When policyholders suffer a property loss and their insurance adjuster confirms coverage for some or all of the loss, many policyholders will hear the following from their adjuster: “We [the insurer] have a Preferred Service Providers list of recommended contractors you can choose from, all of which have been vetted for quality and reliability. You can also choose your own contractor to perform the repair work, however, if you choose a contractor from our Preferred Service Providers list, we [the insurer] will guarantee the work and arrange repairs if it’s not completed properly.”

Preferred Service Provider (“PSP”) lists are a money saving tool for insurers. Contractors on an insurer’s PSP list agree to complete the scope of repair work approved by the insurer at a price determined by the insurer. In exchange, the insurer sends continuous repair and replacement work to the contractor. Ideally, the insurer achieves its goal of paying less to repair or replace the property, and the contractor achieves its goal of continuous work and income.

Contractors, public insurance adjusters, and insureds in Colorado have approached me, voicing strong opinions, both for and against PSPs. This post is an invitation to open discussion regarding the pros and cons of insurance companies’ use of PSPs.


  1. Insurance companies save money, repair or replace the property for less, improve loss ratios, and may pass on the savings to their insureds in the form of lower premiums.
  2. Insureds gain piece of mind, knowing the insurance company has already vetted the contractor, and knowing their insurer will guarantee the contractor’s work if the work is poor or incomplete.
  3. Contractors on the PSP list receive a consistent stream of work and payments from the insurance companies (in the form of policyholders’ insurance benefits checks).


  1. The insurer (rather than a qualified contractor) determines the scope of replacement or repair work, and because the insurer’s incentive is cost savings the scope of work is likely to be inappropriately narrow.
  2. PSP list contractors are more apt to accept the insurer’s scope of work, even if the contractor disagrees, because the contractor wants to continue to receive additional work from the insurer.
  3. Contractors offer to “negotiate” the claim on behalf of the policyholder and thereby engage in unauthorized public adjusting.
  4. Insurance companies pay only the “prevailing competitive rate” as determined by the insurance companies. This often reduces or eliminates the margins necessary for contractors to make a profit. Once contractors lose profits, contractors either go out of business or leave the PSP list, creating high turnover of contractors on the PSP list.
  5. Insurers determine the price of the work and may apply a different Xactimate pricing list to the project which is lower than Xactimate pricing lists used by non-PSP list contractors. This also eliminates contractors’ profit margins and provides incentive for the contractor to complete less than quality work and use less than quality materials in order to avoid losing money on the project.
  6. Non-PSP list contractors are unable to submit a “competitive” estimate given insurers’ control over the scope and price of the repair or replacement work.

The above are only a few of the potential benefits and problems. Additional problems, concerns and questionable practices may call for raising this issue with the Colorado Division of Insurance, and Departments of Insurance in other states, in order to determine how insurance companies’ use of Preferred Service Providers impact policyholders.

  • Stephen R Figlin

    It would be interesting to learn how many of the estimates prepared by the PSP’s require a supplement when the actual work is started, resulting a a deceptively low initial estiamte and a much higher final cost of repairs, which may actually have been in line with other qualified contractors and their original estimates.

  • Steve brings up an interesting point. A lawsuit was recently brought in New Hampshire by an insured against at least one insurance company regarding the use of low initial estimates followed by supplementals to prevent non-PSP contractors for bidding on a job.

  • Insurance Veteran

    Rarely does the insured know a contractor that can even complete or estimate the damages caused. Furthermore estimates prepared by the insureds preferred contractor almost inevitably contains issues that have nothing to do with the loss such as maintenance or remodelling. Granted PSP programs have their faults however contractors are rarely in the business of losing money and with the # of contractors standing in line for the steady stream of work these programs are here to stay. As a claims handler I much prefer the insured choose a contractor because this removes the task of coordinating repair work from my desk. I therefore don’t get an additional pile of phone calls from the insured wondering if he can choose paint colors, carpet colors etc. If the claims handler does his or her job properly in controlling the loss then it doesn’t really matter who does the job. Isn’t the whole purpose of the process to return the premises to pre loss condition? Problem arises when contractors become adjusters or public adjusters become contractors or adjusters become too involved with contractors.

  • Chip Merlin

    Insurance Veteran,

    The claims payment supposed to be based upon the estimate of insured damage—the policyholders should be told that they do not have to repair or rebuild as it was.

    Adjusters should be overseeing and responsible for estimates owed under the policy rather than contractors competing for business that may use inappropriate reconstruction criteria to come up with bids or promises for work.

    Figlin correctly points out what sometime happens in the field when there is a concern that an insurance company contractor may lose a job or control of a claim.

  • Michigan Public Adjuster

    The valid point is made that the settlement is based on the loss sustained and the insured should be informed that they do not have to “spend” the money tic-for-tac. When a PSP is involved they are often so concerned at pleasing the insurer that they ignore the desires or concerns of the insured. Supplemental claims after an initial “low-ball” settlement are a big problem as well as contractors not even initiating the supplemental work due to not wanting to be red flagged by the adjuster for future work. It is also the practice of some carriers to pay a PSP contractor direct-even on a large loss and forego the mortgage company involvement but will not do the same for a contractor of the insured’s choosing. Once the choice is removed or becomes slated so heavily toward a PSP vendor….where’s the choice??

  • Daniel Friedman

    The carrier has the right under the pollicy contract to repair replace or pay for in money. If the carrier elects to repair they then become the guarantor of the work “forever” and sorry they will be.
    In the “preferred contractor” venacular, the carrier tells the insured to hire a contractor they control for whom they are not assuming any legal responsibility. That way they enjoy all the savings of election to repair and manage to duck responsibility that comes along with it. The whole system is abuse laden and may not even be legal. That is called STEERING.
    I should not complain. If not for unair claims practices, no one would need public adjusters.Thank you.
    Daniel Friedman

  • Erin Kristofco

    Contractors may also fear backlash from the insurer if the contractor disagrees with the insurer’s scope of work. See Gunder’s Auto Ctr. v. State Farm Mut. Auto. Ins. Co., 10-11739, 2011 WL 1320422 (11th Cir. Apr. 7, 2011).
    “Gunder’s was terminated from the ‘preferred program’ in 2004. Gunder’s alleges its termination resulted from its communications with other “preferred program” repair shops about State Farm’s refusal to pay for certain repair procedures. Gunder’s also alleges that, after its termination, State Farm began ‘steering’ Gunder’s current and potential customers to other shops; that State Farm ‘intentionally and unjustifiably’ interfered with Gunder’s relationship with it customers and prospective customers by telling its insureds that Gunder’s overcharged customers; and that Gunder’s repairs were untimely, inefficient and sub-standard.”

    Gunders was unsuccessful in this case. Although this is auto, and not building/property, it emphasizes the concern in allowing the insurer to determine scope of work, and contractors’ willingness to agree to that scope.

  • Insurance Veteran

    Would the use of unbiased damage assessors resolve the issue of damage determination? Probably not. As we all know the vantage point from which someone views the damages taints the outcome. Returning the insured to pre loss condition should be the ultimate goal of the claims process however those involved in the process try to taint the outcome to suit their respective financial interests. All the players i.e. adjusters, attorneys, public adjusters, contractors have a vested interest in the present process and none I’m sure want to see the status quo changed no matter how much they dost protest.

  • Gentlemen:

    The truth of the matter the way I see it is clear. The carriers are practicing “Managed Repairs”. Sound familiar? Learned from the Health Insurers who have been manipulating medical costs for years.

    In New York State it WAS against the law to direct work to a shop as an insurer. The law was amended to allow the practice provided the Insured requested a repair shop.

    All one needs to do to see that this is being practiced is to call a claim into a major carrier like GEICO. Listen to what goes on and you will hear direction of work to preferred shops very clearly.

    I am not taking exception to the practice, only to the deception. Many of GEICO’s shops are very good shops and produce quality work. That is in the heavily populated areas. What goes on in areas that are not so highly populated. My belief is the standards for preferred shops drop a little.

    The bottom line is whether it be auto, or property, the contractors and repairers are practicing appraising and adjusting and it does not seem very eithical for a shop or contractor to write his own repair ticket.

    Then again, the cost of repairs can be written off and premium increases can be sought based on higher loss ratios. ALE cannot be passed along and comes off the bottom line. There lies the problem. And that is what the carriers were after when they all went hog wild on preferred shops in the name of service.

    I remember years ago when some carriers had drive in services at repair shops. The shops would make space for the appraisers, put phones in etc. All with the hopes of getting an occassional job.

    We as Independent Adjusters and Appraisers have lost a large portion of business under these new programs.
    There does not seem to be much we can do about it.

    That is why no one is coming into our business. There is no security in the future. Entreprenuers are better off in some other line.

    I am getting very wordy so I will cut it short.

    Butch Pope

  • PSP Contractor

    As a PSP contractor on multiple managed programs. I feel this article lists valid concerns, but does not really hit the “nail on the head”. For one, the assumption that program vendors fall off frequently due to acceptance of profit margins that are below average. Maybe we are an anomoly, but we have never fallen off a program and we have been on programs for close to 20 years when USAA first started its PDRP program.

    I think there is truth to the carriers sometimes guiding scope of work and there are some contractors that let them do that. The only programs we have been removed from are those where they asked us to attempt repairs without allowing a reasonable scope of work. Program work is great, no doubt, but the contractor still has to maintain a reputation of quality. Most carriers have preferred programs not to save money by driving costs down in the estimate, but to save money by driving the amount of time necessary for their adjuster to settle the claim with the client. They incentivize the policy holder to use a contractor that they know understands the insurance repair process and agrees that Xactimate pricing allows for a fair profit. This drastically speeds up the settlement process and thus the repair timeline, which saves when ALE is a factor. More than that, the carrier is able to execute leverage on the contractor (though never explicitly) to resolve any concerns a policyholder might have – as failure to produce a quality product and a happy policyholder may result in removal from the preferred vendor list.

    There are a few PSP that adversely direct the scope of work, are the same that only want small (low OverHead) companies whose wagon is hooked only to one horse. These few programs should not spoil the whole crew. These are the same carriers that are attempting to write a check onsite the day of the loss without yet knowing the full extent of damages. They are hoping that the customer sees dollar signs and a potential opportunity to contract themselves and make money off the claim or not effect repairs at all and take the money and run.

    This article appears to show favor to public adjusters, who have their place in the industry to work against poor settlement offers or assist in the arduous task of sorting through and settling on personal property. For the most part, however, a good contractor will do their best to have an inclusive scope of work and maximize the dollars associated. We are not non-profits, after all.

    I have never understood how a public adjuster justifies their role to a policyholder other than dangling dollars. I understand fighting for an all-inclusive scope of work and appropriate price as they feel the policyholder deserves. But how then is the customer suppossed to achieve that scope of work when 15% of the claim is paid to the public adjuster? If they find a contractor to do the scope of work for 85% of the claim settlement, have they not just artificially inflated the claim? In most cases, I find they have to sacrifice the work they argued so hard for when the money falls short. As an outsider, it seems the only one that gains is the public adjuster.

    Where I see value is on the personal property side as sometimes the PA fee is far lower in comparison to the money left on the table and the cost of the time required to sort and inventory and justify.

    There are a handful of carriers that are out of touch with what it takes to repair a home, there are also loads of crappy contractors though most are not PSP providors, and there are a ton of crappy Public Adjusters. (I once saw a PA convince a policy holder to engage his services on what was already deamed a total loss. How is that helpful?) I would love to see a followup article that points the pros and cons of using a public adjuster. One that is truly objective.

  • Scott Claypool

    PSP is fundamentally flawed, it is as simple as that.

  • Given that, if an analysis of the insurer-vendor relationship shows that a major incentive for vendor selection is the vendor’s promise to cut claim costs, the relationship is almost assuredly suspicious in nature. A blatant objective of saving money casts doubt on the fairness and impartiality of that claim process.

    That is, however, exactly what you see with several of the most popular claim valuation services, such as Enservio “Shopping” and Insurersworld.com (IA). Insurers World advertises the fact that they have their own warehouse of items that they offer to the Insurance Carrier at discounted prices, and also states that they have relationships with such vendors as Amazon.com in which they receive additional discounted prices on items that are not available in IW’s warehouse:

    “With our warehouse containing thousands of items from many major brands, we are able to replace almost anything… We also have relationships with vendors such as Amazon.com, so we can replace anything that we don’t stock on site. This means one stop shopping!”

    Enservio has recently partnered with “ReStoreMall.com” to create the brand “Enservio Shopping”, which will function as a service aimed to incline insureds to purchase their claimed items through Enservio.

    “The ReStore Mall is an exclusive benefit, provided by top insurance companies to their claimants as they ReStore their contents and home.”

    It seems clear that the objective is to pressure the insured to replace all claimed items through Insurers World’s online portal. The rub is, however, that he or she would be acting on falsely conveyed information.

    Insurers World does not mention one crucial fact— that their “appraised” values are only reflecting their “discounted” rates which are below market value. The insured does not realize that the pre-existing business relationships that Insurers World has established with vendors (and their own “warehouse” of their own stock for sale) allows them to offer “Like Kind and Quality” replacement items at discount, below replacement cost.

    So, what happens if the insured does not choose to make their purchases with Insurers World?

    Simply stated, the value of their insured loss will not accurately represent the amount of the insured’s loss. As a result, the insured will not be able to fully replace their claimed items, and become whole; in fault by the Insurance Carrier.
    It quickly becomes apparent that valuation methods such as Insurers World’s program, should not, and cannot provide accurate valuation for an insured’s claim.

    Another point to consider with regards to these types of valuation methods is the “Law of Agency”, an aspect of commercial law which deals with the contractual, quasi-contractual, or non-contractual relationships when legal relationships of a Third Party are created by an Agent, authorized by the “Principal”. Under Agency Law, the insurance adjuster, who is “outsourcing” his or claim responsibilities to an outside party (such as Insurers World) must ensure that any and all methods of the outside party are in compliance with principles governing the claim process, such as, but not limited to:

    Fairness and impartiality
    After even a brief analysis of Insurers World’s methods, can anyone ensure that these principles are being met? My opinion and concern on the issues pertaining to Insurers World’s valuation methods is also supported and demonstrated in a related case, stemming from the use of software packages used in valuing un-insured/under-insured motorist bodily injury claims. Although the referred case is in reference to bodily injury and not personal property replacement, the actions are the same, and the result is the same— the Insurance Carrier is quoting inaccurate values for claimed items in favor of the Insurance Carrier.

    We will use one of the most popular website/software programs used by Insurance Carries as an example, Computer Science Corporation’s (CSC’s) software, “Colossus”. According to CSC’s Web page:

    “Colossus® is the insurance industry’s leading expert system for assisting adjusters in the evaluation of bodily injury claims. Colossus provides adjusters access to your company’s claims data within a defined BPO framework for evaluating injuries, treatment, resolution, impairment and general damage settlements. Colossus helps your adjusters reduce variance in payouts on similar bodily injury claims.”

    Because Colossus’s marketing rests on a promise to cut bodily injury costs, (please refer and compare to Insurers World’s approach cited above) critics allege that insurers use Colossus and similar software programs to reduce the amount of money paid out and hide the faults of the program.

    Another example of how cost-cutting imperatives can cause problems appears in McGowan v. Progressive Preferred Ins., 637 S.E.2d 27 (Ga. 2006), a recent Georgia case. In McGowan, plaintiffs alleged that insurance companies, including State Farm, Atlanta Casualty, and Progressive Preferred Insurance, cut a deal with CCC Information Services to intentionally undervalue automobile property damage claims on totaled vehicles. CCC uses a computer program as a “data base” from which it derives a vehicle’s estimated value in the local market.

    In Hayes v. Allstate Ins., 758 So.2d 900 (La. App. 2000), determined for many factors, the methods utilized by CCC to determine vehicle values was “not reasonable”.

    “Concerning CCC’s use of advertised vehicles in its comparison, Mr. Smith testified that, to make a proper determination of the value of the vehicle advertised, it would have to be physically inspected. Additionally, we note that the advertised vehicles do not indicate the size of the engines for purposes of comparison to Ms. Hayes’ vehicle. Allstate, which is in the business of adjusting automobile claims, should have realized that such information was not sufficient to provide an accurate comparison.” Hayes v. Allstate Ins., 758 So.2d 900 (La. App. 2000)

    These cases clearly demonstrate that trepidation is necessary when utilizing valuation methods like Insurers World’s. To be clear, I see no problem with the usage of these programs to aid in the claim process; however, they should not define the claims process. The insured should be notified of Insurers World’s practices, and all claimed items should be valued at the replacement cost value. If the insured chooses to replace their contents with Insurers World, then, in my opinion, the insured is entitled to the cost savings of purchasing in bulk, and the insurance carrier should not profit of the insured’s decision to utilize a bulk purchasing service. It is my opinion that regulators should prohibit Carriers from using Insurers World or any other discounted service to set value on claimed items.

    Maybe in an “Insurer’s World” this practice is fine, but in my world, it is a demonstration of suspect claim practices.

  • Susan Schneider

    What can I do, as the policyholder, after the insurance company has paid all that the contractor requested for dwelling repair and the contractor has received that amount in full and the contractor walks off the job before completing all of the repairs he began and not doing many that were listed in the agreement between the contractor and insurance company? What recourse do I, as the policy holder have?

  • Joel S

    Dont fall for the bullying tactics insurace do… by saying you have to use their preffered.

    Thats bs. Accredited companies that are not on preffered vendors is because they choose not to play the politic games by discounting insurance companies to keep them happy. Hows that beneficial to the homeowner? They all use the same pricing structure called xactmate. They still work with the insurance but not for them. They work and care for the homeowners.

    In closing you pay them premiums dont let them dictate on who to use in your own house. Its illegal

  • Mimi

    What do you do after you hire a contractor for emergency work after a fire and he tells you to not do anything the insurer says to do, he’ll handle it all, he’ll do all the repair work, don’t talk to the adjuster, he’ll be your rep. Then he bills over $100k for a dryer fire. Never shows you an invoice or estimate, never got an ok from the insurer for the huge scope of work (because it wasn’t necessary) when the insurance company doesn’t pay it all because he never got approval he says an appraisal hearing is needed. For that he hires and runs the whole presentation to the panel and later it’s discovered he claims $240k worth of work was needed. Total paid out to contractor was $104k. Then he says it’s bad faith on my insurance company. And says if I don’t do a third party bad faith claim he’ll come after me for the cost of putting on the appraisal hearing. Tell me please about contractors who exaggerate claims for their own profit and act in bad faith when submitting claims. I would have been soooo much better off using the insurers people – I’m over a barrel now with an “expert” in restoration. He’s really an expert scammer. It was adversarial betw him and the insurance comp from day one. I was alone, I had been ill and my husband had recently left, prime pickings for a con man.

  • Roger Poe

    Theoretically – Insurers can incorporate into indemnity insurance contracts all that they choose to. However, when their post-underwriting “policies” and/or false construction market “rules-of-thumb” are knowingly at odds against fair market laws and principles, then how can they honestly claim that they are not being intentionally lawless?

  • Felix Vizarreta/Mak roofing & Construction

    Can anyone guide me on what’s the best way to be part of the preferred service providers program?

    We are BBB approved and fully insured and bonded and currently service the all areas of El Paso, TX. Thank you

  • Truman Fancher III

    Great article. What’s even more amazing is body shops all across this country, preferred list or not believe it’s perfectly OK and legal for them to negotiate the repair costs portion of the claim with the insurer. Why states do not put a stop to this is beyond me. I further get ticked when I read even some law firms state in their “how to” tips where a public adjuster can negotiate. They cannot!! (in Alabama at least) They can only help the consumer determine the dollar amount of the damages.

    I and many others in the collision repair industry call these “preferred provider” programs as “a conspiracy to commit fraud against the consumer”. When a shop’s preferred provider agreement changes the benefits promised and paid for in the contract of insurance how does the gub’ment not step in and shut these programs down?

    You are dead on with respect to the quality of work being dangerously lowered (I got pictures) because these shops do not know how to market themselves.

    I enjoy reading your blog. Very informative. If you ever need insight from my side, feel free to contact me. t3@fancherauto.com

  • allen sumner

    Hi, My insurance company has agreed to put on a new roof because of a recent hail storm in our area (less our deductible). However, they have “invoked its option to repair” and after a phone call with my husband told him they refused to pay the claim if we would not use their roofer. They did not even offer us a list of roofers to chose from. They assigned us one company and they are suppose to come out this weekend to get a cost estimate. We have not signed any paper work yet. As a Florida resident, do we have any right to refuse their work and hire our own roofer/contractor and insurance still be required to pay?

    • KB

      Your insurance carrier cannot require you to use one contractor over another. You are free to choose which contractor/roofer you want. They also cannot refuse to pay a claim based off who you use to do the repairs. If you hire a contractor, the cost of repairs from your contractor may vary from the cost of repairs that the insurance company estimates, but typically the contractor and the insurance carrier can discuss and work through any differences/changes. Keep in mind, contractors will also try to repair things that do not need to be repaired.

  • ND

    I don’t know how it is in Alabama since this post was from two years ago, but pretty much in every state, public adjuster can negotiate.. in Florida it is in the statutory description of what a public adjuster does.

  • MEF

    Getting rid of Preferred Service Providers would reduce kickbacks to the adjusters.