State Farm's exit strategy

Repairers prepare for a future without insurance coverage
By Jenni Chase
July 1, 2005

In May 7, executives with State Farm Insurance of Bloomington, Ill., announced that they were eliminating the deductible waiver for windshield repair effective Dec. 1 in Alabama, Colorado, Idaho, Kansas, Michigan, Oklahoma and Washington. Although company officials would not comment on when the policy change would take effect in the remainder of the states, Glass Claim Services Manager Bob Bischoff says that the May 7 announcement was the first in a series. "As states roll out, we will communicate with glass shop [owners] so they will first hear about it from State Farm. The May 7 statement was our first notice to glass shops. As other states roll out, another communication will be sent to shops in those impacted states prior to the effective date. In some states, however, the law requires either that we not apply a deductible to glass, or offer a $0 deductible on glass as an option for the insured."

The announcement sent shock waves through the industry as managers of repair-only and auto glass replacement shops alike contemplated whether State Farm's move was a sign of things to come. Would additional carriers follow suit? Was this an indication that State Farm officials were planning to exit the auto glass business entirely?

At press time in mid-June, State Farm was the sole carrier to have changed its policy. Officials with Allstate Insurance Co. in Northbrook, Ill., declined to comment when asked if they too were considering eliminating deductible waivers for repair.

As to whether State Farm managers plan to exit the auto glass business, Bischoff had this to say: "We're in the insurance industry; the insured or vehicle owner is the consumer in that transaction. Glass shop [workers] are the experts, and they're truly the people that we see in the glass industry."

Importantly, Bischoff pointed out that if deductibles did indeed rise to the point where auto glass replacement was no longer an insurance transaction, the decision to make repairs would be up to consumers, not the insurance company. "We don't drive insurance deductibles," he says. "Those are individual choices that each of us, as consumers, make. We have seen a trend among policyholders who are raising deductibles to reduce their premiums. This change will affect who glass shops are paid by depending on the deductible amount. It is up to the consumer or owner of the vehicle as to who they want to repair or replace the glass."


Repair experts react

According to Kerry Wanstrath, chief operating officer for Glass Technology in Durango, Colo., insurance claims currently make up 35 percent of the windshield repair business, with the remaining 65 percent coming from uninsured motorists. However, Dave Casey, vice president of SuperGlass Windshield Repair in Orlando, Fla., points out, "A customer shouldn't rock the boat that much, even one the size of State Farm. Any industry that would be so greatly affected by one customer has a problem with its infrastructure. If I was at the mercy of a machine like State Farm, I'd be looking for something else to do."

State Farm's action "will be positive, because it will put the repair companies in contact with the true end customer-the motorist. With repair not being perceived as a claim, eventually, inquiries from policyholders will quit going to insurance agents or through Lynx Services, and customers will look to the open market for their repair solutions. There are more ways to promote your company to the individual motorist than ways to promote your company through Lynx."

Bischoff reports that State Farm customer service representatives will continue to communicate repair as a viable option to policyholders when they call Lynx Services. "Repair costs could be less than the deductible," he explains. "The customer can pay the $50 for the repair instead of a higher deductible amount."

While some vehicle owners will choose not to have repairs performed if their insurers will not pay for them, educated consumers will choose repairs to avoid having to replace their windshields in the long run, says Jim Pascale, vice president of franchising for Novus of Savage, Minn. "There is good news in that cash business means getting paid right away, and consumers who deal directly with the service providers will not be directed by networks," he adds.

 "Things are going to change and the insurance industry has given repair the benefit of promoting our services through insurance companies," says Mike Boyle, president of Glas-Weld Systems in Bend, Ore. "For someone who does a lot of insurance work, State Farm?s decision is a negative. That said, maybe the industry has relied too heavily on using the insurance companies as marketing tools."

Without insurance companies? support of windshield repair throughout the 1980s and 1990s, windshield repair would not be as well-known or as widely used as it is today, agrees Leo Cyr, vice president of auto glass for the National Glass Association, Mclean, Va. "The auto glass industry was not part of the decision-making process years ago when insurance companies chose to waive their deductibles for windshield repairs. We will not be part of the decision-making now if they reverse that decision. It is not our decision to make."

Members of the industry must move forward and teach consumers why and how to locate high-quality windshield repair and replacement providers, Cyr suggests.


Moving forward

 "Shop owners should strengthen their relations with State Farm agents and help the agents understand the value of repair," says Pascale. As Casey points out, "Policyholders will continue to look to agents for education. [The agents] will be more free than ever to recommend repair."

To survive, repair shop managers also need to raise their level of professionalism, says Boyle. "There are very few people who have effectively built a brand around repair. We have too many people on street corners offering repairs for $10. Are you effectively building yourself as a professional business or are you looked at as a street vendor?" Repair company managers need to cultivate an appearance that suggests to consumers that they are professionals, Boyle says. "When [consumers] get chips in their windshields, repair should be the first thing they think about. And they should think of you first."

If the repair companies that depend largely on insurance business move into the commercial consumer market, the potential for crowding exists, says Casey.

"But I don't see people doing twice the work at half the price." To ensure that consumers are knowledgeable about repair and your company, market to consumers directly, he advises. "What other [type of company] would start up and not advertise, not market and get business? If someone thinks that will endure, they're crazy."

Educate consumers that repairs performed immediately will save the cost of replacing windshields and keep claims off of their insurance records, Pascale recommends. "Shop owners' and managers' actions will affect their businesses more than State Farm's actions."


Boyle plans to organize a 'manufacturers' summit' in Denver this summer, where major windshield repair product manufacturers will discuss creating a public-awareness campaign. "Manufacturers are ready to invest in a substantial marketing program for windshield repair that we can give to shops and insurance agents, and distribute through professional organizations like the National Windshield Repair Association," he reports. "The future is really in our hands. It's not in the hands of the insurance companies, but technicians and manufacturers."