Volume 9, Issue 2 - March/April/May 2007

AGR News Analysis
review of news events

INSURANCE
Industries Share Problems
by Sheila Loftus 

When it comes to insurance, it is becoming clear that the auto glass replacement industry has a lot in common with the auto collision repair industry. The fact that they are dealing with many of the same issues could be seen at a recent collision repair industry meeting.

Tony Lombradozzi, a New Hampshire shop owner and president of the Coalition for Collision Repair Excellence (CCRE), discussed how to minimize the impact of the insurance industry on the collision repair business at the CCRE two-day summit in Reno, Nev., late last year.

How does an auto collision repair business get the insurance industry out of its business? 

Refocusing the auto repair business on the car owner as the customer instead of the insurance carrier is one of the keys to disentangling a relationship that took a-half century to build.

In order to rid the insurance industry from your business, Lombradozzi says it is important to know “how we got here.”

In the mid-1950s, Glenn Mitchell, a Chrysler parts manager, published a part number service called Mitchell Manuals. It listed part numbers and prices. Subsequently, Duke Norman, a body shop manager at the time who eventually became Mitchell’s president, was asked to input labor times to the manuals. While auto body repairers knew how much time it took to do the labor operations, the insurance estimators didn’t; therefore, by the late 1960s Mitchell Manuals part number service migrated into Mitchell’s Collision Estimating Guide. Currently, the so-called guides of which there are three—Audatex (formerly ADP), Mitchell (NAGS), and MOTOR/CCC—are based on new undamaged parts. 

“When was the last time you worked on an undamaged part?” Lambardozzi asked his audience of collision repair shop owners. 

While the infiltration of the insurance industry into the collision repair process began with the so-called guides, it didn’t stop there, he explained. Rather it spread with the help of collision repairers. The National Association of Independent Insurers (NAII) published a report in 1976 that expressed surprise and delight at the willingness of collision repairers to share business strategies and repair information with insurers. Truth be known, one of the reasons to form the Inter Industry Conference on Auto Collision Repair (I-CAR), which was formed in 1979 with a push from NAII, was so insurers could get control of the labor cost within the repair cost of the insurance claim dollar. 

Because there are three price components in the repair (labor, parts, and paint and materials), the insurers’ next step was to control parts prices by asking for discounts. In exchange for direction of work from the insurers, some repairers happily gave discounts on parts. This was especially true of those repairers who were on Allstate’s informal direct repair program, which began in the late ’60s, and then formalized in 1988 when it restructured and was called the Priority Repair Option or PRO program. Essentially, Allstate was exercising the repair option of its insurance contract, which allows for either repair or replacement of the damaged property.

Insurers made further inroads into controlling parts prices, when cheap generic parts began coming to the United States from Taiwan in the 1980s. In 1985, three companies—State Farm, ADP’s claims services division, and Economy Parts, an importer of cheap generic parts on the East Coast—got together and figured out a way for ADP’s computerized database system to source the cheap generic part on its estimate. Thus the insurance industry gave birth to a huge aftermarket parts industry in Taiwan that still exists today. It also resulted in some of the car manufacturers lowering parts prices on parts competitive with the generic cash parts.

Lombradozzi says that not only did repairers give insurers information that was used against them but equipment manufactures did so as well. Equipment manufacturers were quick to tell insurers of significant time savings gained from using specific equipment. As shops invested in the equipment, repair times in the so-called guides started to decrease. Lombradozzi recalls that when he first bought his bench repair system in 1979, he put a bench set-up charge of $175 on the estimate. Today the typical insurance allowance for this procedure is two hours sheet metal time. 

He said that there is plenty of blame to go around as collision repair trade associations court insurers as partners and industry events and programs are heavily influence by the insurance industry.

Like fish on a hook, the insurance industry has been reeling in the shops to gain control. The big hook was set in 1988 with Allstate’s PRO program. The final hook may be State Farm’s new Select Service program which is rolling out across the country. State Farm’s new program requires auto repairers to put State Farm repairs first in line, handle total losses for free, eliminate storage charges, participate in rental car coverage for repair delays, indemnify State Farm, and potentially source parts from a State Farm-selected vendor, among other things.

It remains to be seen when, if at all, State Farm plans to integrate similar elements into its glass program. nwSheila Loftus is a long-time editor in the auto collision repair field and currently edits an online newsletter in this market segment.

PPG Auto Glass Business on the Block
PPG Industries in Pittsburgh has enlisted Goldman Sachs to explore the sale of its automotive OEM glass and automotive replacement glass and services businesses. The company says this is just a preliminary move and it’s considering other options for the segment, including acquisitions, restructuring and strategic alliances. J

ack Maurer, spokesman for the company, says, “It has not been meeting the performance standards that we’ve set for businesses in our portfolio.” In PPG’s annual report, filed on February 21, it said 2006 earnings for its automotive OEM glass segment declined year over year by $9 million. The year before earnings fell by $30 million.

“Significant structural changes continue to occur in the North American automotive industry, including the loss of U.S. market share by General Motors, Ford and Daimler-Chrysler,” the report states. “This has created a challenging and competitive environment for all suppliers to the domestic OEMs, including our operating segment. In 2007, the automotive OEM glass business will continue to focus on cost reduction, developing new, value added products and increasing sales volume.”

Maurer says there is no real timeline for a sale or any other decision. “We’re still very much in a valuative stage. I don’t think we can speculate on what alternatives we will decide upon.”

LEGISLATION

South Carolina Hearings Focus on Steering
A recent hearing about steering in the South Carolina legislature provided an interesting glimpse into how different industry factions view the issue and led to, as the committee’s chairman put it, “diametrically opposite viewpoints from each side.”

The first speaker was Cynthia Young from South Carolina Department of Insurance. She stated that her agency had received approximately 25-30 complaints from glass companies alleging that consumers were being steered. She said that her division had investigated these complaints and found that none of the consumers with whom she spoke were now alleging steering had taken place. “Everyone I talked with told me they were not steered,” she said.

Young said that there were aggressive penalties for steering ranging from fines to suspension of the company’s license.

Next to speak was Chantelle Smith, a consumer who described a case in which she had been steered improperly. She recounted how she had asked for a particular glass company and was told that the insurer could not refer her to that shop. Smith, who is a part-time employee of Southern Glass in South Carolina, and a former employee of Safelite, was more familiar with the steering issue that most consumers are. “I requested a copy of the tape in which the person from the insurance company told me I couldn’t use the shop I wanted, and the person from Hartford hung up,” she said. “I then asked for a copy of the recorded conversation and they said no I couldn’t get it, only the agent could. The agent agreed and asked for the tape but was denied the information.”

“I called Hartford and got a manager who explained there’s a preferred vendor,” said Smith. “He pulled up the list and named the top five vendors; mine was the fifth one. So what was the problem? Then I asked ‘Are you with Hartford?’ He said no, he was with another glass company. I then asked if this conversation was recorded. ‘No ma’am,’ he said. I feel like I was misled and lied to.”

“Were you ever actually on the phone with Hartford?” asked one of the committee members. “No, the manager confirmed I was with a glass network and the manager confirmed that as well,” she added.

Jim Beth, government relations manager for Nationwide Insurance, followed Smith. “We see glass claims as a way to knock a home run for our consumers. We may not agree that you need your house rebuilt after a storm, but I can see easily when you need a windshield. Our policyholders tell us the warranty, being able to access a store around the country if the windshield fails, is important to them. Consumers believe you are getting a consistent job when they use a company like this.

“On a personal level I hate to see the loss of mom-and-pop glass businesses,” he said, “but I think the market has changed. It’s unfortunate. People are displaced, but you can’t legislate consumer loyalty. People want a national brand they can count on. … people [independent glass companies] here are well-intentioned but they are seeking protections from a changing market. They’d do better to form their own network to compete,” he said.

Julie Vaparis, an office manager for Southern Glass and Plastic, spoke next. “Policyholders are steered on a daily basis,” she said. “We try to follow the rules. We are told [by the networks] to wait two days for authorization. We wait—two, three days. When we finally get the authorization, Safelite is already there installing the glass.

“They put off and put off the authorization, and when I finally got one, I contacted the customer who told me that Safelite was there that morning,” she added.

Vaparis was followed by Fred Price, president of Ace Glass in South Carolina, who said that, though he did not have an exact number, steering occurs several times a week.

Alan Epley of Southern Glass and Plastic shares Price’s beliefs. 

“Mr. Chairman, it is true that things are changing. We are changing also,” he said. “We can compete with anyone in the world. Large companies have no advantage over us unless they have control over the consumer. Consumers have a choice 70-80 of the time. … if there wasn’t any steering going on, companies in South Carolina would do just fine.

“We can compete if allowed to compete,” he continued.

“We are not looking for charity, just a fair marketplace. 

If you join a network that is run by your competitor, your competitor has the right to determine price and has the right to come in and audit your business. You are not allowed to refuse a job. You are off the job at your competitor’s discretion. So if your competitor sends you a job that you can’t make money on, you are not allowed to refuse it.”

Safelite’s general counsel Mark Smolik spoke next. “There is no doubt auto glass replacement industry has gone through significant change. The old way of doing business—get two or three estimates …is gone. It has been for a long time. Nationwide looks to us to process paperwork and remove their people from answering telephones, which we have done. Our CSRs go through certification training annually.” Smolik then proceeded to take the committee through a “day in the life of CSR.” He explained how the phone was answered by Safelite and identified to the consumer at least twice. He asserted that the CSR takes all the information in approximately 4 ½ minutes. 

“When we ask someone if they have preference, we know that people experience auto glass claim once every seven years. Only 15 percent have a preference. If they do not, that claim will go to a Safelite shop; if we can’t service the claim, then it goes to a network shop. If someone has a preference for a shop not on our network, we will inform them of two points.

“First, if the shop charges more than the insurance company deems reasonable, the insurance won’t pay it,” he continued.

“Second, we talk about a warranty. The insurance company guarantees that if you use one of their preferred shops, the policyholder will have a warranty that follows them. The network means we can make sure there is a shop anywhere in the United States that can do so.

“There are many, many glass companies that will sue the insurance company for what are called short payments in the industry,” Smolik continued. “They will sue for short pays. It’s the exact opposite of what you are hearing now. There’s a growing momentum to sue companies.

“About this point that Safelite will beat an independent glass shop to the insureds home, nothing can be further from the truth,” said Smolik. “What does happen sometimes is that an appointment is set up with the husband. He doesn’t know it’s a bad time. The wife calls back to change it and says ‘I don’t care who you send me just have someone here at this time.’” At that point, said Smolik, the original appointment is considered cancelled and a new appointment is made. “They don’t communicate, nobody calls the glass shop,” he said. “It happens to us too. If we are steering I’d like to know about it. This is really a concerted effort by the Independent Glass Association that is working in many states to pass this type of legislation,” he added.

At one point toward the end of the hearing Smolik was asked why his company was so opposed to anti-steering legislation if it did not engage in steering. Smolik replied by saying, “Well, the bill as it’s written would prevent me from answering the phone and installing the glass. It’s another thing to say that I can’t steer, which I fully support, but it’s absolutely, it’s wrong. Because I don’t even answer the phone for a host of insurance companies and yet I still process those invoices. So I’d have no opportunity to steer there, assuming those allegations are true. I’d be prohibited legislatively from processing the paperwork from those insurance companies.”

Copies of the tape of the testimony are available to interested readers at no charge. To receive your free CD, please e-mail (info@iga.org) us your name, company, address and phone number.

ACQUISITIONS

Belron Acquires Safelite
The two largest companies in the automotive glass repair and replacement industry have merged operations in the United States. Belron S.A., the world’s largest vehicle glass repair and replacement company operating in 29 countries, acquired Safelite Group Inc., the Columbus, Ohio-based provider of automotive glass insurance claims management, retail fulfillment, automotive glass manufacturing and wholesale distribution.

The integration of Belron Inc., the U.S. operation of Belron, and Safelite operations began early in March. Upon closing, the newly combined organization became Belron US™.

For insight into the acquisition, see the interview with Belron’s Gary Lubner on page 32.

“This acquisition is the early phase of an overarching plan to profitably grow market share in an industry teeming with potential,” says Dan Wilson, president and chief executive officer of Safelite Group. “Growth will be organic and through additional strategic, targeted acquisitions. Safelite’s customers, business partners and staff will benefit from a parent company with a global focus on the automotive glass industry.”

In a very fragmented industry, the merged Safelite Group and Belron Inc. operations will have less than 20 percent market share in the United States. Belron, which posted global sales of $1.5 billion in 2005, is a subsidiary of Belgium-based D’Ieteren®.

The senior leadership of the new entity includes from Safelite Group: Dan Wilson, president and chief executive officer; Thomas Feeney, executive vice president and chief client officer; Douglas Herron, executive vice president and chief financial officer; and Mark Smolik, senior vice president, general counsel and secretary, associate services, ethics officer. Additionally, Rich Harrison, current CEO of Belron Inc. is leading the integration of the two companies and responsible for business development as senior vice president, strategy and business development. Wes Topping, current non-executive chairman of Belron Inc., will join the Belron US board in a non-executive capacity and continue to search for additional strategic acquisitions.

TRAINING

Online Training Program Set Up
Bob Beranek, president of Automotive Glass Consultants, has launched a new website, “www.autoglassuniversity.com” (AGU) to provide comprehensive, cost effective training for auto glass professionals and those who wish to learn more about the installation of auto glass. 

The program consists of 10 classes that cover all the technical aspects of auto glass installation procedures and four electives that supplement the education. It trains to both the National Glass Association’s Certification Program and the ANSI/AGRSS 002-2002 Replacement Standard. Each module contains a written document with supporting graphics, projects for reinforcement of the knowledge attained, “Coaching Notes” to help mentors with hand-on training and a quiz to quantify the information learned.

The modules are self-directed and can be studied separately for “stand-alone” information on a particular area of interest, or together, to form a complete program. Some prerequisites may apply. In addition, Automotive Glass Consultants offers onsite practical training for support of the program if desired.

INSURANCE

Chubb Starts Online Auto-Repair Network 
The Chubb Group of Insurance Cos. has launched an online service to put personal insurance customers in touch with its network of preferred, independent auto body repair shops. 

Chubb created the repair network as part of its Masterpiece Auto Preference Services program, which provides insureds with referrals, upon request, to quality auto repair shops, as well as priority auto glass replacement services.

Agents and brokers access the online network on behalf of their clients. Repair shop information can be obtained at any time, including after hours or on weekends. The tool provides directions from a customer’s address to the chosen shop. The online tool also will support business auto policyholders with passenger vehicles and light-duty pickup trucks.

Chubb customers can select any repair shop they like; however, Chubb guarantees the workmanship of repairs done by the network’s preferred auto repair shops for as long as the insureds own their vehicles.

COMPANIES

Diamond Opens Spokane Operation
Diamond Glass Companies opened a branch location in the center of Washington state to service Spokane and the surrounding regions. The Kingston, Pa. based company currently operates more than 240 facilities nationwide, and the new Spokane location represents a continuing expansion throughout the Northwestern United States. 

Harmon Solutions Group Parent Spun Off
The Riverside Co. spun out a business from an existing platform, creating an entirely new business, Insurance Claims Management (ICM) from The Dwyer Group.

ICM owns Harmon Solutions Group, the third-party administrator company that provides auto glass and property claim administration services for insurance and fleet customers.

Glass Doctor Franchise Wins Award
The Glass Doctor of North Texas franchise is a recipient of the 2006 Consumers’ Choice Awards for Automotive Glass Repair.

The awards are based on an online survey conducted by Harris Interactive, a division of Harris Poll. Survey participants rated the companies based on professionalism, value and service.

“It is a pleasure and an honor to be named to this select group,” says Larry Patterson, owner of the franchise. “This is rewarding because we work hard to provide quality, professional service and ensure the utmost customer satisfaction.”

Pilkington Helps Independents in Mexico
Pilkington and its AGRR customers in Mexico are working together to compete for the insured replacement business.

Independent auto glass retailers had been left out of insured replacement business, as two major retail chains reached exclusive agreements with insurance companies.

Pilkington developed a strategy to be part of the insured replacement business by forming a group of independent installers and standardizing their ability to operate in this business segment. It also created a web-based application to manage claims for the insurance companies.

Pilkington and its group of independent retailers associates now have an new entity, Group Latin America Associated Services, which goes by the name of GLAASS by Pilkington. It is managed by Octavio Betancourt.

The GLAASS by Pilkington team has a call center in Mexico City and other associates working in the field. They are now processing 1,200 claims a month, and the goal is to reach more than 2,000 claims a month this fiscal year.

LEGAL

Court Upholds Infringement Case
The 4th U.S. Circuit Court of Appeals ruled that a Norfolk, Va., federal court did not err in the case of Synergistic International LLC v. Korman. The original court ruled that the defendant’s trademark (The Windshield Doctor) infringed on the plantiff’s trademark (Glass Doctor). However, the court of appeals did vacate the district court’s damage award of $142,000. The case has been remanded for a reassessment of damages. 

 



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