The Profit Game

An insurance adjustor’s take on closing the gap between restoration contractors and insurers

ace it, restoration professionals, the insurance industry considers you neither friend nor ally. The motivation behind the concepts of unit cost estimating, 10 percent overhead, 10 percent profit and even estimating software was to reduce the cost of a claim and damper your profits. The reason they study remediation methodology is not to be more knowledgeable to extend better service. It’s to better identify differences in scoping and price and minimize what they perceive to be excessive or exaggerated costs.

The reason an insurer argues against assignment of benefits (AOB), a legal agreement that allows a prop- party owner to sign over its rights (to a contractor) to sue its insurer for misconduct in the payment (or lack of payment) of a claim, is to remain in control of a claim without merit and excessively priced.

Whenever insurers want you to accept an arrangement — or malign the concept of AOB — that appears to be contrary to your own interests (and the interests of an aggrieved policyholder), they’ll urge you to acquiesce by reminding you that “it’s all about the policyholder.” And yet they’ll lobby for legislation that would appear to be against the interests of the policyholder.

So what is their game? It’s all about the profit. They’ll never say it because it’s not politically or commercially expedient. But it’s all about the profit.

I’m all for making a profit. An insurer is in business to make a profit and anything that diminishes that potential, such as a greedy restoration industry, must be dealt with. Make no mistake, you are all lumped into that “greedy restoration industry” group. Even if you believe you are trusted because you have a relationship with them, you must realize that the reason they entered into a relationship with you was to impose restrictions on your methods and pricing, such as when you agree to the terms of a preferred vendor program or a third-party administrator.

Yes, there is a gap. A policyholder’s expectations after a loss are frequently not met by policy terms. If the policyholder’s expectations are unrealistic, this is due to a misunderstanding of what the function of an insurance policy is. The insurer, through its “good hands” and “good neighbor” style of promotion, unwittingly serves to undermine the concept of indemnity to make a policyholder whole.

But what does “being made whole” mean? It does not mean that you end up better than you were before the loss. It means that you receive recompense for the values that were in place before the loss. If you sustained a loss to a five-year-old sofa, you shouldn’t expect a brand new sofa because that would leave you better than you were before the loss. You’d receive the comparable value of a five-year-old sofa. This is the rationale behind depreciation.

So What is their game? It’s all about the profit.

If the policy promises actual cash value, the adjuster owes for the value of a five-year-old sofa. Since it’s not practical for an adjuster to find and buy a five-year-old sofa, he’d use the price of a brand-new sofa as a basis for value, but then apply depreciation in an attempt to give equal value for the sofa that was destroyed. To an adjuster, that is what it means to be made whole. You can apply this to every kind of property, personal or real.

Some policyholders may not understand that every property policy has limitations and that certain duties are required of a policyholder who has suffered a loss. Failure to fulfill those duties can serve to reduce loss payment.

The restoration contractor, whose interests are closely tied to the policyholder’s recovery, is caught in the middle of this gap. His proposal to restore a damaged property does not take into consideration the application of a deductible, depreciation, a coinsurance penalty, or a difference in unit pricing disallowed by insurance company software.

Make no mistake, the insurance industry does not consider the restoration industry as its partner in fulfilling the promise of an insurance contract. The restoration industry is the enemy and that’s why you don’t see them coming to the table of discourse or corroboration.

In Florida, Citizens brought about a game-changer: they have succeeded in getting the legislature to approve a cap on water or other emergency type loss remediation of $3,000. There is no consideration for the value of a dwelling, the nature of the water, or the area under consideration; their policy will not pay more than $3,000. Other insurers are seeking to get approval for similar limitations in their policies. Who gets hurt here? The policyholder. What motivated this change and how did they succeed in getting it approved by the legislature? They portrayed the remediation industry as unscrupulous greedy vendors who exaggerate claims and diminish premium reserves so much that rate increases and restrictive and unrealistic policy language are absolutely mandatory.

Even though most homeowners’ policies are written on a replacement cost basis, there still might be situations that allow for actual cash value. And if the loss is generated by a liability issue — for example, an insured that causes property damage to an innocent party — depreciation will almost always be applied.

There can be more limiting factors in a loss adjustment, but you get the idea from the examples we’ve given. This takes us back to my original point: The policyholder’s expectations are frequently not met by the policy terms. This can result in them personally owing a substantial amount (that they can’t afford) to a restoration contractor who now is left with a collections challenge.

Who is the bearer of this bad news? The adjuster. As an independent adjuster, I can say I didn’t cause this problem. In my personal practice, I try to disclose all the danger areas in any given claim well ahead of any financial commitment made by a restoration contractor. But as an independent, it may often be beyond my control since I’m not issuing the settlement checks.

So, again, there is a gap. I have an idea about what has caused this gap. But short of a total paradigm shift in insurance company marketing, I don’t see it changing. You may ask if the insurance industry is truly interested in bridging this gap. Better to ask whether the insurance industry acknowledges that there is a gap. Do they admit that their customer is not being served? Are they concerned about a restoration company’s compensation and whether the policyholder is properly made whole?

As an independent adjuster, I often find myself think- ing like a mediator between the policyholder (and their restoration contractor) and my client, the insurer. Sometimes, I can ethically smooth out the rough corners, but since I am only the messenger, I cannot prevent the gap from growing.

Here are two action points that restoration contractors need to initiate now. First, closely review the terms of any preferred vendor or third-party administration program you consider joining. Don’t let the lure of the promise of increased work blind you to restrictive terms that appear to be against your best interest.

Second, create a policy whereby you expect to be paid within 30 days of completion. Escalate collections aggressively during the 31- to 90-day period. There is no legitimate reason a claim should not be paid within that time period unless there is a serious coverage question or suspicion of fraud. So do not accept an adjuster’s excuses. If you have to call a claims manager or a mortgagee to confirm their hold on the check, do it. If your invoice has not been paid by the time you get to that 90-day point, your payment is in jeopardy.

Send copies of your invoice to the agent, the claims manager, and the insured via certified or USPS priority mail. Consult with your collections attorney. Let everyone know that the work has been completed, the satisfaction docs are signed and yet you’ve not been paid. Make it clear that there is a collection problem and what the avenues of recovery will be. It can be professional but it’s not friendly at this point. As a mob boss, Tony Soprano was oft-quoted as saying, “It’s not personal, it’s business.” RIA

Peter Crosa, AIC, RPA, is the founder and CEO of Peter J. Crosa & Co. in Florida and Georgia.

Peter J. Crosa

Peter J. Crosa, AIC, RPA, is a practicing independent adjuster who writes, consults, and conducts workshops on how to increase the market share of insurance claims related restoration and mitigation jobs. He can be reached at Find more information at

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