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Volume 7    Issue 4           July/August  2005

A cold, hard look at whether they'll
be a cash market and what it means if there is
by Les Shaver

It's said that trends often start in California and move east.  If that's the case, the auto glass industry could be in store for a major awakening. In California, average deductibles hover at about $250 and it’s not uncommon to see them approach $500 or even $1,000 in some cases, according to Jim Horrox, COO of The Stockton Glass Group in Stockton, Calif. 

When customers had a $50 or $100 deductible and the glass broke, the policyholder paid the deductible, the insurance company picked up the rest and the glass got fixed. But deductibles are inching higher, and the price of glass is going down. In some places, customers can get their glass replaced for $189. What does this mean? Quite simply, customers are becoming more likely to just pay for a glass replacement out of their own pocket than make an insurance claim. 

Both glass shops and insurers around the country are starting to take note of this trend. Indeed, it seems that cash may once again become king in the auto glass industry.

Outside of the anecdotal evidence, both networks and insurers report their claims have gone down. In fact, one reason State Farm gave for eliminating the waiver for the deductible in its repair program (see related stories, pages 14 and 42) was the rise in deductibles. It’s not a stretch to say the increased cash business will reverberate through the industry. While this could push the insurers and networks further out of the business, it could open up a can of worms—and opportunities—for retail glass shops.

What Caused the Drop?
While both insurers and networks have noticed a decline in glass claims, neither seems ready to admit that higher deductibles are the only reason for this trend. 

“At State Farm, policyholders are increasing their deductibles and are not submitting as many glass-only claims as in the past,” said Bob Bischoff, national glass manager for the insurance company, “possibly because of a concern that claim activity could impact their premiums.”

Horrox agrees.

“More and more policyholders are reluctant to even report vehicle glass damage to their insurance providers, for fear of causing rate increases or jeopardizing their coverage,” he said. “Many insurance providers have artificially capped the amount of compensation payable for glass replacement at an unreasonably low level. More service providers are forced to issue supplemental bills to the policyholder to collect at least a minimal return on the work,” according to Horrox. He said his company will send supplemental bills to some customers when their insurance won’t cover the full cost of the glass replacement. 

Safelite also is seeing the number of claims filed through its network go down. And, it is also reluctant to attribute this to higher deductibles.

“We are noticing an increase in consumers who pay for auto glass personally instead of filing a claim,” said Bret Baird, a spokesman for Columbus, Ohio-based Safelite.

“Again, there could be a number of factors coming into play, especially higher deductibles. We don’t really see that this will impact how insurance companies will structure their auto glass program operations with networks. Additionally, we see increases in direct-to-consumer marketing within the auto glass industry as another factor. Consumers also have greater access to information via the Web.”

State Farm has already said that the higher deductibles amounts are more frequently selected by its policyholders today and that played a role in its decision to no longer waive the deductible for windshield repair. But, Bischoff insists the insurer still values repair as an option when it is warranted and chosen by the insured. 

While the script followed by the LYNX Services’ customer service representatives with a State Farm insured may change, Bischoff confirmed that they will still discuss repair as an option for the customer. Now that windshield repair is more readily accepted by consumers as an option, Bischoff believes some will choose it (if their windshield is repairable) because a typical repair cost is less expensive than having to pay for a deductible. (See related story, page 36.)

“Repair costs could be less than the deductible,” Bischoff said. “The customer can pay the $50 for the repair instead of a higher deductible amount.”

However, some in the industry see the State Farm deductible issue in a different light.

“The State Farm issue is they’re going to do it [get out of repair] in a hurry,” said Dave Taylor, COO for Cindy Rowe Auto Glass in Harrisburg, Pa. “They have decided that their deductibles have gone up to the point where it makes no sense for them to pay for windshield repair in the near future.”

Follow The Leader?
Even though it’s no longer waiving deductibles contractually and glass-only claims are lower than in the past, State Farm is not eliminating its auto glass program, emphasized Bischoff. On the contrary, it’s working on a new offer and acceptance agreement which will encourage electronic interchange. Bischoff said the company has a contractual obligation to its customers with respect to covered glass claims and will continue to live up to that obligation.

Another insurance representative, who spoke on condition of anonymity, also sees insurance remaining a part of the auto glass business. He admits that in some states (like Minnesota) where glass claims are higher, insurers may have different policies. But overall, he said it wouldn’t make sense for insurers to back away from auto glass as it becomes a bigger component in cars.

“As glass becomes more important to the structural integrity of cars, as glass gets bigger, and as more accessories are put in glass, it will become more expensive,” he said. “I don’t see this becoming a cash market.”

But the question remains: Will other insurers follow State Farm’s lead? At presstime, no other insurers had made any announcements, which might not be unexpected in such a short wait-and-see period of time. As for shop owners, all they can do it make educated guesses.

“Nationwide, Allstate, and GEICO will follow State Farm,” said Scott Levin, vice-president of L & L Glass & Paint Inc. in Butler, Pa. “When State Farm does something, others usually follow.”

Taylor, can see two different scenarios. In one, the other insurers follow State Farm’s lead and, within five years, the insurance industry is almost entirely out of the auto glass business. On the other hand, he could see insurers using State Farm’s move as an opportunity to differentiate themselves from each other.

“The big unknown is what other insurers will do,” Taylor said. “Will they see State Farm as a model for how they want to run their business or will they look at it as a competitive opportunity to provide their insureds with coverages that State Farm and others are not.”

Where to Now?
When Taylor first heard about State Farm’s decision to eliminate repair, he knew it could be the biggest realignment the auto glass industry had seen since networks first arrived on the scene in the early 1990s. 

“The first networks changed how we took our business to market,” Taylor said. “Those companies that weren’t able to adjust to networks either had to exit the retail auto glass business and concentrate on dealers or fleets or they went out of business. I believe we’re going to have the same thing happen again.”

Now, Taylor thinks the industry will look to other automotive aftermarket products, like tires or sparkplugs, for guidance.

“Glass shops are going to have to learn to operate in a cash environment,” he said. “The good news is they’re going to have a few years to learn to do it. They’re not going to wake up over night and have to become cash experts. But they can’t turn back the clock.” 

Les Shaver is a contributing editor to AGRR.

The Winds of Change or the Same Old Storm?
Many in the industry sense change on the horizon in terms of the growth of cash business and the actions of insurance companies.

“Increases in deductibles will change our business,” said a glass shop owner from South Carolina, who preferred not to be identified for this story but represents the view expressed by many. “There will be less concentration on the insurance agent and the insurance company and more advertising to the general public.”

But more cash business holds the potential to bring some shadier players into the business.

“One of our fears is the little company that opens with a $10 business license and a $100 pickup truck,” the South Carolinian said. “They don’t have liability, taxes, health insurance. They don’t have anything.”

Yet in a cash market they become an even bigger competitor, which gives shops a choice. Do they adopt the same techniques and compete with these people (knowing their margins will shrink and their quality may go down) or do they stick to their guns (and lose business)? It’s a decision Scott Levin in Butler, Pa., has already pondered.

“The guys who do good work will have to get out or will have to get down and dirty and do it for 50 or 60 percent less,” he said. “You can combat it, but you’ll lose your margin.”

But Levin said he would like to avoid both options. Instead, he wants to sell his quality.

“I will let the Chevy and Ford trucks go to other people,” he says. “I will try to appeal to the BMW, Mercedes and Porsche owners. I’ll also try to do some car dealerships, on my terms.”

There are some advantages to a cash business, though. A lot of those gripes auto glass shops have with insurance and networks could fade away.

“I won’t have to wait for any third party to pay me,” the South Carolina shop owner said. “I won’t have to argue with any third party. I won’t have to wait 60 to 90 days to finance my competitor while they’re holding my money,” he added.

But if people are paying out of their own pockets, there is a school of thought that says they’ll be more likely to go to fly-by-night shops, which don’t care about safety. Or, they may not get their glass replaced at all.

“Not every state has an inspection sticker program,” the owner from South Carolina pointed out. “South Carolina has no inspection program whatsoever.

Now you’re dealing with the safety of the public. It’s about the safety of the people on the outside of the car when the folks on the inside of the car can’t see out because of all the broken glass.”

But not everyone is convinced that quality will go down if insurers disappear.

“Overall, I’m not sure safety will be compromised with this segment shift any more than it has been in the past,” Jim Horrox from Stockton, Calif., said.

“Insurance companies, despite rhetoric to the contrary, have no methods and little interest towards ensuring glass installations are completed safely.”

Horrox could actually envision a cash marketplace leading to an elevated playing field. He thinks customers, if making the decision themselves, will research shops and find out who does the best work. And, in the long run, this could be what quality, safety conscious shops have been looking for all along.

“I believe, in time, a shift towards “cash” transactions will actually help improve safety standards throughout the industry,” he said. “As these standards and awareness increase, I believe quality providers will be able to charge for their services accordingly.”

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