Many restoration professionals fear the restoration industry is on the cusp of an industry-wide implosion.
PROBLEMS:
1. Preferred vendor programs implemented by insurance companies impose enormous demands upon service providers to deliver an increased level of service and product while accepting a dramatically reduced revenue. This places competitive pressure upon the service providers delivering high quality and service for a fair and customary price to match the prices of lesser quality and service providers. Furthermore, program participants are rarely encouraged to reveal their contractual conflict of interest to the insured upon entering a contractual relationship with the property owner. This is non-sustainable.
2. Third Party Administrators (TPAs) and network service providers have been retained by insurance carriers so as to play a form of “middle-man” between the service provider and the insured/ insurance carrier in the settlement of an insurance claim. The service provider’s obedience to the program and their representative’s unreasonable, substandard and even ridiculous demands are typically rewarded rather than competence and excellence. This is a disservice to all parties involved. Furthermore, the service provider is required to pay a hefty referral fee for the opportunity to participate in the pro- gram. Many quality service providers are choosing to aggressively and strategically opt off all program work as the terms of participation do not support a viable business model.
3. Software programs mandated by insurance companies, TPAs and service provider networks are frequently engineered to control service provider activities and prices rather than reflect the needs of the structural repairs and the service provider performing the work. Drying documentation software programs grossly misrepresent and ignore the restoration industry accepted standard of care to be followed.2 Estimating programs are rarely permitted by the claims representatives to be used as they are designed to be used.3 Efforts to stagnate prices, thereby producing a fixed rate, have harmed all materially interested parties involved in an insurance claim.
4. Post restoration renegotiation practices are commonplace, even though the processes and prices are clearly and indisputably agreed upon prior to execution. Outside auditors who have little to no experience or qualifications are used to render their unqualified opinion on a fair price for the work performed many months after the work is completed. The auditors earn their questionable unregulated existence to negotiate and participate in the settlement of insurance claims through their mission to strong-arm the reduction of the insurance carrier’s financial exposure. This is both unfair and aggravating to both the insured and the service provider who agreed to provide the service.4
5. Trends toward commoditization have positioned the structural restoration service provider in a place where insurance companies assume all service providers and structural repairs to be equal. This could not be further from the truth. As insurance companies may have distinctly different insurance policies, coverages and services — each with their own associated costs, there is an even greater [and more obvious] difference among those who offer structural repair services to an incalculable number of structural repair needs.5 Unlike an insurance claim that can conclusively adhere to the letter and language of the insurance policy, competent restoration practices require abstract, creative and skilled solutions produced by a qualified expert. To the understandable disappointment of the insurance carrier, structural restoration simply cannot — and should not be commoditized.
6. Misrepresented information from industry standards and guidelines persist within popular educational certificate programs. While the industry standards carefully frame their messages to the readers, exam writers and educators have a long history of carelessly misrepresenting the information found within it — particularly as it relates to competent and effective equipment deployment. (Larsen, 2014, pp. 307–339, 383–389) As a result, the insurance claim community embraces any compromised processes that can reduce their financial exposure, while the conscientious service provider feebly insists upon workmanship that reflects competence in accord with the accepted standard of care to be followed. The result is … each of the disappointing issues mentioned in bullets 1 to 5 above.
In such light, the property and casualty (P&C) insurance claims handling industry is in a sorry state indeed. We must repair this industry if we are to survive — and we must do it soon!
To survive this onslaught of unfair business practices, the service provider was often forced to find a creative means to reflect their work in a fashion that will produce the revenue necessary to keep their doors open while providing quantifiable value to those involved. Conscientious service providers face the difficult decision between accurately reflecting the exact services performed and/or the prices necessary to deliver them — or misrepresent the services and associated prices so as to ensure their business sustain- ability. This is a serious decision indeed, since one of the choices can potentially result in criminal charges.
How did find ourselves in this precarious situation?
ADMIT WHAT HAS BECOME UNMANAGEABLE
x of troublesome situations is to admit honestly and fearlessly what is actually causing your problems.
Over the course of the restoration industry’s evolution, we restorers must admit some restoration firms were unethical and scam artists. Indeed, they gave the entire restoration industry a black eye-inspiring insurers to
view all service providers with skepticism and distrust.6 Naturally, insurance representatives began to question the processes and prices of all service providers to determine if their reported services were reflective of what was necessary, reasonable and customary. How did the service providers respond?
In the spirit of appearing to be reasonable and someone with whom the insurance carrier would prefer to work, the service provider would frequently forfeit perfectly justifiable charges. Service providers regularly agreed to forfeit the customary overhead and profit (O&P) charges that were to be appropriately added to each line item in their invoice. (See footnote 3.) They also agreed to forfeit base service charges. They agreed to forfeit travel
and mobilization charges. They agreed to forfeit justifiable equipment rental charges through rental caps. They agreed to provide management, supervisory and documentation services at no charge. Such discounts frequently resulted in total charges reduced by as much as 30 to 50 percent!
You would think that the insurance representatives would be ecstatic to work with such a charitable service provider! Not at all!
Such commonplace practices caused the insurance representative to hang up the phone with the service provider shaking their head saying, “I KNEW that service provider included pricing fluff in their invoices! That service provider tried to pull a fast one on us since they were so willing to reduce their invoice with hardly more than a whimper. The rumor must be true: The service provider’s invoices are NOT to be trusted!”
And so began the slippery slope of post restoration re-negotiations and preferred vendor programs. Eventually, the insurers realized they don’t even need to employ a licensed insurance claim representative to conduct the time consuming task of bullying the service provider into price concessions. Unlicensed third- party claims management services emerged promising to provide the insurer with a reduced invoice; and they would get the service provider to pay for the privilege of having their perfectly justifiable charges reduced.
Thus emerged the TPA and service provider network program.
While it is possible for an insurance claimant to hold an insurer to a fair settlement, it is not so easy for a service provider to receive this result when they agree to the terms of a preferred vendor or TPA program. Those who participate in these programs do NOT “sell their rights away” to the programs — they BUY the right to have their rightful profits reduced.
Mandatory software for estimating, drying documentation and activity reporting are frequently engineered to restrict or limit a service provider’s rightful revenue on an insurance claim. This is the result of the insurer’s distrust of the service provider’s skill and activities on a project.
Insurance companies and service providers fight for the same dollar. Whatever money is awarded to the service provider is subtracted from the insurance company’s annual profit line. A failure to recognize this simple and obvious truth is a demonstration of denial. As difficult as it may be, we must accept the fact that the insurer and service provider relationship is adversarial by necessity.
The distrust was earned — and we (service providers) did it to ourselves in most cases. It’s time to change this unsustainable state of the industry.
THE SOLUTION
Many service providers would argue they were not part of the problem that caused the distrust. They fiercely argued in defense of a necessary, fair and customary service for the property owner. They can take comfort in knowing they are one of the “good guys.” They DO exist! However, we must admit that many within the restoration industry fell into a lesser category and made a practice of consistently reducing their charges thus perpetuating the perception that the typical restoration professional is not to be trusted. How do we change this perception?
TPAs attempt to control the service provider through remotely administrated strong-arm practices. Their business models assume that all service providers — even their pre-screened participants — are among the group who artificially inflated or misrepresented the truth in how the property was restored. By necessity, those who were ethical in their service reports were “taught” to produce an inflated or inaccurate report so that the TPA could earn their existence through an expedient and successful reduction in the invoice. There may be an obvious legal issue in such a program where reports are artificially inflated with the anticipation that the revenue will be reduced in order for the claim to be settled. In the spirit of honestly facing the obvious, it is difficult to explain how such inaccurate reports reflect the insurance claim truthfully when programs such as these insist upon concessions to what is standard of care, necessary, usual and customary. Rather than cultivate a healthy foundation of trust, insurance program work and TPA service providers are agents who foster and subsequently feed upon this distrust.
Therefore, if we wish to correct the problems mentioned earlier, insurance program work, TPAs, scandalous soft- ware programs must be extinguished and we must renew a healthy focus upon competent restoration practices.
WHO IS THE EXPERT?
Projects managed by restoration staff employees face an obvious conflict. The more profit the service providers generate, the more the company (and the project man- ager) benefits — and the less profit the insurance company enjoys. This is a problem.
Attempts by a claims representative or TPA to remotely manage a structural repair project competently cannot be done. Experienced service providers know that objective is impossible. Furthermore, there are ethical issues when an unqualified and incapable individual dictates a service provider’s processes and prices. Legal issues are raised when an unlicensed (therefore unqualified) individual settles an insurance claim on behalf of an insurer.
Those who try to convince others they are an “expert” in a subject as a result of attending a single course are usually mocked. An authentic expert is frequently identified as a result of others declaring them to be such — whether they like it or not.
To truly validate a structural restoration effort, a qualified on-site expert is required — and if it were to be truly objective, the expert would be neither an employee of the service provider nor its competitor. The expert would rep- resent the structure being repaired.
As our industry’s premier association of restoration experts, perhaps the RIA is the best entity to recognize
** The “RIA Registered Third Party Evaluator (RTPE)” is a proposed idea under consideration by the RIA. This series of articles is drafted with the intention of determining
market interest and sentiment. You are strongly encouraged to provide feedback on this subject — both positive and negative — through email at [email protected], or the editor of this magazine, [email protected]. We look forward to hearing from you.
and register those who are qualified to be an independent third party evaluator; the RIA Registered Third Party Evaluator (RTPE).**
Does a qualified person serving in this role sound impossible or unnecessary?
Future articles will explore the value and qualifications of such an independent expert and a suggested business that can return some trust and fair practice to the restoration industry. See you next month. RIA
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