Volume 33, Number 9, September 1998



Heart -to- Hardt

An Interview With State Farm’s William F. Hardt

by Regina R. Johnson

William Hardt, assistant vice president of auto property claims for State Farm, met with USGlass during Glass Expo Pacific Northwest ’98. He was part of an interface panel at the event, held in August (see page 52 for a show review).

Few would guess that Bill Hardt was an industrial arts teacher with additional majors in biology and geology long before he began his career with State Farm Insurance Company of Bloomington, IL. Though high school education is a long shot from his duties as assistant vice president of auto property claims, many of the qualities that led Hardt to teaching and the sciences are evident in his manner of relating to people: an analytical mind, straight-shooting way of explanation and a good sense of humor.

When he stands before a group these days, it’s often an audience from the auto glass repair or replacement (AGR) industry rather than students. And instead of teaching, Hardt is often fielding frustrated and sometimes irate questions about State Farm’s policies and plans. Yet he turns up again and again at industry events to explain the insurance company’s Glass Central Program and address industry concerns. So why does he keep coming back?

It’s a question that makes Hardt laugh. "I’m a masochist, I guess," he replies before adding the real reason: "I enjoy it." He continues, "There’s too much mis-communication out there. I think the best way for me to get my message out is for me to go out there and hear what they have to say and have them hear what I have to say."

The "town-meeting"-type sessions have been pretty successful, according to Hardt. "I’d like to think the industry may not like [everything they hear] but they respect our approaches and what we’re trying to do," he says. "And I hope they respect me. I don’t think I can hide behind a desk in Illinois."

Hardt began his career with State Farm as a claims rep in 1969 in Seattle, WA, and worked his way up through the auto adjustment business to the fire business in Alaska and Spokane, WA, and then back to auto adjustment. He spent several years in Texas before his promotion to senior consultant brought him to Bloomington in 1990; two years later he was elevated to his current position. With the position came responsibility for the development of all vehicle repair programs—of which glass is only a small part. Of the approximately $3.5 billion in vehicle repair claims State Farm handles annually, AGR accounts for approximately $450 million.

Hardt says he’s seen many changes in the auto glass industry in the past eight or nine years, and he compares it to the auto body sector as it was several years ago. "Auto glass is very similar, just that the evolution that’s occurred is a little behind," he says. He predicts AGR will see many of the changes that he’s witnessed on the auto body side.

Industry Consolidation to Continue

Hardt relates that as the tools and demands of the business became more complicated, "it’s gotten to a point in the auto body industry where you couldn’t be real successful without becoming larger. This allows those expensive resources to be kept in use more continuously."

In some cases, an investment company or other capital-rich entity has entered the collision repair industry and bought up many small shops, creating a chain with the resources to do business more efficiently than the shops could do on their own, according to Hardt. "They’re becoming very successful, and often provide other services, including glass repair and replacement."

Consolidation, already a force in the AGR industry, is a trend that Hardt predicts will continue. "It’s an outgrowth of competition, the need to leverage economies of scale, price volume and cash flow to take advantage of technological advantages," he explains.

Taking advantage of technology is an area essential to remaining competitive —and one in which AGR is particularly behind, according to Hardt. "You’re not going to have a choice," he says of the advances in automation that include electronic data interchange [EDI], electronic billing, funds transfer and bookkeeping. "If we’re going to survive, we’ve got to change with the times."

The Impact of LYNX

The assistant vice president relates that the Glass Central Program, which combined State Farm’s Offer and Acceptance (O&A) Program with a contract for LYNX Services from PPG Industries to handle claims processing, has increased efficiency and simplified the process for all involved. Further, the entire staff of approximately 200 employees nationwide who processed paper claims before LYNX processing has been reassigned to other duties.

Hardt says the arrangement has been successful, with recent surveys indicating that 94 percent of policyholders report being satisfied or very satisfied with the service. He adds, "The majority of glass shops are pleased, too."

Responding to a perception of many in the AGR industry that State Farm is reaping huge profits through its arrangement with LYNX, Hardt says, "We’re not trying to make money on processing. I need to do this to save money and turn claims around fast."

Hardt is sensitive to the investment in time and money that automation represents, especially to small shops. He says, "I made a promise that as long as I’m in this position, I’ll do whatever I can to allow any glass shop the opportunity to compete [in the O&A Program]. That’s why for years we said you can do EDI or not do EDI, you could do this or not do that.

"LYNX was a way to have my cake and eat it too; [the smaller shops] can compete and I get it my way too," he says. Through LYNX, those shops that don’t have EDI capability can submit paper claims for a fee, which covers the conversion to EDI by the claims handler. Currently, 13,500 shops participate in the O&A program nationwide.

According to Hardt, LYNX Services from PPG was chosen for the insurer’s claims processing because of its strong financial standing and a corporate philosophy similar to State Farm. "The other reason is they don’t have any retail glass shops," he says.

Responding to reports that PPG is considering opening retail AGR shops when its contract with State Farms expires in a few years, Hardt says, "I know of no such plans; I doubt it." He adds, "They do have retail outlets in Montreal [PQ, Canada], but we don’t sell insurance there."

As for the lingering reports of PPG glass sales persons who say that in order to be part of the Glass Central Program, AGR businesses must use PPG glass, Hardt adamantly refutes the claim."No, they do not have to buy PPG glass," he says. "There’s no such requirement and there never will be."

Pricing Challenges

In addition to the AGR industry’s need to acquire the latest automation technology, pricing is another major problem faced by the sector, according to Hardt. He notes that AGR costs have increased by a total of 36 percent in the past year.

A particular challenge is the pricing of auto glass parts, which varies by region and involves discounting depending on the manner in which the glass is purchased. "All across the board, it’s confusing to us and it has to be to those in the AGR industry," he says. "It’s the only commodity I know of that uses discounting [off the stated price]," said Hardt, referring to the industry practice of discounting off NAGS List Prices™.

Hardt believes the AGR industry’s practice of offering reduced prices for jobs paid in cash is another problem. "How do I explain to our policyholders and agents that [AGR businesses] give some one-time customer that walks in off the street a better price than us—and we’re their best customer?" he asks. "If prices are so low and they’re starving to death, then how can they do this cash pricing?"

Another practice of which Hardt is critical is the waiver of the deductible for jobs covered by insurance. "Not only does this simply reallocate what’s charged to insurers," he says, "it might also encourage claim frequency."

Hardt says these practices and others give him reason to reconsider if State Farm’s offers for auto glass repair and replacement jobs aren’t higher than they should be. "We know the reasons—some of them are valid," he says. "But it puts me in a difficult position. I’ve got what I think is a fair price—13,500 shops have accepted it—and I see [these promotions] and think, ‘well, I’d better screw it down a little tighter.’"

Despite the perception of many in the industry, State Farm does not survey prices by region to formulate its glass repair and replacement offers. "Before Glass Central, we did do surveying and found that it blocked out a high percentage of shops from participating," he says. Now, Hardt says, State Farm evaluates the cost of glass, labor, adhesive kits, competition in an area and promotional tactics used in an area. "From that, we gather as much info as possible and come up with the best offer we can."

There have been many in the industry who argue that in order to get the lowest premiums for its policyholders, State Farm seems to reduce prices to a level where shops can no longer survive. Hardt responds, "That’s totally the opposite of what we want." He says, "If they can’t survive they shouldn’t accept the offer. We don’t want them to fail; we want them to be like us—lean, mean and competitive."

Because State Farm is a mutual company owned by its policyholders, Hardt sees his primary responsibility as providing those policyholders with the best insurance value at the lowest price possible. In light of the insurer’s recent return of nearly $900 million to policyholders in 35 states, some in the AGR segment have charged that meeting this goal also translates into extremely high profits for State Farm.

In response, Hardt explains that the premiums are determined based on many factors and projected over a few years. In 1997, he says, "Our experience was better than we expected—that’s how we function." He explains that the year was a light year for catastrophes, relatively speaking, the frequency of claims was down, and the stock market—in which State Farm invests—was well above expectations.

"If you looked at costs, they were in no way down by an amount anywhere near $900 million," says Hardt. He adds that the company frequently returns premiums due to such conditions.

The Changing Face of Insurance

Consolidation is by no means limited to the auto body repair industry; the insurance business is seeing its own consolidation. In addition to the merging of insurers, many of these companies are consolidating individually with a move away from agents to online and direct phone-in relations and other changes.

In line with these changes, State Farm will continue to work to better serve its customer, according to Hardt. However, a move away from agents is not planned. Cultivating relationships with agents will continue to be important for AGR shops, he says, "but they need to do that without giving steaks and golf tournaments." Hardt adds, "We want you to earn referrals based on quality of service and price."

In the end, he says, it’s the consumers who are the beneficiaries of all of this consolidation and new ways of doing business. "After all, it’s the consumer who’s putting food on the table," he says. "If we lose sight of that, it’s over."

What May Lie Ahead

In addition to an increasing reliance on automation, Hardt predicts the industry will see EDI standardization, which will make EDI easier and more efficient.

"I think the internet is going to be the way of the future," he adds. Hardt foresees a time of no call centers, where policyholders log on to the ’net to arrange service and billing and payment are done electronically. How soon will this happen? "Probably sooner than you think," he answers.

Hardt also sees some resolution in the adversarial relations that have existed between the insurance and AGR industries. He notes that some of the large networks are working together on a contractor/subcontractor basis, "and it’s working."

This kind of cooperation is essential in such a competitive environment, Hardt says. "If we’re all going to be successful, we need to leverage all we can and take care of that person who’s paying the bills—the customer."

Regina R. Johnson is the editor of USGlass magazine.



Copyright 1998 Key Communications, Inc. All rights reserved. No reproduction of any type without expressed written permission.