Direct Bill, Direct Profit
Invoicing Insurers Has Rewards and Risks
by Les Shaver
In most repair and service industries, labor is king. The cost of labor can often be more than the product being installed or fixed.
Not in the glass industry. It’s a good bet no customer ever told an auto glass shop owner not to install a piece of glass because the labor is too high. After years of watching their labor being packaged with the cost of glass, glass shop owners operate differently than most other auto service and repair industries. Well, if they’re going to survive today, things have to change. Today’s current glass prices in general, and NAGS pricing in particular, are designed to have both a labor and materials component.
The question is: How do shops get this labor?
In many of the initial offer and acceptance letters sent before the NAGS rebalancing on February 28, insurance companies offered more for labor, but many shop owners said they did not offer enough to stop the industry’s hemorrhaging of the past few years. And some are concerned these labor rates will eventually decline.
“When they [NAGS] did the revaluation in 1999, the insurance industry was supposed to pay a higher labor rate,” said Jason Polzin, store manager with Polzin Glass in Faribault, Minn. “But it never happened.”
So, to get his labor, Polzin is trying something new.
“This time they are going so low, we have to get more labor and we should,” he added. “We’ve set our own labor price and we’ve started to direct bill everything.”
But before a shop owner follows Polzin’s and others’ thinking about direct billing, he needs to know the pitfalls of the system and the effort he will have to go through to get proper payments.
Back to the Future
In the days before networks, direct billing was commonplace in the industry.
“We would get a referral [with the policy number and a claim number] from an insurance agent when there was a policyholder with a broken glass in their car,” explained Tim Tedeschi, president of T&T Auto Glass in Cincinnati. “We would install the glass, bill the claims department and receive a check, usually within three business days. The price was derived from the insurance company’s market survey and had to be in the ball park of that market, usually plus or minus a spread of 10 percentage points of the NAGS price list. There was no set price and each company had to price and sell that price to individual agencies. It was a free market system and it worked well.”
But when the networks and third party administrators came along and standardized the process, things changed and direct billing pretty much went the way of the dinosaur. Suddenly, insurance companies required their agents to stop recommending glass shops and asked their customers to dial an 800 number to reach the third party administrator. Regardless of the amount the shop charged on the bill, the insurance companies only paid their going rate.
Because direct billing can be stonewalled by the intermediaries, Elle Burdsall, owner, Apex Auto Glass Inc., in Bonney Lake, Wash., will only direct bill when she has a good contact with the insurance company. “When we direct bill, we first get a good contact (adjuster) who is willing to allow us to bill direct,” she said. “We then make sure we contact that person each and every time before we do work for anyone.”
The actual process may be the simplest part of the job. “We first get the job, get the information, take the list price subtract 35 percent, add $30 for the urethane kit, and then take NAGS book time plus $45 labor per every hour that the book says, then charge additional for any corrosion treatment that we have to do to the vehicle to make sure we do the job properly,” explained Scott Rech, owner of Advanced Auto Glass in Davey, Neb.
The Playing Field
If you don’t have an arrangement with the insurance company before you send the bill, be prepared for hassles. Often the payment will come back short of what you billed and later than you expected. Sometimes, it may not come back at all. Before going in, a shop owner needs to know how the playing field is slanted. Some states have laws that are friendly to the insurance companies, while others will favor shops in short pay situations.
In states such as Pennsylvania, shops face an uphill battle getting paid. When the bill gets kicked to the networks, shops in Pennsylvania have very little chance of fighting short pays, according to Scott Levin, owner of L&L Glass & Paint Co. Inc. in Butler, Pa.
“Pennsylvania has some crappy laws that make it difficult to collect a short pay,” he said. “The insurance companies will send the invoices to the network to be paid. It [the process] takes longer and they pay it at the same price [they would have].”
Fortunately, not every state is so insurance friendly. With a series of laws protecting consumer choice and glass shops against partial payment, Minnesota has often been considered a mecca for independent glass shops. But it isn’t the only state where shops can direct bill. However, it doesn’t hurt to follow the steps that have worked in other places.
Lynn Hartman, whose company Neon Billing Service once worked for insurance companies and now fights them on the behalf of glass shops, (see AGRR January/February 2005, page 38) told Independent Glass Association attendees at the meeting earlier this year in Florida that once they face a short pay, they need to resend the statement and then send a letter. After that, there should be a follow-up letter and then a demand letter. “You need to make sure you have a written trail of everything,” the vice president of the Beatrice, Neb. based company advised.
Polzin, who has been learning about fighting short pays from Minnesota shop owners who have succeeded in the past, plans to follow this strategy. Ten days after the original short pay, he will resend the statement. Then in 10-day increments, he will follow with each of his letters. He will then go to the state’s Commerce Department for help. Finally, he will take the insurance company to arbitration.
“It’s pretty easy to do,” he said. “You meet with the arbitrator and the insurance company’s attorney.”
On the surface, facing insurance company lawyers in arbitration may be scary to a small glass shop owner. And it can be.
“The idea, at first, was kind of daunting, but I said to myself, ‘I can do this,’” said Jerry Mattison, owner of Star Windshield in St. James, Minn. And he was right. He has been very successful in getting paid what he was owed. Surprisingly, he attributes part of it to the fact that he is a small glass shop owner defending himself against big insurance company attorneys. This, he says, helps him earn some sympathy in the eyes of the arbitrators.
If you do find success, Polzin thinks the insurance companies will work with you and give you better pricing. “Arbitration is more expensive to the insurance company than it is to us,” Polzin said.
Hartman makes the point, “Arbitration is required in Minnesota. In most other states you aren’t required to take people to arbitration.”
If you’re getting short paid by a number of companies and have to send out dunning letters constantly, the costs can add up.
“Direct billing can be more time consuming so a drawback would be the possible need for additional staffing,” Burdsall of Apex Auto Glass said.
And, you can’t just put any person in this role. Hartman says it must a specific person who is patient, persistent, professional and consistent. Of course, if you don’t want to pay for this, you can always go to Hartman’s company, though that will cost about 25 percent of what you recover (if you’re an IGA member) and 30 percent (if you’re not an IGA member).
Direct billing also increases the likelihood of friction in insurance relationships. Though insurance companies generally have tried to eliminate the practice, many shops still try to market to insurance agents. One quick way to ruin this relationship is to ignore the insurance company’s pricing requirements.
“All you do is irritate the agents and get nothing [by getting short paid],” Levin said.
“When you bill at full retail, the agents know. They get a loss report every month, which is what they get paid from. If you’re charging them more, you’re not getting a referral from that agent because you’re hurting his pocketbook. It doesn’t matter if you play golf with him, buy him a bottle of booze or whatever.”
Others see this dilemma as well.
“It probably isn’t very popular with the insurance companies if you are going outside their system, so one needs to really think hard before making that decision,” said Mark Olson, co-owner, A-1 Glass Co. Inc., La Crosse, Wis.
But with the low prices some insurers are offering after the rebalancing, some glass shops no longer care about pacifying agents or their corporate headquarters. They’d rather get the prices they feel they’ve earned.
“We may have to take it to small claims court,” says Allen Lindsey. “Its better to wait and do it that way instead of not doing it [the job] at all. And, if it helps out another glass company down the road, it would make me happy. I could really care less. I’m at the age I will retire before long.”
Unfortunately, not all glass shop owners are at the same stage of their careers. But if they don’t make the right decisions about how to bill for labor, they could be facing retirement from the industry as well.
Les Shaver is a contributing editor of AGRR magazine.
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