Approximately 30 insurance professionals, suppliers, contractors and other vendors gathered in Chicago earlier this month to begin a dialogue that will explore how the property insurance restoration industry can find common solutions to frequent friction points.
The Property Insurance & Restoration Conference provided an opportunity for an open dialogue among the attendees and a chance to exchange ideas, share challenges and find creative solutions.
The meeting began with a discussion of the group's shared mission and vision statements, followed by two presentations that highlighted concerns from the contractor and insurer perspectives. While the participants agreed that they may not always be able to find a resolution to their differences, there are benefits to creating an awareness of the issues and why companies operate in a certain way.
The insurance industry will see significant changes in the coming years, particularly as more than 25 percent of professionals are expected to retire in the next two years, creating a substantial experience gap. The restoration industry has already been dealing with some similar issues as it works to find employees with expertise in construction, restoration and project management. In addition to the labor pool, factors such as weather, technology and customers' increasing expectations are affecting both industries.
Understanding the insurer's goals and process helps contractors reinforce them with the policyholder. (Photo: iStock)
Identifying concerns
A group representing restoration contractors convened prior to the meeting to create a white paper identifying some of the issues currently affecting that industry.
Restoration and insurance professionals serve a common customer — the policyholder. While insurers provide the coverage and risk management strategies, when a property loss occurs, the restoration contractor is frequently the entity working onsite representing the insurer to the policyholder and returning the property to its previously undamaged condition.
The contractors outlined specific concerns and offered context for some of the current industry practices. Among the issues expressed were:
- The absence of a minimum industry standard for restoration contractors makes it difficult for those purchasing restoration services to fully understand what contractors provide, who is really qualified to perform this work, and who has little or no training in the field.
- A lack of document standardization creates some challenges for contractors since every insurer and third-party administrator has its own program requirement document, which may request the same information, but in a slightly different format. A standardized document, similar to the college application form used by more than 700 institutions, would help streamline the process for all involved. ACORD or a similar body could create a standard best practices document template that could be used by all insurers, TPAs and contractors.
- Because restoration contractors absorb all costs for labor and materials up front, slow payments for work billed have a direct effect on the companies' abilities to pay expenses such as rent, wages, subcontractors and other administrative fees. The typical accounts payable cycle is 15 to 25 days, while the typical accounts receivable cycle can range from 60 to 120 days or more. Unlike the auto industry, where a policyholder does not receive a repaired vehicle until it has been paid for, restorers are unable to deny an owner access to his or her property until the bills have been paid.
- Some contractors will use a direction to pay to ensure payment when the job is completed. Single party checks usually go to an insured who may not use the funds to pay the contractor. If multi-party checks that include mortgage holders are issued, restoration contractors request to be included on the check as well.
- The contractors explained that the restoration process frequently starts without the answers to many normal business questions. The practices of collecting deductibles up front, a down payment on services to be rendered and possibly filing property liens are measures used to ensure some means of payment for the expenses incurred as part of the restoration process.
- A better understanding of insurer operations, payment processes and the companies' strategic goals would be helpful for most restorers who generally only have a layman's knowledge of the insurance process. The restorers would like to know how they can better support the insurers' goals and work more collaboratively.
- The number of software programs used by insurers creates some challenges for contractors who must track which companies prefer which programs and then train their estimators on the programs. The multiple programs, which do not interact with each other, create redundancies that add to the companies' overhead and require them to pull data from multiple sources to generate the information insurers need. The ability to use the software that works best for the contractors and generates the information the insurers require would help alleviate some of these issues.
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Insurers and contractors share a common goal, provide excellent customer service for the policyholder. (Photo: iStock)
Insurers see a definite benefit in cultivating relationships with contractors and having the ability to talk about their expectations for repairs, discuss effective ways to mitigate losses and have the freedom to discuss issues the two industries encounter.
Building consensus only serves to enhance the process for the policyholder, and an increased awareness of the contractors' and insurers' perspectives on these issues will have a positive impact.
Like the concern raised by the restoration contractors, the insurers questioned whether there should be minimum recommended requirements for restoration contractors, especially as it related to contents cleaning, inspections and compliance with industry standards, such as the IICRC S500 standard which addresses water damage restoration.
The insurers' major friction points involved the unscrupulous use of the assignment of benefits; plumbers and other trades that sell leads to contractors; and dishonest service providers who claim to be knowledgeable about restoration, provide poor service or take advantage of policyholders.
From the insurers' perspective, the success of this endeavor can be measured by how open and honest future discussions are between the industries; whether participants are able to have a broader view of the industry challenges, as well as the emerging issues; the actionable feedback that is obtained for the industries involved; and whether the industries are really committed to working together.
The general consensus was that this was a good start to identifying some of the existing issues and the meeting provided attendees with the opportunity to share their views of how the insurance restoration process works.
"One of the key points discussed was the artificial overcapacity that the disaster restoration industry experiences from contractors who portray themselves to the marketplace as disaster restoration contractors but don't have anywhere near the capabilities or experience," said Justin Tubero, president of Alliance Disaster Kleenup, based in Wheeling, Illinois. "I feel it's important to emphasize the key differentiators that our specialized industry was founded upon, which are easily defined by our top three priorities: Stabilize the situation, normalize the conditions that have impacted the property, and rebuild the damaged property in an emergent manner."
More meetings are planned to coincide with other insurance industry events, and committees will be developed to begin addressing some of the issues identified by the insurers and contractors. More details can be found on the PIRC website.
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