When Business Models Collide
This article takes an in depth look at the dysfunction in the auto glass industry and its implications for the insurance community. We see tension between glass retailers and insurance carriers and their TPAs. There is more unethical behavior by glass retailers today than what I can ever remember in the past 20 years that I have spent as a student of this industry. It is not uncommon for glass vendors to set-up shop outside of car washes and quick lubes to solicit customers, or in some extreme cases, for the retailer to go door-to-door hoping to find a policyholder with a damaged windshield. These “glass harvesters” deliberately establish their presence in zero deductible markets like Florida, Arizona, South Carolina, Kentucky, etc. to prey on the insurance community, selling their services as “free” to the policyholder.
Other unscrupulous practices such as having two different price points for the same exact product prevail in the industry, one lower price for “cash customers” and often a dramatically higher price for “insurance” paid claims. This, of course, has an adverse effect on premiums and it can be just plain embarrassing for claims managers who have tremendous buying power by way of volume. Adding insult to injury, when inflated invoices are not paid in full by the insurer that asks reasonable questions about massive price disparities, nuisance lawsuits are filed by gouging glass shops. Seminars at glass industry events are dedicated to instructing glass purveyors how to “assume an assignment of proceeds” in order to be better positioned to fight the insurer.
Risk averse, strategic buyers fundamentally have to ask: “How can such a simple claim become so complicated? What can I do about it?” After all, the insurance community is the single largest consumer of auto glass, so when that market is broken, no party suffers more than the insurance carrier.
Upon analysis, it seems to me that this dysfunction can be attributed to a fatal flaw in the business model once considered to be a “third party administrator” (TPA). Conventionally, it was always vital that these TPAs be a true third party to the claim itself, so that they could maintain neutrality and objectivity. These are essential factors if one desires to have a healthy market place that thrives due to competition where glass retailers are eager to earn a larger share of the carrier’s business based on their “value proposition” and they have a heightened consciousness of both their price and service offering. In such an environment you would never see a single cash customer yield a better price than what a carrier could achieve with their many thousands of claims. Additionally, policyholder service would be of paramount importance, creating a virtuous process where the free market prevails and glass shops respect the carrier as a highly coveted customer.
Currently, however, the glass industry is dominated by purported TPAs that have a first party interest in the claim, creating strife and conflict. The first party interest could pertain to manufacturing, distributing, or even the retailing of the glass part itself or in some extreme cases all three conflicts apply. So in fact, these TPAs are actually first party administrators or FPAs. As such, they are in direct competition to the retailers that are otherwise serving your policyholders, stripping any illusion of neutrality or objectivity. The FPA, like any well run organization is rightfully desirous of profits. Claims administration becomes a means to that end, but not necessarily in the business of claims administration itself, but rather through the ulterior motive of fulfillment of the claim. This is where business models collide! The carrier is desirous of a stable and rational market that commands fair pricing and good service, yet that becomes increasingly impossible because the FPA puts its interest ahead of both the carrier and their fellow competitors, establishing a vicious process, effectively quashing competition in the process.
In a proverbial sense, the fox has been hired to guard the hen house. Can there be any wonder or doubt as to why the auto glass industry is plagued by so many problems? Pragmatically, risk managers need to be more concerned about the direction that the glass industry is headed, not just disgruntled with where it is. There is a current threat of class action lawsuits to challenge industry giants1 in the questionable business tactics of retailers and service providers, and in the desperate measures to which vendors will go to ensure their survival in today’s broken claims management environment. Insurance carriers need to re-evaluate the impact. Currently, your policyholder is being used as the rope in this tug-of-war between the FPA and the glass retailer and it is creating contempt that compromises customer service at a higher cost.
We’ve come to the brink, but how did we get here? How can we get back to a place of fair, ethical business dealings?
Neutrality, objectivity and alignment are the three missing ingredients and the keys to reclaiming a rationale market. Glass shops must be held accountable, but if they offer the best price and service in their respective market, then they should be able to earn more of your business. If that opportunity exists, they will begin to treat the insurance company like the customer again because it will be in their business interest to do so. These shops should not be forced to work with a competitor or wholesale vendor. Carriers need business model alignment with their TPA. The TPA’s success should be defined by how well they create value for the carrier and the policyholder and not through an ulterior motive of profit thirsty fulfillment of the claim itself. Any other approach will continue to wreak havoc on the industry and the course will soon become irreversible.
1 – Stacey, Penny. “Washington, D.C.-based Law Firm Investigates Potential Class Action Suit Against Safelite,” 23 January 2013. glassBYTEs Auto Glass and Insurance Industry News. http://www.glassbytes.com/newsMerhiSkalet20130123.htm
Paul Gross is president and CEO of Insurance Claims Management, Inc. and HSG, an auto glass claims processing systems provider. Contact Gross at email@example.com
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