The Dark Side of Preferred Provider Networks..

1
(No Transcript)
2
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.
3
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. 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 month, all Cleanup,
Respond and Perform program vendors will be
required to use a new pricelist.
4
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. 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.
5
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
before your 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. 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.
6
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.
7
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. For more information,
feel free to contact Andrew at 888.745.7568 FREE o
rAndy_at_ClaimsDelegates.com 
8
When its time to talk to your insurer, talk to a
Claim Delegate first.

By Andrew McCabe