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Throughout my years in the insurance restoration business and as a public insurance adjuster there’s been one claims handling tactic utilized for insurance companies that I’ve always been very impress by. This subtle and effective tactic has been used to instill a sense of trust, confidence and ease to insured’s minds while saving insurance companies countless millions of dollars in claim payments. What is the tactic, reverse psychology? Fear? Threats? No much more effective, the use of a “Preferred Contractor Network” or “Preferred Service provider (PSP)”
The “PSP” typically consist of several different types of contractors that insurance an company recommends, giving a personal recommendation or sometimes even insisting an insured use to complete repairs. In some cases an insurance company may actually provide assurances of quality of work, but its rare. That all sounds good right? Let’s take a look at both sides of the preferred contractor argument.
When an insured files a claim, often times it’s a situation that has an immediate effect on their lives such as a flood or fire, the type of loss that truly displaces and causes hardship, as apposed to say a hail claim, where while inconvenient you are rarely displaced from your home or loose personal belongings. As a result, insured’s are immediately in a vulnerable state of mind, overwhelmed and unclear on the steps that should be taken, we are often times unaware of our rights, responsibilities, etc.…. Many of us don’t know the types of contractors we need or have any working relationships with these types of contractors; and generally insured’s are under the false impression that their insurance company will pay the claim fairly. These are a few of the reason this tactic works so well. Why is the “PSP” network a Tactic?
In order to be a PSP for most of the major insurance carriers you have to be willing to operate within their PSP guidelines. Which often times include paying to be on the list and agreeing to work at their adjusters scope of work, or off their internal “price list”; regardless of your opinions on the damage, actual scope of necessary repairs. Now lets me be perfectly clear, the insurers reduce this price list the contractors agree to work off of, dramatically. Why would contractors want to work on dramatically reduced pricing? Simple, because the insurance companies promise them consistent, steady hassle free work. Its a “You work off what we say, and you’ll stay busy” type of promise. For a lot of contractors this is a business model they like, it gives them the confidence they’ll stay in business. Restoration construction is a hard business, it takes a lot of effort to sell projects, manage projects, manage customers and stay competitive in the marketplace, all while navigating the minutia that is the insurance process, as a result the “PSP” option for many contractors is a warm blanket in the business.
You might be asking, “if they’re willing to work for the lower amount and I get the work completed how is that my problem?.” On a macro scale that’s true, let’s look at the micro scale. On every project the contractor has to make money PERIOD end of story, they do not complete projects for practice. So if they agree to work for a dramatically lower amount of money but they still have to make money on that job what happens? They have to make up the money elsewhere. Where? By cutting corners on your project, materials, labor costs, quality controls, attention to details, etc.…. You and your project make up the lost revenue as a result of them being a “PSP”. You may not pay for it today, but at some point you will feel the pain of the insurer saving them money at your expense. There are not many “PSP’s” that have been on the “PSP” list for an extended period of time because they cannot survive long term as a result of their lack of sustainable profit in this business model. What does linger in the “PSP” concept is the amount of policyholders who have horrible restoration work completed and end up holding the bag. I have been called to consult or act as an expert witness on so many horrible installations of roof systems as a result of an insured be talked into using a preferred service provider, it would blow your mind. When I go back and think of the top 20 worst roof installations I’ve ever seen, every single one of them was installed by a “PSP”.
In one case I was a consultant for an insured, a middle aged single woman, who had a roof installed by a “PSP” of the list of what is likely the largest insurer in the country; the roof was installed so poorly she had leaks coming in from multiple points, the roof wasn’t sealed, it “walked” all over. I wrote a report, which was submitted to the insurer and the “PSP”. The insurer immediately told the insured they were not responsible, and that she should take it up with the contractor. After several attempts with the contractor, threats of legal action, etc. The contractor agreed to re-install the system in its entirety. Big win right? The second install was worse than the first, it leaks in more areas and did not pass either the mid roof inspection or the final inspection by the city. After a year of trying to get the contractor to rectify the situation the permit has expired and the contractor refuses to take responsibility for the installation. If this were an isolated incident I would not be writing this entry today but in our experience this is the rule not the exception with “PSP”.
It’s important to understand that who you choose to use in your restoration process is 100% your choice! Most states have statutes preventing insurers from forcing an insured to use a specific contractor to obtain coverage or payment for a loss. However, this does not prevent insurers from attempting to direct business towards the cheapest avenue for them. It happens every day and the uninformed insured falls for this tactic far to often.
As an insured choose your contractor based on reputation, quality of previous work, references, their status with their manufacturers, their warranty, this is the way to get quality work. But the one rule in our opinion when selecting a restoration contractor is NEVER, NEVER, NEVER use the guys referred by your insurance company or select from the “PSP” list.