What Are They Up to Now?

by Mark Goldwich

With a title like, “What are they up to now?”, you might think I’m writing about my kids, the presidential candidates, politicians in general, or some other high-profile group. What I’m talking about in today's blog are Insurance Companies. You see, earlier this week I attended a two-day conference presented by the Florida Association of Public Insurance Adjusters. The conference is billed as an educational and networking event designed to improve our skill sets, become better at what we do, and network with other industry professionals.

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One of the main takeaways from the conference was learning about significant trends in insurance industry tactics and strategies. These strategies are usually marketed as “consumer protections”, which also just happen to help insurance companies stuff billions more into their collective coffers. A happy coincidence, I’m sure (that’s sarcasm, for those of you who are unfamiliar with my writing style). Those of us whose job it is to protect the insured from their own insurance companies, see these tactics and strategies for what they really are, profit boosters.

Rather than bore everyone with all of the topics discussed, I’m going to focus on one key strategy, “Repair Cost Control”, which I will separate into two popular methods, “Managed Repair” and “Our Option”.

The idea behind “Repair Cost Control” is fairly straightforward – if the insurance companies can exert greater control over the repair process, repair costs will decrease, and profits will increase. They will naturally argue that reduced costs and increased profits translate into lower premiums, but just ask yourself when was the last time your insurance premiums were significantly reduced, despite the fact that your coverages were significantly reduced? Answer: You’re kidding me, right?

To gain even greater control over repair costs, as if having professional adjusters, estimating programs created with insurance industry input, and a host of repair professionals and attorneys at their disposal was not enough, the insurance companies have come up with “Managed Repair” (sometimes referred to as “Managed Care” to make it sound more benevolent), and “Our Option” (which could more accurately be renamed as, “Butt out, this claim is none of your business!”).

Under the “Managed Repair” process, the insurance company “guides” insurance victims to hire contractors who are “preferred vendors” that have special relationships with the insurance company,
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rather than contractors of the property owner’s choosing. You can imagine how lucrative it could be for a contractor to enjoy such favored status. A large insurance company could provide so much work that the contractor could all but eliminate their marketing budget, which previously could have been tens of thousands of dollars each and every month. Gone! That doesn’t sound so bad, especially for the contractor and the insurance company. But think about it – the contractor gets the claim job “gifted” to them from the insurance company, and gets direction from the insurance company's adjuster.  This includes coverages, limits, and exclusions, which are all outside the scope of the contractor’s job, both realistically and legally, and the contractor gets included on claim payments, rather than getting paid by the insured property owner. Is it any wonder these contractors tend to forget they are working for the property owner, and tend to feel they are really working for the insurance company?

And what happens when the work done by a “Managed Repair” contractor is good enough for the insurance company, but not satisfactory to the property owner? “No problem,” the insurance company says, “you signed a contract with the contractor, so it is your responsibility to deal with them.” Nice!

And what of this “Our Option” mentioned as an alternative to “Managed Repair”. In my opinion, it’s even worse. Most property insurance policies have an “Our Option” clause that basically says, “we may elect to repair or replace the damaged property with a contractor of our choice.” Most insurance companies interpret that to mean that they can buy contractors, or enter agreements with contractors, so that if the insurance company agrees a loss is covered, they pay the contractor directly for the repairs, and the insured has no voice in the repair of their own property (usually, their home).

Think about that. The insurance company can literally own the construction company, or employ the contractors, and if the insurance company agrees to pay the claim, they pay themselves, instead of paying you. Talk about keeping it in the family! If someone can explain how that is not a clear conflict of interest, well, you’d be the first person to explain that. But, so far as we can tell, no state agency has even thought to ask that question, let alone demand an answer to it.

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So, what’s a property owner to do in light of these trending strategies that remove you from the process while growing insurance company profits? First, you need to know that these strategies exist, and how they work. Done! Next, you need to decide whether you want to believe the insurance company is doing this in your best interests and go along with the plan, or if you want to maintain control over who repairs your property, how they repair it, and with what workers and materials. If the latter, you need to know your rights, and be willing to fight for your rights (otherwise, you will probably lose those rights).

I hope I was able to bring to light, in an easily understandable way, a couple strategies trending with insurance companies that we as insurance consumer advocates recognize are detrimental to property owners, and primarily serve to benefit insurance companies. Feel free to research the topics on your own, and learn how to protect yourself.

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.