Volume 9, Issue 2 - March/April/May 2007
| Price Squeeze
Insurers put the clamps on payouts
By Les Shaver
How can the same exact service have two entirely different prices?
That’s what insurance companies have been asking for years now. On the one hand they have negotiated prices with auto glass shops for the installation of new windshields. On the other hand, they get reports from policyholders walking in off the streets and getting heavy discounts off those prices. It’s enough to make any corporate number cruncher’s head spin. Consumers are even more frustrated, says one insurer.
“The practice makes everyone look silly,” says Hal Hare, corporate claim manager for State Auto, a regional insurer based in Columbus, Ohio. “It has always been a source of embarrassment. Our insured thinks they’re getting cheated. The customer says, ‘They billed me this, but they charged you that. They must be doing something illegal.’ We need the industry to realize that it confuses the customer. And it makes it look like someone is crooked.”
At State Farm Insurance in Bloomington, Ill., glass manager Bob Bischoff gets much the same reaction from customers. “If our Offer-and-Acceptance price is $300 and the shop bids $200, it’s hard for a customer to understand why it’s more expensive if insurance is involved,” he says.
Just because insurers seem frustrated doesn’t mean the practice is going away anytime soon. While Hare may personally appeal to shops to offer his customers the same price as cash customers, other insurers don’t seem to be taking such overt steps. Instead they’re whittling down prices. That, of course, hasn’t made glass shops happy. Their argument: time is money. If most of them can get paid cash right away, they’ll keep giving discounts.
A Justifiable Gap?
“You can look at it and say that a certain insurance company is your biggest customer or you can look at it and say the account called ‘cash customer’ is your biggest customer,” Taylor explains. “If cash customers are viewed as one entity, then they are bigger than any individual insurer.”
Not only are they the biggest group, but they’re also the most hassle-free entity.
“This group is much less expensive for us to deal with,” Taylor says. “They have no collection issues, no network issues and no issues of that sort, so they deserve the best price. There is no middle man, there is no waiting for payments, and there is no discussion about paying to get rid of rust. None of that happens with cash customers.”
Then there are the labor issues with cash business.
“Where you need to make the effort with cash customers is selling them at the initial point of contact,” Taylor says. “With insurance customers, your customer service representative (CSR) is the information-taker, authorizer and scheduler. Then you have to send the bill by electronic data interchange (EDI). You have to have an employee who monitors EDI and makes sure it goes where it needs to, and who takes care of rejections. It doesn’t go seamlessly. There are a whole lot of back-end issues when you deal with networks and EDI that don’t exist with a cash customer.”
Speed of pay is a huge issue to Scott Levin, owner of L & L Glass and Paint in Butler, Pa. “If insurance companies want to know why there’s two-tiered pricing for cash and insurance, look at their third-party administrators (TPAs) and how quickly they pay,” Levin says. “That’s my biggest issue.”
And, not every TPA is the same.
“I call Erie Insurance Co. and ask why it takes so long to get paid and it’s because they batch every two weeks,” Levin says. “You can submit after they get their bills out and you’re done. With LYNX, you can submit bills every day. They submit to insurance companies every day.”
Some insurers agree that there should be some sort of divergence in pricing. Others aren’t so sure. Hare had his claims administrator run a spreadsheet to see how State Auto was doing. What he found surprised him.
“Half of the delay in pay is slow invoicing on the industry side,” Hare says. “We turn our invoices over in 10 working days, maybe 14 days at the most. Bischoff acknowledges that cash discrepancies can justify a small difference in price.
“Do I believe that insurance and cash prices should be identical?,” Bischoff asks. “Not necessarily, but they should be pretty darn close. I do believe a shop has some valid arguing points about the time value of money, depending on how long it takes to get paid. There is also some additional labor.”
While The Hartford, Progressive, Farmers and Erie wouldn’t comment on their pricing, Allstate says it doesn’t ask for cash pricing.
“Allstate is confident in the mechanisms that we use to determine the market rate for glass prices,” says Mike Siemienas, spokesperson for the insurer.
Bischoff admits that cash prices also play into his company’s pricing formula.
“We always look at our pricing and try to make sure the offer is fair and competitive,” he says. “There are a lot of factors that go into that. When we do get feedback from customers about cash pricing, that does play into our eventual decision when we make our offer to the market. Cash pricing is always something that’s been involved. But there are many other factors in that as well.”
While insurers say they aren’t overtly asking for cash pricing, their actions are speaking louder, according to shops.
“They don’t ask for cash prices directly, but their multipliers are becoming tighter and tighter and they’re not paying like they used to,” according to Kelli Dimick, auto glass supervisor for Jones Paint and Glass, a six-chain business based in Cedar City, Utah. “A lot of times you are right there with cash. There’s not a big difference.”
Taylor sees this as well. “Clearly they’re lowering what they’re willing to pay,” he says. “I don’t know if they’re saying that they want the cash pricing. They’re just lowering the price until they get people who won’t do the work.”
Some shops even found insurers asking for deeper discounts than the off-the-street market receives.
“A few companies have gone beyond where cash work is,” says Clyde Stephens, owner of Vision’s Glass in Perham, Minn. “They want list and $50 an hour for labor. There are places all over with deeper discounts beyond that.”
But no one is saying that insurers are asking for exactly what cash customers get. In fact, the only time that seems to happen is when shops give customers a cash price and that insured then files a claim with their carrier.
“We're not forcing shops to give us that same price,” Bischoff says. “If an Offer-and-Acceptance shop has a customer come off the street and the shop may or may not know the customer is insured with State Farm and they gave a cash price, we would hope that, even if insurance becomes involved at the back end, that the shop would stand behind that price with that customer. Contractually, is that shop forced to stand by the cash price? They’re necessarily contracted to, but it is a customer service issue if they try to save that price.”
Hare does something similar when a customer comes to him.
“If the customer tells me the shop would do the job for $200 for them and we paid $250, we thank them for contacting us and tell them we will get it corrected,” Hare says. “And we do get it corrected. We go back to the shop and say, ‘This makes us both look bad. Help me out here. We’ve got a working relationship. Let’s not spoil it.’”
So far that approach has been successful. “I’ve never had a glass shop refuse me,” Hare says. “Those shops that are under contract and get referrals don’t refuse me. It’s not quite the same as if it’s a totally independent shop. I would not go to an independent shop and ask for that. That wouldn’t be fair.”
Fairness is on Wes Topping’s mind too. That’s why Topping, CEO of Belron Inc. USA in Denver, raised his prices for cash work.
“I think the insurance industry will continue to drive the prices down until the industry recognizes that it needs to be charging the same price for cash or insurance,” Topping says.
But Dimick doesn’t see cash pricing easing up soon. “A lot of people in the auto glass industry don’t realize they’re slitting their own throats by bottom lining the cash customer,” she says.
If they keep fighting over cash prices, Stephens expects heavy casualties. “It has gotten to be so price driven,” Stephens says. “It has to stop somewhere. I don’t know when it will stop. When some shops close up? It will take mom-and-pop shops out of the picture. There won’t be individual shops anymore.”
Changes in Latitude
“One of the main reasons for the gap is because each market has different cash pricing based on the local competitive condition,” he points out. “That’s driven by market conditions within geographic areas where insurance is driven on a national basis. If you ask the question ‘Why is cash different from insurance?’, you have to look at that by individual markets.”
In highly competitive markets, prices are cheaper. That sets the stage for the biggest gaps in pricing.
“The most highly competitive markets have a wider gap than the least competitive markets,” Topping says. “All of that is driven by competition. For example, if you operated in Los Angeles, where prices are extremely low, and you also operate in North Carolina, where they get much more price for the product, there might not be as much of a variance in North Carolina.”
Since Clyde Stephens, owner of Vision’s Glass, is in the small town Perham, Minn., he enjoys an advantage his big city peers don’t get.
“We don’t discount in this area,” Stephens says. “In major cities, they’re running a 28 to 38 percent discount off the deflated NAGS price. In this area, if they want a discount off NAGS, I turn it down.”
A Long History
“As far as I can remember, there has always been a distinction between cash and insurance prices,” says Wes Topping, CEO of Belron Inc. USA in Denver. “I think that happened a little more since the networks came into play.”
“Cash pricing has escalated in the last five years,” says Michael Connolly, owner of Glass Plus, a glass retailer in San Francisco. “It has escalated among people who want to get more business to get their cash flow going. It has escalated among people who are working by themselves.”
Kelli Dimick, auto glass supervisor for Jones Paint and Glass, a six-chain business based in Cedar City, Utah., sees this as well. “Cash prices have always been there, but over the years they’ve come down,” she says.
Les Shaver is the editorial director of AGRR magazine.