Allstate/LYNX Help Wanted: "Will You Work for Food?"
By Mark Rizzi
Today’s economy has worsened a shortage of qualified people to fill job openings. Many employers are both searching for qualified staff and then trying to keep those hired. Many bodies are available, but most aren’t qualified. So, in light of this state of affairs, how are Allstate’s and LYNX Services trying to recruit qualified windshield repair/replacement professionals to service Allstate insureds?
After reading Allstate’s new Offer and Acceptance, patterned after State Farm’s, with a couple of twists, and the September 2000 News Release from US Glass & AGRR magazines online, I can just imagine what a "Help Wanted" ad would look like in the classified section of any major newspaper.
Major Insurance Company needs experienced auto glass installers to participate in preferred provider program designed to service our insureds’ auto glass replacement needs. Applicants must be willing to sign an offer and acceptance contract specifying terms and conditions, including quality assurances, price parameters for work completed, indemnification of all liability for administrators and Insurer, including indemnification for punitive damages, and willing to handle all necessary customer satisfaction issues that may arise. No quality workmanship issues will be verified; only installers prices will be audited.
Applicant will also be required to accept pricing terms with little regard to applicant’s profitability, and may be required to underbid him- or herself to secure work via selective rotation based on lower bids, once the agreement is in place. This will reward administrators with lower prices for market areas, and reward those who can complete work faster to make up for lower profitability. Future reimbursement rates will be based on applicant’s willingness to underbid the contract, to ensure competitiveness for the administrator.
This offer is in place for a limited time only; our current providers will no longer be with us, and we need new providers before the current contract expires. Don’t miss this unique opportunity; no doubt others in your area will quickly take advantage!
This is fictitious and humorous, of course, but to my mind it represents the current state of the auto glass industry. Insurers tout quality loudly for consumers, yet the only factor they ever seem to check is "offered" price levels.
You’d Expect . . .
After the $1.2 billion decision against State Farm in the aftermarket parts case, ABC’s 20/20 segment in February, and finally Dateline NBC’s segment on "Paper Review" companies, you’d expect to find insurers looking hard for providers who do quality work. You’d also expect systematic post-repair inspections to ensure that insureds’ vehicle safety systems are absolutely returned to original structure and design.
Finally, you’d expect extra effort to retain repairers who consistently provide quality installations to insurers’ precious market share: husbands, wives, children, families and friends. After all, the surest way to mitigate costs is to protect your market share: insureds moving daily from place to place in the highly engineered and designed rolling safety capsules we call vehicles. Safe repairs that keep customers and their offspring alive to become insurers’ future market share seem only logical.
But . . . Not!
But what have we got instead? An announcement in the Sept. 2000 News Release by US Glass and AGRR magazines online that Allstate and LYNX are offering a contract for you to sign at an agreed rate, without necessarily knowing that rate until after you sign? Signees could then "bid" lower prices in exchange for the "reward" of more work. Here’s how I translate this:
We have market surveys for all areas, and we know what we believe the competitive price is, but we’ll let you underbid this price to compete with other network members for referrals based on low bid.
Moreover, is this anything new?
Of course it isn’t. Networks have been doing this for years. According to my customers and my conversations with network operators, if insureds request a non-network shop, network operators are to get competitive bids from [network] shops (they don’t have others in their lists, remember?) The operator tells the second shop he/she has a customer on the line requesting a non-network shop and needs a competitive bid for replacement on a specific vehicle. Now, the second shop knows the price agreed to in the contract, and knows the operator knows, so the only reason for this call is to tell the shop it must bid lower to get the job. Thanks to the auto glass industry as a whole’s failure to educate consumers, they feel they’re faced with having to pay a difference if they go to the shop they want. Sometimes, there is no difference: the consumer’s chosen shop is within the insurer’s approved price limits.
Even if there is a difference, however, the operator doesn’t specify the quality of materials, glass, or installers required for this alleged "bid," and consumers are completely sidetracked from this issue ( I always confirm this with my customers). This system appeared skewed to favor network shops, right? Possibly, at first glance, and possibly, for a period of time. But now, it seems, this tactic has worked so well in helping insureds make the "correct" decision about where to take their car that network shops’ "reward" is to bid daily against other network members to see "how low they will go."
Network members: do you doubt the network is saving these lower bid data for the next market survey? Outstanding, I say! I see the benefits of membership already. Now, tell me again where quality fits into this picture?
Scare tactics are wonderful negotiating tools. The possibility of business being awarded to others due to lower bids is at the heart of competitive business principles. However, in normal bidding, in contrast to auto glass bidding, two factors check and balance price. (1) Every building construction contract specifies materials and workmanship in detail before price is ever considered. (2) During work and after completion, building inspectors, architects, and building owners inspect to verify adherence to architects’ specifications and building codes.
If architects only stated: "Contractor must build a structure that meets all applicable building codes" but never verified that codes were met, anyone with a hammer could win bids on price even though they didn’t plan to meet required codes because they wouldn’t have to worry about verification. Everything might look fine on the surface, but underneath, beyond human view, contractors who used the cheapest materials and made the most shortcuts could win bid after bid after bid until something disastrous happened. That’s why we have building inspectors and inspections: to prevent disasters caused when profit motives outweigh quality motives.
Is this why insurers inspect some auto body repairs? Even so, as David Williams pointed out in "Trends: State Farm Drive-In Estimates Vanishing" (9/2000 BP&E), not every job is inspected, and you seldom hear of auto body or auto glass shops being prosecuted for omitting repairs, parts, and procedures even though they were paid for them. And what about verifying quality workmanship? Read some of Dick Strom’s recent columns in BP&E, and you’ll see that insurers are too often reluctant to prosecute their cheating repair partners.
Insurers’ advertise that insurance fraud is one of the most expensive losses they have. To assure quality, integrity, and honest repairs, shouldn’t insurers do post-repair inspections rigorously and prosecute all fraud uncovered? Wouldn’t that send a clear message to shops that insured customers will get the quality they deserve?
Scare tactics when abused aren’t good tools in any business. Checks and balances must be in place to assure that quality-minded contractors who offer good prices based on the quality of service they provides are rewarded with work. Customers come to them because they deliver quality at a fair price.
When quality is taken out of the equation, lower price gives consumers no benefit. In my view, the bid system has failed in the auto glass industry because no check and balance is in place; only low price is verified. I challenge the insurance industry to mitigate losses by implementing quality oriented programs, not price oriented ones. Verify quality and safety first; protect your insureds. Competition based on quality and competitive price is quite healthy in other industries; it should work in ours if poor repairs were removed from the equation by post-repair inspection.
Negotiate with Your Market
The inherent snag in "negotiating" with insurers isn’t easy for some to see. You get "hooked" when you try to serve two masters: the consumer, who wants quality, and to whom we are bound by federal and state mandates to provide quality; and also the insurer, who demands low price but doesn’t own the property to be repaired.
Only one question matters: "Who owns the property?" This answer, of course: car owners. This fact defines car owners as your customers, not insurers. Insureds are contracted with their insurer, whose job is to indemnify them against loss. Insurers have no authority to reward anyone with increased work volume on property they don’t own, partly because they don’t own the property being repaired, and partly because they don’t contract with insureds to do repairs on insured property. The same is true of networks.
Mistakenly treating the check writer as your customer can create a potentially problematic situation. Car owners hire you to do repairs. Don’t confuse this fact with referrals from networks. Car owners are ultimately responsible for your bill. Insurers are contracted to indemnify car owners against financial loss other than their deductible. Now, someone please tell me again how a network or insurer can possibly be a repair shop’s customer?
Allstate and Lynx are apparently going to reward "more efficient" shops with increased volume. In US Glass and AGRR magazines’ story, I see no criterion for "more efficient" other than the ability to do work cheaper. Yes, quality standards are written into contracts for both LYNX and Allstate, but how many LYNX members have ever had a quality check (QVC) done to date? Moreover, definition of the QVC in the LYNX contract doesn’t mention car owner contact at all, only adherence to quality standards and administrative compliance. If consumers aren’t contacted with post-repair inspection, how can quality standards be verified?
With that said, I respectfully submit to Allstate, LYNX, and anyone else who puts quality standards into contracts, that they’re nothing more than window dressing without unannounced immediate post-repair inspections, performed at non-routine intervals; these are especially critical when shops have given blanket liability and indemnification to networks and insurers.
In any other business, "the benefits of increased volume" is a simple equation. However Allstate’s and LYNX’s definition seems patterned after what has already proven financially unfeasible. Safelite’s filing of Chapter 11 Bankruptcy on June 9, 2000 has proven that increased volume doesn’t necessarily compensate for artificially depressed prices.
Furthermore, said the US Glass/AGRR article, Allstate seems "frustrated by all segments of the auto glass market, from small companies that say they can do work for much less than the networks to larger companies that still offer lower prices for "cash customers." Does Allstate really think those who play the cash game are actually making any money at it? I sincerely doubt it.
What Should You Fear?
With that in mind we’re back to where we started with "scare tactics." The question I’d pose: how many have signed with Allstate? Is it possible its O&A was the final straw placed on the camel’s back, and this latest "bid" offer is just a way to incite fear in those intent on fair reimbursement for quality work, and those intent on direct billing? I wonder how many are signing, and just as important, how many aren’t.
Let’s talk about what you should really fear. In my view, that’s the liability and indemnification clause. This is paramount if you look at the contract as a businessperson. I’ve written before about the potential liability in using non-OEM glass, which may not have been approved for use by those who built and designed vehicles’ safety systems. I’ve discussed this situation with some lawyers. We should all know by now about the liability in knowingly changing any element of a motor vehicle’s design during repairs, and we should know the federal codes addressing this and the case law supporting it (summarized in the 7/2000 BP&E, "Case & Federal Law Dictate Repair to OE Standards").
We all know about the State Farm lawsuit over imitation parts that set a precedent roughly as follows:
If you promote non-OE parts as equal, you’d better be able to prove they are.
We all know about the lower price of aftermarket glass and adhesives. So the question becomes, who holds the liability bag when an injury happens and you used aftermarket materials? You may say all day that the insurer didn’t allow enough money for anything but aftermarket materials and remain profitable, but remember two things. One, you’re the repair professional. Insurers don’t repair cars; they sell insurance. They won’t hesitate for a second to tell a judge or prosecuting attorney exactly that. Two, it doesn’t matter what they say or do, if you signed the contract, because you accepted the insurer/network’s liability, including punitive damages and legal fees. More benefits of membership?
Take Over, Mr. Data
Let’s talk about the art of compiling data. Assume for a second that you sign this contract. Every time you or someone else underbids a previous bid, the computer remembers your bid, and probably enters as the new market price for your area. When you finally refuse to give anymore, the network will consider "mobile-ins" from outside your area to account for "increased competition." One report recently has a network mobiling in an installer from 180 miles away even though a network member was already in place locally. Who’s compiling data on market prices, and who’s manipulating it? Again, I wonder.
Consider: if you have a tapeworm, you’ll starve to death no matter how much you eat; the worm, though, will flourish.
A friend of mine recently handed me a joke printed off the Internet and circulating at his workplace. He thought I’d be amused. But while it was indeed funny to most, to me it simply stated symbolically and with striking accuracy what’s happening in our industry.
Dead Horse, Author Unknown
Wisdom passed on from generation to generation says that when you find you’re riding a dead horse, the best strategy is to dismount.
In modern education, business, and government, however, a whole range of far more advanced strategies is often employed, such as:
1. Buy a stronger whip.
2. Change riders.
3. Threaten the horse with termination.
4. Appoint a committee to study the horse.
5. Arrange to visit other countries to see how others ride dead horses.
6. Lower the standards so dead horses can be included.
7. Re-classify the dead horse as "living, impaired."
8. Hire outside contractors to ride the dead horse.
9. Harness several dead horses together to increase the speed.
10. Provide additional funding and/or training to increase the dead horse’s performance.
11. Do a productivity study to see if lighter riders would improve the dead horse’s performance.
12. Declare that since the dead horse doesn’t have to be fed, it’s less costly, carries lower overhead, and therefore contributes substantially more to the economy’s bottom line than other horses do.
13. Re-write the expected performance requirements for all horses.
14. Promote the dead horse to a supervisory position.
Think about It
I advocate no specific choice by others; I only hope to generate thought. We can’t take at face value what’s placed before us. Too often, it seems, others want to play us as fools.
Soon, I fear, given present and past "offers," they’ll be offering us signs as compensation for participation in the programs. On the signs will be painted:
Will install auto glass for food.
If we keep acting like poor business people, whom but ourselves should we blame when we’re treated like poor business people?
|After the $1.2 billion decision against State Farm in the aftermarket parts, ABC’s 20/20 segment in February, and Dateline NBC’s segment on "Paper Review" firms and State Farm, you’d expect to find insurers looking hard for providers who do quality work. You’d also expect systematic post-repair inspections to assure proper repair, and extra effort to retain repairers who consistently provide quality installations. . . .|
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