Scott Walden wrote an excellent article, Squeezein Cleaning & Restoration Magazine. While I encourage them to read the entire article, he said in part how managed care has turned into a win-win situation for only the insurance companies and third-party administrators:
Some time ago, property insurance companies began to insulate themselves from unscrupulous, litigation-prone, transaction-driven contractors by “partnering” with contractors they could trust. They formed departments responsible for locating and vetting contractors for various industries, and in exchange for submitting claims to those contractors, the contractors would adhere to the carrier̵7;s service level agreements—including mostly reasonable estimating guidelines. In concept it makes sense. The estimate guidelines typically resulted in lower invoices, but the contractor accommodated these requirements at no cost to business development. The carriers, for the claims they could direct against the program, recognized reasonable billing and reduced litigation – seems like a clear win-win, right? Most importantly, these relationships did not include any network referral fees. So what happened? Why is this type of program mostly a thing of the past?
Mainly what happened … was the introduction of Third Party Administrators (TPAs) / Contractor Networks – into the picture. I’ve written about TPA before, and from a business perspective I still applaud the concept because it’s brilliant. Bring huge savings to operators by eliminating the administrative costs of a provider management department, managing claims and tracking network provider performance, and in many cases, not costing operators a dime… where do I sign up? It didn’t take long for the TPA concept to catch on, and we’re seeing more popping up all the time, each vying for the carrier’s love. The competition between TPAs must be brutal. Each tries to differentiate itself, and many carriers spread the love among multiple TPAs. Most TPAs charge contractors a flat Network Referral Fee (NRF) per claim, some add administrative specific carrier mandated reductions that have made doing program work less attractive/profitable. The additional overhead includes a significant amount of claims administration (things the TPAs require so they can collect statistics to evaluate compliance – most of which I’m almost convinced the carriers couldn’t care less about), NRFs and mandates for initial installation/monthly software fees, registration and annual membership fees, mandatory attendance at annual conferences – the list goes on. Restrictive valuation guidelines include such things as banning the use of posts after hours, regardless of the time the work was done, no emergency services charge during hours, indicating you cannot charge for a respirator because it is a “tool of the trade” – I could write a whole article about some of the ridiculous restrictions I’ve seen over the years. My absolute favorite discount from the carrier is 10% off drying equipment costs – seriously? (You know who you are and shame on you).
Let’s reflect on the origins of this program work concept – (carriers) insulating themselves from unscrupulous, litigation-prone, transaction-driven contractors by “collaborating” with contractors they can trust. What this has turned into is the constant pressure on the contractors they sought out to help them save money. Networks where they’ve lost sight of the fact that without contractors – there is no network, and without a network the carriers are back to square one. I see it coming. All these fees and extra burden will continue to drive contractors away because they simply cannot find a way to make this work profitable.
Jen Silver has collected a survey from those who have participated in preferred entrepreneur programs. I can hardly wait for the rollout of her educational seminar program later this fall. Here is a comment she shared with me:
Much more work for less money. Unfriendly contractor guidelines. High business cost to be part of these with significance.
In 2006 when we started, these programs were very different than they are now. In my opinion, the game has changed a lot. In the beginning it was very profitable for us and led to many nice relationships. It jump-started our business with clues if a storm hit, and was steady without storms. There were far fewer rules and guidelines to follow in terms of estimating, documenting and timing, and our profit margins were high. Carriers had nowhere near the damage, and homeowners signed up with us at a very high rate.
Now – it is the office, the computer, the documentation work that is so time-consuming. For a contractor doing regular MRP work, you basically have to have someone in the office paid to keep up with all the daily tasks, updates and calls – that’s a “hidden” cost. The guidelines change all the time to benefit the carrier and MRP – not the contractor.
These concerns are similar to what I drew attention to Policyholders, restoration contractors, and public adjusters should be concerned about managed repairs and third-party administrators working in preferred contractor networkswhere I made the following comment:
You cannot earn two competing champions at the same time. Jones suggests policyholders need construction consultants to critique the restoration work as a check against those who cut corners or simply don’t have trained workers who know how to do a quality job.
The managed repair angle takes this a step further by making it part of the purchase 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 receives a discount on the premium.
For those who saw The Vince Perri interview with Chip MerlinI noted that the two biggest issues facing policyholders are the growing gaps in insurance coverage and the insurance industry handling the repair process.
I want to applaud United Policyholders for their efforts to raise these concerns at the national level. United Policyholders leaders have advocated for a review of these at NAIC meetings and raised the alarm. Just writing and talking about these problems is not enough; action needs to be taken so that regulators see how these harm insurance customers, are bad for the insurance product and harm everyone in the industry in the long term. Other trade associations must join United Policyholders in efforts to stop these problems.
Inactivity breeds doubt and fear. Action breeds confidence and courage. If you want to overcome fear, don’t sit at home and think about it. Go out and get busy.