This is part two of my assessment of the managed repair and third-party administrator movement in the property restoration industry.
ADVANCES IN TECHNOLOGY
The hurricanes that hit in the summer of 2017 left a lasting impact on many insurance agents, companies, property managers, and corporations. Previously they may have felt they had an adequate catastrophe management program, only to find that their dependable solutions were maxed out and service was lacking. TPA programs may offer a solution that makes sense to many of these stakeholders. In reality, TPA programs had a challenge meeting the demand for restoration services, but they are also able to pull resources from outside the impacted area. Contractors who are apprehensive about traveling for work could now be more confident in receiving work and getting paid when they travel to assist. I suspect TPAs will work to refine their catastrophe response, as this may become a competitive advantage for their value proposition to their client base.
ADVANTAGES OF WORKING WITH TPAS
For a contractor, TPAs offer many advantages. The first became apparent when working with a client in South Florida. The insurance market in Florida is different from most other areas in North America: There is an unusual amount of animosity between insurance companies and contractors. Several factors contribute to this environment. The first is the insurance laws — in particular the assignment of benefits that exist in the state. South Florida has been a hotbed of unscrupulous contractors that create a bad name for professional contractors looking to provide good work and deliver a quality product. The protections that exist for contractors and property owners have been coopted by unethical companies. The second contributing factor is the proliferation of public adjusters that seek to expands the scope of losses beyond the actual damage to the property. The final contributing factor is the apparent arbitrary adjusting policies by some of the insurance companies that don’t include an accurate reflection of the damage to the property or the actual cost of repair. It is my hope that TPA programs establish ground rules for claims handling. I am not certain if this is going to make the situation better, but one of the most challenging insurance companies in the market has formed a relationship with one of the major TPA programs. Time will tell how this will work out, but it is my hope they will become a reasonable arbitrator and establish predictable claims handling procedures that are fair to all — especially the property owner. Throughout this discussion, the impact on the customer is not always at the center of these relationships. As contractors, we need to realize customers like having a managed repair solution because they are not usually equipped to manage their own repairs. The irony of this reality is that the customer can be the victim of a poorly managed network. It is my hope that articles like this and events like the RIA Strictly TPA Conference held in November 2017 return focus on the proper restoration of the damaged property and making the end user whole after a properly restored property. Working within programs has many other benefits. One thing that has always been a challenge in the restoration market is the lack of barriers to entry. It takes very little to start a restoration company; establish several insurance relationships and you are in business. TPAs have stronger entry requirements and provide some barriers to entry. Statements made by the program management staff claim that once you get on a program you do not need to continue to manage a marketing route to get work from that source. Most programs state they will provide a consistent level of work so it keeps your equipment utilized and staff busy. I have found several companies that have utilized programs as an effective resource for opening new locations. In the event they are successfully performing work or a program and want to expand, the restorer asks the program administrator where they need additional contractors, and a new office is established at that location with a built-in volume of work. One challenge in restoration is the payment terms from insurance companies. The TPAs usually have very established and predictable policies that provide a reasonably quick payment. One additional benefit is that this is a growing area of the industry. There aren’t more claims, but TPAs are handling more of the existing ones. There are many benefits of participating in claims programs that deserve a closer look by restoration service providers.
DISADVANTAGES OF WORKING WITH TPAS
While there are many benefits to working on programs, there are also many challenges to consider. One of the top challenges is that the insurance industry has shifted a lot of administrative responsibilities to contractors without compensation. Companies performing program work often need to increase their administrative staff just to handle the additional requirements, and projects often need to be updated every day when work is occurring — including weekends. Due to the urgent nature of the projects, it is difficult to prioritize jobs, since they are all top priority and you are being measured on every project. If you have a hundred-thousand-dollar job next door, and a two-thousand-dollar job across town, they both need to be addressed immediately. The emergent nature of the calls that are frequently smaller in nature may require different management staff to oversee and manage. I have found that participation in TPA programs results in a high volume of smaller jobs that require same-day attention. The pricing for claims programs is highly structured and not flexible. The contractor does not have latitude in scoping and pricing decisions. The price guideline is often treated as a price standard that cannot be adjusted. The programs all have estimate reviews that assure you were complying with the program limitations and that you followed the rules. This often is perceived by the contractor as micromanagement of the jobs (which it may be). An additional problem resulting from the program work is due to the required uploads of the estimate. My understanding of Xactimate is that when a job is uploaded, it is used to verify market prices. If this is true, then it results in stagnant or downward pricing. Job margins are also influenced by the percentages paid to the program. Some make the case that you don’t have to market to get the work once you are on a program. That is true; however, it also leads to lazy marketing practices. Companies on vendor programs tend to cut back on their marketing activities since you are not supposed to market to the companies that are using the TPA. When companies stop marketing, then it is my opinion that you have lost control of that part of your business. The more work a company receives through vendor programs, the harder it should market to the other segments of its business. Some contractors are frustrated with the fact that claims administrators do not visit the job sites yet make scope decisions. These administrators may have a rudimentary education in restoration practices, but they often lack any real-world experience. Restoration professionals know that jobs are rarely the same as the scripted hands-on drying houses that are used for ASD training. The structured nature of the TPA programs removes flexibility on jobs. The program is designed to allow flexibility, but in reality, exceptions are difficult to achieve. One substantial challenge with programs is that the claims manager often focuses on the management process rather than the restoration realities. When the focus changes from a properly restored property — and subsequently a restored property owner — to dates, metrics, and numbers, then there is a major disconnect with our industry mission.
My hope is that I encourage restoration companies to take a strategic, not accidental, approach to working with these programs, and then determine if they are an important component of their business.
My discussions with the senior managers at the TPA companies led me to believe they are working, to be honest arbitrators of the restoration process. The challenge is that the process is complicated and the result is often different from the program design. The claims manager and contractor all have an agenda that influences the scope and payment. Somewhere in the implementation of the programs, there needs to be a focus on the restoration process. The nature of the programs and the individual biases need to be addressed with clear dispute resolution as a part of the process as a result. Both sides of this partnership need to realize there are substantial challenges in managing property repairs. On one side, there are too many seemingly incompetent contractors and those who appear to lack integrity. On the other side, the program managers, auditors, and reviewers are far too focused on numbers on a graph than proper restoration practices. In the end, perhaps we can create a virtuous cycle where the property is restored properly, the contractor receives a fair reimbursement, and the insurance company receives a fair price and great value for the work that was completed. This will not be achieved without dialog, and hopefully, the RIA Strictly TPAs event is a proper first step in this process.
It is not my expectation that I will influence anyone regarding managed programs. After all, as I expressed earlier, I think there are both positive and negative aspects of program work. Then again, isn’t that true of most things in life? My hope is that I encourage restoration companies to take a strategic, not accidental, approach to work with these programs, and then determine if they are an important component of their business. It is irresponsible to get so deep into program work that you cannot get out, and it is equally irresponsible for contractors to be on the outside of the program and throw stones without an understanding of whether they might work for your business. The restoration world is much more complex than ever. Contractors need to be nimble, educated, aware, and strategic. With all the changes in the industry, claims will be substantially different in 10 years and possibly much sooner. Regardless of the direction of our industry, it is essential for the health of your business that no individual source is responsible for more than 20 percent of your revenue. When things are out of balance, you run the risk of being beholden to your clients and may have a difficult time standing up to them if they make requests with which you disagree. If you maintain balance, then you will continue to be in control of your business and not be at the mercy of any client, adjuster, or company. In the end, having a great customer service program and learning to exceed your customers’ expectations is a winning strategy.RIA
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