Warranty Company Asks Servicer to Cut Rates

By Independent Service Provider

David Riddle

On May 14, 2012 I received this letter in the mail. We haven’t done much work for this Third Party Administrator (TPA) and I guess this explains why.

Dear Service Provider,

We recently performed a rate audit and identified your service center as having rates considerably higher than other providers in your area. With that said, we need to meet and talk about reducing your rates to put you more in line with our network average. I have been given a small window of time by management to execute new rates or calls will be allocated to alternate providers in the area. From the date of this message, you have 5 business days to execute a new rate or we will be forced to start the reallocation of calls above and beyond what may be already be reallocated due to underperformance. Please understand that this is a very high priority matter and we need your help in getting these rates under control.

Please contact me via phone or email within the next 5 business days so that we can review and discuss. Thank you for your time and patience as we work through this challenge.

Thank you

Internet industry chat rooms have been set a fire over this topic, I’ve been talking with my peers and I find that I’m not alone. Apparently this TPA had sent this letter to several service companies around the country. While costs to run our businesses continue to increase and when we’d typically expect a cost of living increase to keep up with inflation, we’re being asked (effectively forced) to lower the selling price of our service. I can’t help but think that the TPA’s have an ulterior motive. These large corporations are competing with me to dominate the customers in my market, control who the consumers use for service and supply the parts for the repairs. TPA’s have much deeper pockets and larger advertising budgets to market to consumers than I ever will, but they can’t fulfill their contracts without me, the servicer.

When I questioned my regional rep from the TPA why they can’t pay profitable street rates for service, I’m told that rates are set by corporate; or my customer service satisfaction rates show questionable performance. I don’t understand their logic, if customer satisfaction is truly the goal, why would they want to maintain a relationship with me at all if my satisfaction rates show questionable performance?  I really find this hard to accept and frankly offensive in general to the quality of my service. I’ve been providing service in my market for over 30 years and have a repeat customer percentage of over 50%. I must be doing something right that keeps my customers coming back. How will cutting my service rates improve the quality of the service I deliver?  It won’t, in fact it will cause just the opposite, or put me out of business altogether.

It already costs me more to execute a TPA service call than it does a COD call because of the back shop administration required for invoicing, compliance, repair approval hold time, and getting paid. My rate with the TPA is already discounted from my COD rates. In my opinion the general consensus out there is that TPA’s only care about selling more contracts and have little or no regard for the quality of the service experience their customers endure.  They threaten me in their letter that they will go to alternate servicers in the area if I don’t concede to their rate cut demands. Well, I say go ahead!  There is always someone willing to do it for less and less is not better in this case. A few of my peers suggest the “fly by night” servicers that charge below market rates come and go failing to present much in the way of competition.  In fact some of my peers feel they’re good for business since the consumers experience poor service driving them to our doors. I’m inclined to side with others who believe cheap sub standard service hurts our industry. It projects and perpetuates an overall negative image of our industry, that cheap, substandard performance is more the norm and not the exception. TPAs will shop for low rate service companies and those companies will deliver lesser quality service experience, getting just what the TPA bargained for. Customers beware!

So where is a servicer to turn when this letter arrives in the mail? Often I think of starting a coalition of servicers against TPA’s. A movement that would educate consumers on just what they’re getting themselves into with that “piece of mind” contract they’ve just been sold. I believe there is a growing pool of unsatisfied consumers who have had a poor service experience that could be our best advocates.  While this may sound like a good response to TPA rate cut demands, I doubt it would be successful. So for me it’s back to basics, recalculate my cost to run a call add in a profit  and send that revised rate back to the TPA. If that rate makes me higher priced than their “network average”, then so be it. I won’t be held hostage or put out of business by a TPA with rates below my cost. I’m going back to grass roots by stepping up my marketing efforts on-line and in print. I’ll continue to deliver top shelf service to my repeat and new customers and suggest to all my colleagues and peers to do the same. It’s ok to say no to bad business!

To be continued…………………… I invite your comments.

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