Rene Sigman gave what must have been a humdinger of a speech about an alleged “ethical preferred contractor network.” She called out other co-presenters at the conference who are part of this network for selling out to the insurance industry. An audience member later said that other speakers affiliated with this allegedly new way of “preferred contractor networking” said nothing to rebut Rene or left after she made her remarks. While there is more to that story and new network that is ripe for a blog, Rene properly understands that these preferred contractor systems still leave the insurance company in charge. Worse, there is a new intermediary, usually the Third-Party Administrator (TPA), whose owners only want to make profits by helping the insurance company cut costs.

A restoration insider, Kevin Jones, recently wrote a whistleblowing book on this topic: The Insurance Gods: How the Insurance and Restoration Industries Have Failed the Consumer. This book is a must-read for those who want to understand how TPAs work and the various financial conflicts between those after a property loss occurs. A basic criticism of the TPA is stated this way by Kevin Jones:

The restorer doesn’t want to lose money on the job, and should be paid fair market value for their work, and certainly for their knowledge. The insured doesn’t want to be left holding the bag from poor insurance representation or poor restoration work. But the TPA? What possible interest do they have in the job other than to make a profit. That’s it. And that’s all they are there for, in my opinion. Yes, I know that’s blunt. I admit that I don’t know the date that the first TPA entered the restoration industry. What I do remember is when they started reaching out to me around 2004. Originally, they advertised in trade magazines promising loads of work for restorers if they would come on board with their company. I also remember getting phone calls, emails, and snail mail from a few, promising the same thing; and that’s fine. All companies market their services to their target market. My reaction back in those days was that there was no way I was going to pay anybody for leads. Others did jump on that bandwagon, and, again, that’s cool. However, over time, these TPAs have become even more demanding than insurers, and work to cut the invoices of the restoration company. The sad thing is that when they do this, they don’t always pass the savings they induce to the insurer. I’ll leave it to your speculation as to what happens to that savings. And it is my opinion that the TPA is no help to the insured. In fact, most seem as though the insured is not important to the equation. I have heard numerous comments from insureds about how the TPA speaks to them, and treats them as if they don’t matter. They don’t work for the insured. They work for the insurer.

You cannot serve two competing masters at once. Jones suggests that policyholders need construction consultants to criticize the restoration work as a check against those who cut corners or simply do not have trained workers who know how to do a quality job.

The managed repair angle takes this one step further by making it part of the bargain when purchasing insurance. The policyholder is sold a policy that requires the policyholder to use contractors selected by the insurers or in an approved network. In return, the policyholder gets a discount on the premium.

Merlin Law Group attorney Shaun Marker warned about managed repair seven years ago in Insurance Industry Trade Show Advocates “Finding Financial Payback In Claims” Through Managed Repair Programs For Insurance Carriers. He stated:

These details and the focus of this presentation are astounding at how the insurance industry touts this to its advantage to drive its own profits higher. It sounds to me like the policyholders may be taken advantage of and take what they can get instead of getting their own experienced insurance representatives to handle their claim in a traditional sense; and this is being marketed as a great thing and it even increases profits for the insurance carriers! Bravo insurance industry and thank you for placing this publication into the public domain.

The interesting statistic I would like to see would be a poll of those policyholders that once they finally realize that they have this managed repair program endorsement (which won’t be until they have a claim) and go through the process: how many think they received good service? How many think their property was adequately restored to its pre-loss condition? How many had to fight with their insurance carriers after the work was completed for it to be redone right? How many felt that the preferred vendor contractors cut corners? And last but most important, how many people would utilize the managed repair program again if they had a claim or would they rather pay the slightly higher premium to not have to deal with the managed repair program?

Managed Repair is the New Managed Care: Insurers Race to the Bottom Line, noted six years ago that the American Association of Public Insurance Adjusters (AAPIA) was concerned about the property insurance industry creating a conflict of interest with managed repair because it would directly place the insurance industry’s goal of profits in a leveraged position against policyholders. I stated:

How many of you think your doctor-patient relationship is better under managed care managed by your health insurer? The vast majority of health insurance policyholders and virtually all doctors think the insurance industry’s ‘management’ of managed health insurance has eroded the doctor-patient relationship. Many good doctors have left the medical profession because they refuse to adhere to managed care requirements. You know what kind of doctors love managed health care. So, policyholders should get ready for the next ‘whammy’ from the insurance industry—’managed repair.’

In the traditional relationship, the policyholder selects a contractor to work with the repair following a loss, or the policyholder keeps the money from an adjustment. While virtually all insurance policies allow insurance companies to make the repairs or replacement if they invoke that option to do so, few have historically done that. This is changing.

Rather than allowing the policyholder to choose who the contractor will be to repair the damage, insurers are designating the contractor. They are doing so to ‘manage’ costs and in some cases, to add additional profit by owning the repair company. Insurers argue that they can lower premiums by ‘managing’ costs of repair the same way insurers argued they could ‘manage’ premiums of health insurance through ‘managed care.’ The problem is that rather than the policyholder being the decision maker for their body or their home, the insurer makes the decision effectively removing both the policyholder and doctor or contractor from the process of deciding what is best for the policyholder.

Managed repair is no longer a concept. In Managed Repair Endorsement Approved by Court in Florida, I noted a court upheld these policy provisions that had been approved by at least one state insurance regulator. I recently noted some of my concerns and the evils of such an insurance system in Will Managed Repair Be Found in Most Property Insurance Policies?

Policyholders, restoration contractors, and public adjusters need to realize that managed repair is being pushed by the insurance industry. Kevin Jones’ book needs to be read, and his lessons spread to regulators and governmental bodies overseeing the property insurance industry. And a big shout-out goes to Rene for having the courage to call out the ethical issues and problems of such networks.

Thought For The Day

Nobody cares how much you know, until they know how much you care.
—Theodore Roosevelt