Volume 15, Issue 3 - May/June 2013

Insurance Talk
Policy briefs

Industry Weighs in on Article in Claims Journal

When Paul Gross, president and CEO of HSG and Insurance Claims Management Inc., recently wrote an article titled “Unscrupulous Practices in the Glass Industry” for Claims Journal, AGRR company owners were quick to chime in with their response.

The article, available online at www.claimsjournal.com/news/national/2013/03/06/224445.htm, addresses the insurer/third-party administrator relationship, along with some of the “auto glass claims harvesters” the industry has seen in recent years.

Some in the industry appear to agree with Gross’ description of the third-party administrator (TPA)/ glass shop relationship.

“Paul’s explanation of TPA's was right on,” says Kerry Soat, CEO of Fas-Break Inc. “Hopefully someone was listening. In the past, glass shops dealt directly with insurance companies and negotiated prices with each company. Obviously, as the glass business grew, they required more staff at the insurance company thereby creating a larger labor cost to administer claims, not to mention benefits.”

Also offering his thoughts, glassBYTEs.com™ blogger Neil Duffy, owner of Auto Glass Menders in San Jose, Calif., adds, “Insurers want to keep their money and look for efficiencies or weakness in the market place. You have glass shops which will go to any lengths to increase profit margins, especially since insurance billings in many cases lack oversight. TPAs have become golden funnels to their in-house installation arms.”

As for Gross’ take on “claims-harvesting,” Soat says, “Most of the aggressive claim-harvesting Paul mentions as unscrupulous is the end result of attempting to work around TPAs.” The industry is currently “dominated” by TPAs which have a first-party interest in a claim, which leads to “strife and conflict,” he claims.

Michigan Approves Bills Banning MFN Clauses by Health Care Insurers

Michigan’s governor signed off on Senate Bill (SB) 61 and 62, effectively turning these bills into public acts and striking down most favored nation (MFN) clauses by health care corporations and insurers in the state. Though the legislation did not address property and casualty insurers, at least one automotive services organization says this is good news for automotive repairers, including auto glass retailers.

MFN clauses appear in a number of agreements offered by major national insurance companies and allow insurance companies to negotiate that they get the absolute best price available on services.

“Beginning January 1, 2014, a health care corporation shall not use a ‘most favored nation clause’ in any provider contract, including a provider contract in effect on January 1, 2014,” reads the text of SB 61.

Ron Pyle, president and chief staff executive of the Automotive Service Association, says, “Although this legislation does not include property and casualty insurers, it supports ASA’s position that MFN clauses can harm consumers.

“We are going to continue to work with the Department of Justice as well as state legislators to educate them on the negative impact they (MFN) have upon the consumer and the entire collision repair industry,” he adds.

ASA officials participated in a 2012 U.S. Department of Justice and Federal Trade Commission workshop related to MFN clauses. Following the workshop, ASA sent a letter to the assistant attorney general for the Antitrust Division at the U.S. Department of Justice requesting a review of the MFN clauses used in many property and casualty direct repair agreements. This letter centered in on the “potentially harmful, anti-competitive impact of these clauses on consumers and collision repair shops,” according to an ASA release.

More specifically, the letter states, “ASA’s collision repair members have raised a significant concern regarding insurer-repairer direct repair agreements. An increasing number of our collision repair shop owners are faced with direct repair agreements offered by insurance companies, which include most favored nation or most favored customer clauses.”

The letter continues, “For the large majority of collision repairers, not participating in insurer direct repair programs is not a viable option.”

In respect to AGRR, this move by Michigan helps set precedent. If MFN clauses are banned, it means that insurance companies can no longer dictate the price of auto glass. Moreover, this allows for more competitive pricing.

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