Chip Merlin and April Hall

Insurance companies spend time training their insurance adjusters. Training is a very important. It sets the tone and culture of how the claims department functions. Training can be ethical and professional as discussed by Ken Brownlee in Insurance Companies Must Perform in Good Faith Regardless of Their Customer’s Imperfect Actions. It can also lead into bizarre scenarios as exampled by the “Jewish Lawyers List” in Hindin v. State Farm – The Landmark Claims Practice Case That Few Know About Finally Ends.

April Hall sponsored a wonderful Overhead and Profit seminar in Dallas last Friday. Public adjusters, independent adjusters, contractors and some roofers were in attendance. One former insurance catastrophe adjuster sent me a script and role-playing training exercise required of an insurance company. I wonder how roofers, contractors and policyholders would feel if the insurance company would provide them this script and role-playing training actually used following a catastrophe:

Good morning!

I know many of us spend quite a bit of time dealing with roofers who are wanting to charge an additional 21% (10 and 10) profit and overhead for the more simple hail and wind claims. Please understand that I am not intending to cover here when we do, or do not owe additional profit and overhead. We have guidance on that in iConnect. Please consult those sources and your TM if you are not familiar with this issue.

My intention here is to help you structure your argument when you encounter the issue and it is not warranted.

Roofer: I have a right to charge profit and overhead!

Good: You are absolutely right! You have the right to charge whatever you want. We live in a free market place. However, for that same reason, I will be paying what the going competitive market rate is for this sort of repair. If I have missed something on my estimate, I am more willing to work with you to get it right. Otherwise, if you and I cannot reach an agreement on a competitive price for the work, I will engage another local, reputable, insured, and bonded roofer to review the covered damage and my estimate to see if they are able to complete the work for that amount. My insured is of course free to hire you to do the work, but I will be paying the competitive market rate for the job.

Bad: Oh, okay. I will need you to send me the invoices from your subcontractors to show me that you indeed are acting as a General Contractor. Okie dokie?

Ugly: Our estimating guidelines say I am not allowed to pay you that.

Roofer: (This is a TX thing) The Department of Insurance has ruled that insurance companies owe for profit and overhead.

Good: Oh, yes, I am familiar with that. What the DOI said is that when an insurance company calculates the actual cash value of a loss, they must include profit and overhead in that calculation. If you would like to read it, I can send you a link to it. Xactimate pricing includes an amount of profit and overhead that reflects the competitive market for this type of job, and I have included it in my calculation of the actual cash value of the loss.

Bad: Oh okay. Please send me that ruling when you send in your final bill, and if that is true, I’ll take care of it.

Ugly: You lie like an old rug!

Conversation with the customer:

Good- I wanted to let you know up from that XYZ Roofing typically charges about 20% over the going market rate for hail work in this area. They call it profit and overhead. The vast majority of roofers do not charge that extra amount. Because the majority of roofers want to do this work for you for 20% less than XYZ charges, I will not be agreeing to the extra amount. My estimate will include profit and overhead for the job, but not the additional 20% that XYZ typically charges. I wanted to let you know in advance, so you can consider how you want to move forward with the repairs. You may hire whoever you wish to do the repairs. If you like, I can refer you to other local roofers who will complete the work for what I will estimate. If they find additional damage, or I miss something, I would work directly with them. You would not have to play middle person.

Bad- I see you have an XYZ sign in your yard. I want to let you know up front that they charge 20% profit and overhead, and I can’t pay for that.

Ugly- That’s too bad you chose XYZ roofing. They are very difficult to deal with. I’ll tell you up front; my manager says I can’t pay their high rates.

There is a battle being waged by many insurance companies regarding property claims payments. Regulators should start making Market Conduct Studies of the ethics found in these training programs.

Many field adjusters are caught in a no-win situation where they are simply ordered what to say to reduce claims payments. Many are taught relatively sophisticated techniques developed by claims managers with significant insight into the psychology of claims negotiation rather than techniques for proper evaluation and investigation. This training is purely designed to reduce the amount paid and often without regard to what constitutes proper and legal construction.

Thought For The Day

Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.
—Aristotle

Song For The Day—there is a need for more Police!

  • rogerpoe

    Chip,

    To me, All of the illicit training scripts and illicit role playing by insurers, designed to openly fool and financially cheat the general public, will not erase basic fair market facts.

    Historically – Since the aggregate new placement/replacement costs of structures revolves around a primary general contractor’s knowledge, and experience, insurers should readily accept that at any given time their potential financial liability for [roof] replacement is, primarily, based on a prospective General Contractor’s business model. Utilizing a roofing contractor.

    Collecting GC RCV valued premium by the underwriting process, and then looking for/inventing various ways to avoid that basic GC RCV financial indemnity equation when post-underwriting payment is due Insureds, fulfills what TDI bulletin B-0045-98 refers to as an Illegal Windfall for insurers.

    Also – Insurers that try to quash General Contractors market share, simply because GC’s add a gross profit factor, and a general business overhead cost factor, to roof only construction estimates, do so at the risk of their own market share. The following Xactware document makes it clear that when Insurers insure properties, they do so knowing that natural market dynamic fairly and necessarily allows for various business models to service Insureds..

    ..Especially general contractors business models that overall placement/replacement costs of properties are based on, and, subsequently, are insured for.
    https://www.dropbox.com/s/qy0wp964yghv37l/Xactimate%20Roofing%20And%20Etc.%2027%25%2B%2B%20Market%20Price%20Range%20Facts.pdf?dl=0