The Dark Side of Preferred Provider Networks

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The Dark Side of Preferred Provider Networks
http//www.claimsdelegates.com/
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By jinterwas Lets talk about program
work. Theres a lot of good things about being a
part of insurance programs, but I dont want to
talk about them. I want to talk about the bad
side. Insurance programs or preferred
provider networks are agreements that insurance
carriers make with service providers in exchange
for certain considerations. These
considerations are all designed for one purpose
to save the insurance company money. If you dont
believe me, allow me to explain. First, lets
look at the arrangement.From a service
providers point of view, the program is a lead
generation tool. In exchange for the things Im
about to explain, they receive a steady stream of
jobs (or so it is sold). That doesnt sound so
bad at the outset. But lets play it out. Seapro
Restoration signs up to be a preferred provider
for Farthers Insurance. (Names have been changed
to protectwhatever). Soon, Farthers is sending
Seapro a steady stream of qualified
leads. Things are good and Seapro decides that
now is a great time to invest in some new
equipment or hire more staff. Then a storm hits.
Farthers gets flooded with claims in the region.
In turn, Seapros phones start ringing off the
hook. Theyre not only getting calls to handle
program work, but also calls from regular
customers in their market. The Program rules
dictate that priority must be given to Farthers
claims first, so it is. Seapro puts everyone else
on a wait list and then proceeds to work
all-hands for the next 20 days straight. At the
end of the CAT, everyone is tired, but they
managed to service most of their key
accounts. Everyone takes a deep breath, and a
well deserved vacation. (Yeah right) Everything
returns to normal and the program work keeps
flowing like clockwork. Then something changes.
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A manager somewhere back East decides that
Farthers Premier Operator Service isnt
generating the anticipated cost savings they
planned for. The program ends without notice the
next month. Seapro is in a pickle now. No
problem, they say, we werent doing too bad
before the P.O.S. was created. We still have
market share. But they dont. While they were
kept busy with program work, their competitors
were making real connections and marketing
efforts in the market. And now the phones at
Seapro simply dont ring like they used
to. Business lags, and layoffs ensue. People
tighten their belts, and managers start a frantic
search for another program to replace the lost
Farthers work. And maybe they find one. All
programs are different, but as long as the phone
rings its OK right? So Seapro signs up for
County Mutuals Cleanup, Respond And Perform
program. This new program comes with some
requirements that Seapro wasnt used to. Service
providers in the C.R.A.P. program are required to
respond to every assigned loss in their
prescribed zip codes within one hour. They are
also required to upload a completed estimate
within the first 24hours, regardless of coverage
or work to be performed. Seapro operates out of
a rural county in Montana. Their assigned
territory is a hundred miles across. The
requirements of the C.R.A.P. program now require
a project manager or estimator to respond to
every loss, instead of a technician. Pictures
must be taken, a scope written and conversations
with customers.
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Seapros only PM (because lay offs already forced
them to drop their secondestimator) finds himself
driving over a hundred miles a day just to keep
up. Their ratio of sold jobs begins to suffer
because they no longer have the option of
qualifying actual jobs from dead ends. Their job
profitability begins to drop because jobs at the
edge of their service area require four hours of
labor just to get to and back (two techs at one
hour each way). Then County Mutual starts really
putting the screws in. At contract renewal time
County Mutual sends out the memoBEGINNING NEXT m
onth, all Cleanup, Respond and Perform program
vendors will be required to use a new
pricelist. Do you think the pricelist is higher
or lower than the standard zip CODE pricelist? Now
Seapro is working harder than ever for the
privilege of reducing their daily equipment
rental rates by 10. And then the next CAT hits.
And then the summer slow-down. I BELIEVE youre
seeing the pattern by now. The reality is that
insurance program work is INCREASINGLY less
profitable and more labor intensive for the
vendors. Deals are cut and checks are written at
the highest levels nationally, which have to be
cashed at the local level. And the number of
changes and additional requirements added
annually is dizzying. Carriers are SAVING on
claims expenses by making their vendor programs
do the jobs formerly reserved for adjusters and
inspectors. TPAs are promising huge claims
savings and accomplishing them by slashing price
lists. Theyre also using arbitrary drying
standards to further reduce mitigation invoices
like never before. Every day the line between
contractor and adjusting company is blurred
further, until ONE day we dont be able to tell
one from the other. The reality of programs is
that they only benefit the carrier, at the
expense of the contractor AND INSURED. No
homeowner cares whether you put OP on a cleaning
item (oh the shame), or charged to replace a HEPA
filter (whats a HEPA?). The TPA companies do.
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How does turning off Base Service Charges affect
whether a basement gets dried out properly? It
doesnt. Why is the carrier not concerned about
the customer EXPERIENCE? They are. You only need
to realize who the real customer is the
insurance company. Thats how they see it. Vendor
programs are there to service THEM. Insureds
exist only to pay THEM. The entire system is
created AND controlled by the same PEOPLE
insurance companies. Thats how a great deal of
franchise operators see it as well. When youre
on a program long enough, you start to operate
differently than a customer-centric company. It
doesnt take long BEFOREyour relationship with
your carrier and adjusters takes on a more
important role than your relationship with your
customers. Ive been told more than once by
several people, We have TWO customers the
adjuster and the homeowner.
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That statement never jived with me. Thats not
how I operate. What happens when there is a
dispute? Or when one side asks you to do
something that is not in the BEST interest of the
other? Who gets the tie vote? In the PROGRAM
world, the tie always goes to the carrier. There
are more umpires than players. Program vendors
(in general) only care about the end-user
experience as far as the program review is
concerned. A PASSING score is all thats needed.
Theyre playing not to lose. So who is the real
customer? Your own answer to the question will
tell you how much program work you do. If you
answer honestly, are you OK with it? There are
thousands of quality, honest restoration
contractors on BOTH sides. There always will be.
My beef is not with any of them. This is a
warning. A warning to those who have yet to
experience the ups and downs of the
restoration INDUSTRY that the rest of us know and
love. To those who are thinking about STARTING a
disaster recovery company or are a new
hire. Think about where you want your work to
come from, and who you want your customer to
be. Disaster recovery is an incredibly dynamic
and rewarding industry. We get to come to the
rescue every day, and for the most part our true
clients are thankful and grateful for our
assistance. And until recently, there were
systems and programs in place that ensured that
if you knew what you were doing, you could make a
great living. The GAME is changing. The rules
are changing. We must be increasingly discerning
about which games we choose to PLAY. Choosing the
program game may not be worth the price of
admission.
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Andrew McCabe is an Xactimate estimator and
licensed adjuster based in Portland, Oregon. His
companies, Claims Delegates and Contractors
Claim Service, were created to help EDUCATE and
serve both restoration contractors and insureds
navigate the increasingly complicate claims
landscape. His upcoming BOOK, The 24-Hour
Tech, is designed to help mitigation contractors
increase profitability of water damage cleanup,
and to reduce the necessary training time for new
technicians to one day.