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The times - they are a-changin'!

It has historically been the insurance companies who have been accused of low balling (generally not true) and price fixing (also generally not true). If the contractor's bid is higher than the insurer's estimate, it has been often taken for granted in many jurisdictions that the contractor's bid represents the true cost of repair. It has always been my understanding that the pricing in estimating software should reflect what a typical contractor would charge rather than a standard where contractor's should charge what the estimating software allows.

I would like to know the whole story on this one. I can think of one restoration contractor in particular which has been being accused of being a public adjusting firm. I somehow got on their email list and wasn't sure myself (based on their emails) what kind of company they were for awhile. Bringing in a team of "experts" and "engineers" to evaluate losses after a catastrophe seems an unusual practice for a restoration company.

www.rockymountainnews.com/news/2008/sep/11/defense-lawyers-see-motive-behind-insurance-case/

Thanks for the link. The meaning of the below paragraph was not clear to me. If the subs were making both a true estimate and a higher false bid to DRI that could be an issue. If DRI is just marking up the sub bids by 20-30% for profit and overhead I do not see the issue. That would be no different than an adjusting company paying an IA 60% of the fee they get from the carrier. Without that 40% margin it would be hard of the adjusting vendor to keep her doors open.

"In a 60-count federal indictment returned this week, prosecutors said employees scammed insurance companies by getting subcontractors to submit bills 20 to 30 percent higher than their actual costs.

Sears said Wednesday the industry imposes a rigid pricing structure that doesn't allow contractors to recoup all of their costs.

He said Disaster Restoration has challenged those practices and that a "much larger story" will come out at trial."

I edited the url so you could link to it directly, John. When you take out the slash at the end, it provides a direct link that does not require cutting and pasting.

Auto pricing has been far more standardized for a long time. It is the nature of vehicles that certain vehicles need certain parts and those parts take a certain time frame to replace by someone who knows how to replace them. Buildings are different. The possible variants in materials are virtually unlimited. Witness the hotel in Minnesota made out of ice or the bottle houses in a couple California ghost towns.

When I worked for State Farm Auto, this is how we arrived at our pricing:

Every so often we gathered together most of the adjusters, treated them to a training video (this is what a mig welder looks like, etc.), and sent them out to all the local body shops with a questionairre about their facilities, practices and pricing. When they came back, the pricing data was analyzed. The hourly rate that most shops charged at or below became the standard for payment. If a shop had adequate facilities and quality of practices and charged that price or below they were certified as a preferred shop. If they had adequate facilities and quality of practices and charged more than that amount, they were considered as a second level of preferred shop, but the insured was responsible for the labor rate difference and the insured was informed of this from the start of the claim. This way the local body shops appeared to drive the reasonable cost of repairs. In reality, it did keep the pricing somewhat in check because the shops agreed to use that rate for the next year, but that was ultimately the shop's decision in order to obtain State Farm business.

Even though I prefer to pay less on my claims rather than more, the market should drive the cost of repairs rather than the insurer. It sounds like there may be some behind the scenes excalation of the subcontractor pricing in the situation that led to this lawsuit. I have, however, from time to time encountered insured who admitted to me that the contractor planned to charge the insurance company one price and the insured a lesser price.

I don't know of any contractor estimators that have ever taken an ethics class. Has anyone else? I think there is a learning curve problem there.

Bids and Estimates are two very different animals.

What adjusters/claims reps do is write an estimate. Most use a computerized estimating system, of which there are several, and have little first hand knowledge of any thing to do with pricing. That is, the cost of the the elements that make up a a unit price. Unit prices, in computer estimating systems, are set, maintained and updated by the purveyor of the instant computer estimating system. In any event an estimate is what the adjuster/claims rep thinks the repair should cost. The adjuster/claims rep is not bidding on the job because the adjuster/claims rep is not going to make the actual repair.

Bids may or may not be based on a computer estimating system. Some contractors/repair professionals base their bids on a computer estimating system. Almost all contractors/repair professionals use a computer estimating system because almost all insurance companies want to see a line item bid. Some contractors/repair professionals formulate a bid by pricing materials and labor for portions of the repair and collecting sub contractor bids for portions of the job. So that the bid is a mashup of work the contractor is going to accomplish and work that is going to accomplished by a sub contractor. In any event a bid is what the contractor/repair professional is charging to complete the repair. It is a given that general contractor is entitled to overhead and profit. And it is a given that different contractors/repair professionals have different cost structures that cause their bids to be more or less.

Contractors/repair professionals, that are successful year after year, maintain a job cost system and know what elements of their chosen profession cost and generate unit prices from that job cost system. Obviously, there are other contractors/repair professionals that see a bird nest on the ground and their bids reflect that mentality.

I make every attempt to pay what is owed on a claim. "It is what it is." If the scope is correct and agreed and the pricing is correct then there is grounds to agree with the contractor/repair person. To finish up the coverage has to be applied, RCV/ACV, Co-insurance, replacement provisions, depreciation and deductibles are all elements.

Posted By Jeffrey Finley on 21 Dec 2008 03:59 PM
I don't know of any contractor estimators that have ever taken an ethics class. Has anyone else? I think there is a learning curve problem there.

Scoping a loss properly saves an adjuster a ton of heartache and work. Concise, accurate, and well thought out scoping is absolutely necessary in this business, as it is the footprint of your knowledge. You want to be able to leave a site and if your scope notes are needed by another adjuster, you want to be prideful in what you submit to him for assisatance. No matter how hard you try, some files will re-open, even though you have done an exemplary job. So, your scopes should be organized, thought out, concise, accurate, and complete. Proper photography is necessary, as it reflects pictoraly the damage you have just inspected and scoped. Learning to be a well rounded adjuster is not an overnight task, it requires years of education and experience. Learn from whomever you can and you will become an ace adjuster.

 

Posted By Jeffrey Finley on 21 Dec 2008 03:59 PM
(I don't know of any contractor estimators that have ever taken an ethics class. Has anyone else? I think there is a learning curve problem there.)
Jeff
My ethics class is something called morals and being a professional at what I do......... I was raised with it and I follow it....... When I am scoping a loss I like to think I walk a fence. I do not sway to the carriers side and I do not sway to the insured's side. I have had insured's want me to add this or add that and I do not and will not..... Anything I scope I want to be able to stand up in court and swear that it was or was not required in my professional opinion... Like Chuck said " it is what it is" ... Every estimate is different and that loss must be looked at for what it is.... I have a fire loss where the house has no street in front and it is a 300 foot walk from the parking area to the house all materials and debris must be hand carried in and out and it will be winter.
Another is a 5 story condo where 20 + units have water damage from a fire sprinkler head...... All materials hand carted in and up an elevator, 20 plus homeowners , the HOA board and property manager to deal with along with city building inspectors..... These will cost alot more in terms of repair costs due to the problem location and weather etc ... It is not a one size fits all .
Bob Harvey likes say you need to know what is and what is not included in each estimating program to make music..... There are alot of estimators in my field ,just as there are alot of adjusters in your feild that do not know what is included in the estimating programs.. An estimate is only as good as the data being entered.

Welcome Back Bob H....

Welcome Back Bob H....

Main Entry: adjust
Pronunciation: „a-‚j„st
Function: verb
Etymology: Middle English ajusten, from Middle French ajuster to gauge, adjust,
from a- (from Latin ad-) + juste right, exact— more at  JUST
Date: 14th century
transitive senses  
1 a : to bring to a more satisfactory state: (1) : SETTLE, RESOLVE (2) : RECTIFY  b : to make
correspondent or conformable : ADAPT  c : to bring the parts of to a true or more effective
relative position ²adjust a carburetor³
2 : to reduce to a system : REGULATE
3 : to determine the amount to be paid under an insurance policy in settlement of (a loss)
intransitive senses  
1 : to adapt or conform oneself (as to new conditions)
2 : to achieve mental and behavioral balance between one's own needs and the demands of
others

To put it in layman's terms, it reminds me of myself after eating too much yesterday.  I performed an adjustment ala Frank Barone (Everybody Loves Raymond)  by releasing the top button of my jeans.  It made me very comfortable, but did not necessarily meet the behavioral expections or demands of all.  Plus some of them did not have all buttons, they only had 1 button and a zipper. The comfort I received with very little effort or exposure was not within their achievement lest they suffer a some extra embarrassment. Ahhh!