an iga viewpoint
Guaranteed Average Invoicing 101
by Alan Epley
Let’s get right to our discussion, class. The term GAI is short
for guaranteed average invoice. This is a term used by third-party
administrators (TPAs) who sell contracts to insurance companies or other
parties that pay for auto glass services. It’s a clandestine arrangement
with no above-board notification to the auto glass competitors or the
insurance policyholders it ultimately affects. There are many variations
of this contractual arrangement, depending on who the TPA is and/or who
the carrier is. The Independent Glass Association (IGA) has identified
three TPAs that have this arrangement with insurers; one by a source of
court documents, one through advertising brochures and another smaller
TPA by means of a court document.
One top-tier insurance company auto glass claims specialist explained
the GAI in a court hearing recently when asked to describe this concept
to the judge: “The guaranteed average invoice is basically a pricing structure
that is in our contract. And, again I’d like to remind you that I’m not
a procurement expert, so there may be details of the guaranteed average
invoice that I leave out. But basically it’s a risk management pricing
structure. So just as [in] any business agreement, when you engage in
a business agreement, a contract you agree on a price and terms of the
contract, etc. The guaranteed average invoice price is the price that
[name of glass company/TPA] guarantees, regardless of which glass company
submits the invoice, regardless of how many repairs or how many replacements,
over the term of the contract.” When asked “if, indeed, you have paid
[to TPA name] more than the average of (example price), let’s say 10 dollars
more, 10 dollars more per, and there are 100,000 claims, so that’s a million
dollars. Does TPA/glass company refund that money to you if its GAI is
less?” Answer from insurance expert witness: “No sir.”
“The GAI has become
a catalyst for insurers to short-change their customers.”
The expert witness then described further how the scenario would work
out if the TPA was over the GAI at the end of the contract period. “So
they have to adjust their administrative fees or they have to adjust their
repair price, not your repair price? They have to adjust their repair
price to ensure that the GAI price is met. If at the end of the policy
term, even after monitoring, that GAI is not met, then there is a penalty.”
What is so attractive to the insurance company, of course, is that over
the course of the GAI contract period, the TPA “guarantees” the average
cost of claims will be capped at a specific amount. The specifics of the
contract may vary as some TPAs may limit the guarantee to “in-network”
claims and others may guarantee all claims. If the amount exceeds the
guarantee, the TPA would be required to reimburse the insurance company
client the excess amount.
Insurers like the GAI because it takes away the financial uncertainty
of how much they will pay out for glass claims over the course of the
contract period. TPAs like it because they benefit financially from this
arrangement, especially if the ratio of repairs to replacements favors
repair. Could that be the strategy behind a media campaign accentuating
Consider an example of a GAI claim. Under the network pricing arrangement,
let’s assume that insurance company XYZ will pay the shop $60 for a one
chip windshield repair. The shop performs the repair and submits the invoice
to the TPA. The TPA in turn is paid the GAI amount—let’s assume $250—from
insurance company XYZ. Therefore, on this windshield repair claim, the
TPA realizes a $190 gain. In addition, the TPA receives an administrative
fee for processing the claim.
How Would the Policyholder Feel?
This brings me to two points. First, I think we can all agree that the
$190 rightfully belongs to the policyholder. And second, TPAs are gambling
with the insurance claims process for their own financial gain. When you
consider that they assume no liability in the process, I feel this is
unethical and it is wrong.
In the IGA’s discussion of the GAI, we have identified the reasons why
the insurance companies and the TPAs like this concept, but what about
the policyholder? Would the policyholder favor such an arrangement?
My understanding of an automobile comprehensive insurance policy is that
a consumer purchases insurance to indemnify them at the time of a loss;
restoring a damaged asset (in this case an automobile) to pre-loss condition.
The policyholder incurs a loss and the insurance company either pays them
a sum of money or pays to have the automobile repaired. Therefore, the
policyholder should be the exclusive beneficiary of any proceeds to be
paid out under the terms of the policy. The introduction of the GAI into
the transaction means that TPAs are benefitting from the policyholder-insurer
arrangement; when you get right down to it, this is reinsurance. The GAI
has become a catalyst for insurers to short-change their customers, the
policyholders. The GAI is an incentive to do anything but make the policyholder
whole in the true spirit of the insurance policy contract.
So we must ask the question, why is this tolerated? Should a third-party
be profiting financially from a contract between a policyholder and their
insurer? Doesn’t that financial benefit belong entirely to the policyholder?
Isn’t the third-party being unjustly enriched? Isn’t the third-party limiting
the policyholder’s right to be made whole?
If you work in the auto glass business, you know the answers to these
questions. You are aware that TPAs’ customer service representatives inquire
about the damaged area to a windshield and, in some instances, try to
push the shop into repairing a windshield. We have seen directives from
some insurers through their TPAs advising that shops would only be reimbursed
for the least expensive parts. I can go on and on. You should get the
point. These financial partnerships between insurers and their surrogates
are skimming the icing off the cake to the detriment of the consumers.
On that basis, these arrangements should not be allowed. To reiterate,
the policyholder should be the exclusive beneficiary of any policy proceeds.
In the case of many glass claims, the TPA may not even be involved in
the process and if the shop sends the invoice directly to the insurance
company, it is routed to the TPA for payment processing and the payment
remitted to the shop is short-paid. The entire process is geared to enrich
the TPAs and the insurance companies at a cost to the consumer. Is this
just or unjust? You be the judge.
Alan Epley is president of the Independent Glass Association (IGA).
He also serves as president of Southern Glass and Plastic in Columbia,
S.C. Mr. Epley’s opinions are solely his own and not necessarily those
of this magazine.
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