, remote start, automatic high beams or maybe a radio, are now subscription based. Their parts are increasingly manufactured by “original equipment manufacturers,” or OEMs, which limits consumer choice when it comes time for repairs. Currently car companies own data transmitted by vehicles, which also limits the selection as only shops that have access to the data can repair these vehicles. On top of all that, private investment companies were consolidated auto collision repair industry, making it more difficult to shop for a better price.

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Now this: insurance companies are buying auto repair shops as a strategy to eliminate competition and put themselves in the position of abusing the very consumers they want to protect. In similar cases, they conclude exclusive contracts with a network of collision repair companies. They’re called “direct repair programs” and they’re reshaping the auto repair market.

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In 2015, the insurance company Toronto-Dominion Bank she opened her own stores and Intact Financial Corp. now he does the same purchase of RSA Insurance Group plc, which further limits consumer choice. Intact, Aviva plc and Desjardins Group are consolidating Canada’s insurance industry, while companies such as Driven Brands Inc.’s Carstar Boyd Group Services Inc.; and Mondo Fix Inc., owner of Speedy Auto Service and other brands, are simultaneously consolidating auto collision repair shops.

With insurance companies opening their own garages and with the support of private capital groups like Boyd when their stock is falling, more consolidation seems likely; and likewise, consumer choice could essentially disappear.

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These direct links – submitting an insurance claim and receiving a report, car repair and possibly even renting a car in the interim – were presented to consumers as a great source of convenience. It is also beneficial to the insurance company, which generates more business from clients who are hostage to their direct repair agreements.

This kind of coercion is a form of “self-preference”. An analogy in an online context would be that if you search for an item online, you can only purchase the marketplace version of that item, otherwise you lose the ability to shop altogether. The contract is similar to the vertical integration that “health care organizations,” HMOs, are deploying in the United States, where individuals are uninsured if they leave the HMO’s network to obtain care.

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It seems like insurance companies have an inherent conflict of interest when they also own a car dealership. As a result, they could be more likely to decline someone’s insurance claim, pay less, overcharge services, or lower the quality of the repair. Do you think the suggestion that the repair shop would cut back is going too far? The industry has also seen a significant regulatory rollback; recall that the inspectors of the Ontario College of Trades they less frequently checked that technicians were properly licensedif at all.

The innovation of direct insurance repair programs gives insurers more market power, essentially allowing them to suppress the “door rate,” a term used to describe the hourly rate charged by dealers for standardized units of service work. This hurts business because it will become increasingly difficult to find skilled technicians who are taking a pay cut under these direct arrangements. The average collision repair shop that participates in these agreements with insurers will likely have a lower door rate than independent mechanics.

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Wages are relevant because today’s vehicles are increasingly difficult to repair and are not as easy to repair due to their increased complexity and digitization. Parts are more specialized and vehicle warranties can perversely prevent an easy or interchangeable repair. While the policyholder may pay for OEM parts replacement clauses, the insurer may mandate the use of aftermarket and recycled parts in violation of the manufacturer’s warranty; this could create a mismatch between what was guaranteed to the policyholder and what the insurance company can order to use the wrecker shop to save money and make more on the repair.

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Another reason wages are relevant here is prospective monopsonistic power estimating software that insurance companies use: Mitchell and Qapter (previously Audatex). The influence of these platforms could increase to control wages for auto repair jobs.

Direct repair insurance programs are potentially exploitative schemes that allow insurers to bypass competition from independent repair shops that have their own expertise. Techies have grumbled informally about the trend, but could face professional repercussions if they speak up. The Market Access Initiative in the US over the past few years has spoken to entrepreneurs and small business owners about competition issues – and independent business owners in many industries fear retaliation from gateway platforms or monopoly competitors. There is no comparable engagement in Canada, but it could come from Canada Canadian Federation of Independent Business.

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We may be fast approaching a bubble of sorts in the collision repair industry that is suffering ongoing supply chain issues and lack of skilled labor. Insurers could cheat consumers, small business owners, and workers through these programs, and these stakeholders are increasingly on the wrong side of the asymmetric bargaining position in the markets.

Insurance companies try to control the whole aspect of the claim to control how the money is dispersed. Perhaps government policy should prevent insurance companies from owning their own repair shops as a mechanism to preserve consumer autonomy. This would not be without precedent, as legislation already prevents large drug chains from obtaining or granting exclusivity or preference to generic drug manufacturers.

While we have yet to explicitly address whether this behavior of self-preference is anti-competitive in a digital context, the similarity between pharmacies and drugs and insurance companies and car repair shops is striking. This practice is cannibalizing the Canadian auto repair industry, leaving consumers at risk of being screwed. Soon we may not even be able to compare insurance rates. We can do better and we must fix Canada’s competitive environment.