Back to Article Index

Whose Side Are You On?

Jan 19, 2004

Glass shops are their own worst enemies; it has become a cliché. When NAGS "rebalanced" many shops feared the worst, and with good reason. Many instantly began receiving faxes from insurers requesting pricing that was close to revenue neutral. Then, not surprisingly, other insurers started asking for prices that were even lower—prices that weren’t even close to being revenue-neutral. Then, in just a short time, the insurers who initially had asked for reasonable prices jumped on the bandwagon and began asking for deep discounts.

In Minnesota, for example, insurers sent faxes to IGA shops asking for "NAGS +144%" plus flat and hourly labor. That pricing brought auto glass reimbursements close to what an earlier Minnesota Department of Commerce survey had determined was fair and reasonable for independent shops, a median price of "Old NAGS -14%." These job faxes came mostly from competitor-administrator (CA) vendors (third-party-administrators who are competitors). Their faxes stated that they considered the listed rates fair and reasonable.

Let’s look at just an example recorded by an IGA member’s shop dealing with American Family Insurance (AFI):

  • February 28, 2005 – Initially following the NAGS rebalance, AFI requested "NAGS +137%" with $40 flat labor and $34 per NAGS labor hour.
  • May 19, 2005 - AFI revised its request to "NAGS +66%".
  • February 2, 2006 - AFI again revises its request to "NAGS +21%".
  • May 8, 2007 - AFI lowers pricing even more to "NAGS +17%" and also lowers the labor rates to $35 flat and $34 per NAGS hour.
  • May 23, 2008 - AFI issues an additional revision, implements pricing of "NAGS -4%" and $47 per NAGS hour, eliminating the flat labor fee all together.
When this rebalancing balancing act is being presented to glass shops, many shoot themselves in the foot by accepting these foolish rates even though they realize they’re not fair or reasonable. So why do some accept these rates? Many have told IGA they feel they may lose jobs to steering if they don’t agree to issued pricing. Some shops accept jobs with the belief they will only lose a little money on one job, but will make it up in volume and we know that never works.

Here lies the danger of accepting pricing that has no profit margin in it. If your invoice shows the price insurers are demanding rather than the price you reasonably need to stay in business, insurers can and will turn around and use those invoices to support their contention that the prices they are paying are fair and reasonable. Now your acceptance of unfair pricing has hurt both you and the industry.

Today more and more shops are standing up and defending their reasonable and sensible prices by aggressively collecting their short pays. It was recently reported that Mark Smolik, general counsel for Safelite Solutions Corp., addressed this issue with the South Carolina legislature. He said, "There are many, many glass companies that will sue the insurance company for what are called short payments in the industry."

Are you one of the "many, many glass shops?" Shop owners are fed up with being reimbursed less than it costs to do the work. They’re tired of cutting good installers’ pay and benefits. They’re tired of not being able to replace worn-out vans and tired of operating in the red.

With some of the stories we hear at IGA it makes us wonder if shops really know how to calculate their average cost per job. To hear some insurers tell it, our cost is simply the price of the glass, some urethane and a little labor. As absurd as that sounds, some shop owners may think that if they are reimbursed more than their costs of goods plus labor they must be making money, right? Perhaps, but unless you’re in the enviable position of having absolutely no other overhead, your average "cost" per job is most likely closer to, or slightly above, the actual reimbursed amount from many insurance companies. Remember to include your own insurance costs, brick and mortar, vehicle expense, gasoline, office personnel, computer software, NAGS licensing, training and a whole host of other expenses that must be factored in or you’re going to find yourself in a big hole. By the way, don’t forget the increased costs that some of the CAs have added for payment processing, job verification process (time on the phone), and the increased cost of customer acquisition, due to limiting independent glass shops market access (more on this to come.)

Fortunately, many IGA member shops refuse to cut corners and perform substandard or unsafe work. But in today’s economic climate, some are being tempted to do just that. If you don’t know how to calculate your costs accurately don’t be embarrassed. Talk to your accountant, a business friend or other glass shops. Study articles in AGRR magazine (for example, "What’s My (Bottom) Line?," which appeared in the November/December 2005 issue), or other industry publications. Come to the IGA Conference in May, where we will offer a detailed workshop on this. But, by all means, find out and then base your charges on what it really costs to operate and turn a profit.

Then when the insurance companies short-pay, you have the data and option of trying to collect your short pays. Remember, insurance companies cannot prove what is fair and reasonable pricing based simply on what they pay. That is inaccurate and often will not stand up in court. The accurate way to determine what is fair and reasonable in the market is to look at what shops are actually charging. So when you charge what they demand rather than what you need to earn a sensible profit, you are hurting yourself, the customer and the industry. Keep in mind that the nation’s largest auto glass retailers have needed to use bankruptcy protection to stay in business. Were they billing "fair and reasonable" prices?

Be sure you understand "New NAGS" vs. "Old NAGS." Study the chart on the inside cover of your winter 2005 NAGS calculator. For example, if you are charging $40 per hour and adding 34 percent to the benchmark, that is the equivalent of the old "NAGS -50%" and $50 flat labor. If you’re charging $40 per hour and charging the benchmark price, you’re getting the equivalent of "Old NAGS -60%" and $50 flat labor. If you’re discounting off of the benchmark, you can find yourself doing work for 70 to 80 percent off of Old NAGS, or worse.

Don’t short-change yourself; bill what you believe you need to stay in business and to make a modest profit. Otherwise, what’s the point of being in business? Many insurers still pay a fair and reasonable price. Some other insurers know what a fair and reasonable is, they just don’t want to pay it.

Calculate your real costs. Bill a price that will allow you to run a good operation and make a profit. Find out how to go to small claims court in your state or have someone mediate your short payments. (Several shops have been using arbitration successfully, so find out if that is an option where you live.) Be aware of the risks of accepting a price just because it’s easier. Bottom line here is that you have to determine for yourself whether the reimbursement being offered by the insurer is acceptable for your business. If it is, that’s one thing. If it’s not, don’t accept it simply because the insurance company has offered it.

Remember: Don’t be your own worst enemy.

-------------

This and other topics will be discussed at the 2009 Independents’ Days Conference and Spring Auto Glass Show™. CLICK HERE to register today.