On the website 10and10-is-a-lie.info we state that our damage restoration company quit the practice of showing a 10 and 10 O&P allowance on damage restoration projects as of January 2007. We lasted in that adventure for about 18 months.
While developing a pricing database and methodology based upon the realities of our own company made running the estimating and production process so much easier for us, it didn't win us any friends among the companies and their adjusters who are charged with running claims through and by the Xactimate system.
I still believe that if the best answer somebody can give for a price being what they say it is is "that's what Xactimate says", they are little more than an adminstrative assistant and neither an estimator nor an adjuster.
I also still believe that representing 10 and 10 as a true representation of O&P is a deceptive business practice that perpetrates the fundamentally corrupt relationship between property damage contractors and insurance adjusters.
It both bemuses and offends me to watch either contractors or adjusters who are clever enough or incompetent enough to manipulate the system or be manipulated to one party's detriment represent the mainstream of the damage restoration industry.
But on or about November 1, 2008 we gave up the crusade. We are once again Xactimclones and wear the badge of 10 and 10 for all to see. While I admit failure, at least we didn't just talk (whine) about the problems with the institution of 10 and 10. We put our money where our mouth is. We'll now go sit quietly in the corner and practice playing the game.
Wednesday, November 12, 2008
Wednesday, September 10, 2008
Showdown in Denver
Big news out of Denver Colorado. A restoration contractor has been indicted on a number of counts. There were a lot of terrible sounding of accusations like conspiracy, mail fraud and interference with commerce by threats or violence. But reading between the lines it basically boils down to an accusation that they submitted invoices to an insurance company that were not equal to what they paid their subcontractors. These are bad actors right? Maybe it’s not as evil as it sounds, or at least it might be a case of the pot calling the kettle black.
As I see it there a couple of mitigating factors that might color this situation a little and if not excuse this purported egregious act against nature, at least make it understandable how the practice came about.
First a little background. Understand that the insurance property claims business has become an increasingly dirty little game that is expected to be played by the rules the insurance companies have established. It is hard to wallow in the mud and not come out looking like a pig. Several of the companies that control the biggest share of the insurance market have established a set of rules that are fundamentally corrupt. If you want to be allowed to come to the dance, they want you to play by their rules. The rules I am speaking about the involve the unholy alliance of preferred vendor programs, 10 and 10 and Xactimate.
Preferred vendor programs have generally devolved into a system where contractors can be allowed to suck at the tit of the insurance companies in the form of being recommended to property owners who have damage claims, by agreeing to play by the insurers rules. The rules are: you follow the insurer’s rules. Preferred vendors are invited to the game at the active exclusion of those who have chosen to try to operate independently. Interference with commerce by threats or violence would be a kind characterization of the strong arm methods employed by some segments the insurance and adjusting community in enforcing the strength of this guild in many markets.
I’ve spoken before about the myth of 10 and 10, but it is such a manipulative system of convoluted logic that it deserves a revisiting in this case. It is a made up system that is based more upon Voodoo than accepted accounting or operating practice. Any knowledgable practitioner in the business knows that there is no link to reality in a system that purportedly ascribes 10% of the gross of a project to overhead somehow leaving 10% to be left over for profit. So many items have been systematically moved to overhead in the accounting of a modern restoration company that it is banality at its worst when some poor naïve fool says that 10% covers the overhead to operate a competent restoration contracting operation. This whole 10 and 10 thing is code for “if I’m either stupid or Machevellian enough to say it and if you are stupid enough to believe it, I’m going to try perform an act of fraud upon you and no kiss first. But don’t you try and defend yourself, we don’t allow that.”
The third leg is Xactimate. Xactimate has become the poster boy for the conspiracy that exists to perpetrate this carnal encounter between insurer and service provider. I guess the McCarron Fergusen Act is pretty good smoke screen for an active conspiracy to manipulate market prices by creating "pricelists" that rely heavily upon feedback of the tripe (read: averages of settled claims amounts from some time in the past) fed back into the system by insurance providers and ostensibly the same information fed back by companies that have either agreed (See preferred vendors above) to play (at least ostensibly-another blog subject altogether) by the insurer's rules or by the poor suckers who are just trying to provide good service and follow the rules, but couldn’t articulate the difference between overhead and direct cost if it bit ‘em in the butt.
This is not a system that is conducive to honest relationships and transaction of business. Anyone involved in a conspiracy to manipulate the market through schemes to fix prices should expect push back. The pushback soup d jour is to manipulate the system as much or before it manipulates you. It is an act of self-defense, commonly practiced. But, who would plant a garden full of stinkweed and expect to grow roses?
Now, we come to the real hypocrisy of this Denver situation, undisclosed discounts. Or ,as this US Attorney has been convinced to call it mail fraud, conspiracy and interference with commerce. Let’s look at a couple of examples:
I have it on belief and information that Allstate, State Farm and Farmers (and others?) have entered into a scheme whereby they contract with national flooring suppliers. They then, using a surrogate such as ITEL, develop a “retail price” for the replacement cost of flooring damaged in a loss, give that price to a consumer then actively steer the property owner (consumer) to use their flooring contractor, who provides the material at the retail price, but low and behold “discounts” the cost to the insurer. Can you believe that, based upon my information and belief, they do not disclose this relationship to the consumer!!!!!!!
If I am correct and I invite anyone to point out how I might have misunderstood this scheme, how is this any different than a contractor taking (undisclosed)discounts?
Or as another example, as I have it on understanding and belief, State Farm has a scheme where they enter into an arrangement with Home Depot where they require their preferred vendor (oh what an incestuous mess this is) to buy product from their preferred supplier. I understand they do allow the preferred vendor to get their made up 10 and 10 allowance, but fail to disclose to the property owner that there are discounts afforded the insurer for this.
Again, I invite someone to correct me if I misunderstand how the process works.
What’s the difference? Maybe it is having the power of the NICB and the postal authorities to act as your thugs. Maybe the McCarren Ferguson Act is long overdue for an overhaul, but this dance has been going on for a long time . Numerous insurers have spent considerable energy working to establish these rules. I believe, that this is a case of the pot is calling the kettle black, while hiding behind the skirt of a US District Attorney.
This part of the reason we opted out of the 10 and 10, preferred vendor, Xactimate pricelist system some time ago. We have to crash the party to get a chance to dance, but we don't have to worry about smelling like a pig.
As I see it there a couple of mitigating factors that might color this situation a little and if not excuse this purported egregious act against nature, at least make it understandable how the practice came about.
First a little background. Understand that the insurance property claims business has become an increasingly dirty little game that is expected to be played by the rules the insurance companies have established. It is hard to wallow in the mud and not come out looking like a pig. Several of the companies that control the biggest share of the insurance market have established a set of rules that are fundamentally corrupt. If you want to be allowed to come to the dance, they want you to play by their rules. The rules I am speaking about the involve the unholy alliance of preferred vendor programs, 10 and 10 and Xactimate.
Preferred vendor programs have generally devolved into a system where contractors can be allowed to suck at the tit of the insurance companies in the form of being recommended to property owners who have damage claims, by agreeing to play by the insurers rules. The rules are: you follow the insurer’s rules. Preferred vendors are invited to the game at the active exclusion of those who have chosen to try to operate independently. Interference with commerce by threats or violence would be a kind characterization of the strong arm methods employed by some segments the insurance and adjusting community in enforcing the strength of this guild in many markets.
I’ve spoken before about the myth of 10 and 10, but it is such a manipulative system of convoluted logic that it deserves a revisiting in this case. It is a made up system that is based more upon Voodoo than accepted accounting or operating practice. Any knowledgable practitioner in the business knows that there is no link to reality in a system that purportedly ascribes 10% of the gross of a project to overhead somehow leaving 10% to be left over for profit. So many items have been systematically moved to overhead in the accounting of a modern restoration company that it is banality at its worst when some poor naïve fool says that 10% covers the overhead to operate a competent restoration contracting operation. This whole 10 and 10 thing is code for “if I’m either stupid or Machevellian enough to say it and if you are stupid enough to believe it, I’m going to try perform an act of fraud upon you and no kiss first. But don’t you try and defend yourself, we don’t allow that.”
The third leg is Xactimate. Xactimate has become the poster boy for the conspiracy that exists to perpetrate this carnal encounter between insurer and service provider. I guess the McCarron Fergusen Act is pretty good smoke screen for an active conspiracy to manipulate market prices by creating "pricelists" that rely heavily upon feedback of the tripe (read: averages of settled claims amounts from some time in the past) fed back into the system by insurance providers and ostensibly the same information fed back by companies that have either agreed (See preferred vendors above) to play (at least ostensibly-another blog subject altogether) by the insurer's rules or by the poor suckers who are just trying to provide good service and follow the rules, but couldn’t articulate the difference between overhead and direct cost if it bit ‘em in the butt.
This is not a system that is conducive to honest relationships and transaction of business. Anyone involved in a conspiracy to manipulate the market through schemes to fix prices should expect push back. The pushback soup d jour is to manipulate the system as much or before it manipulates you. It is an act of self-defense, commonly practiced. But, who would plant a garden full of stinkweed and expect to grow roses?
Now, we come to the real hypocrisy of this Denver situation, undisclosed discounts. Or ,as this US Attorney has been convinced to call it mail fraud, conspiracy and interference with commerce. Let’s look at a couple of examples:
I have it on belief and information that Allstate, State Farm and Farmers (and others?) have entered into a scheme whereby they contract with national flooring suppliers. They then, using a surrogate such as ITEL, develop a “retail price” for the replacement cost of flooring damaged in a loss, give that price to a consumer then actively steer the property owner (consumer) to use their flooring contractor, who provides the material at the retail price, but low and behold “discounts” the cost to the insurer. Can you believe that, based upon my information and belief, they do not disclose this relationship to the consumer!!!!!!!
If I am correct and I invite anyone to point out how I might have misunderstood this scheme, how is this any different than a contractor taking (undisclosed)discounts?
Or as another example, as I have it on understanding and belief, State Farm has a scheme where they enter into an arrangement with Home Depot where they require their preferred vendor (oh what an incestuous mess this is) to buy product from their preferred supplier. I understand they do allow the preferred vendor to get their made up 10 and 10 allowance, but fail to disclose to the property owner that there are discounts afforded the insurer for this.
Again, I invite someone to correct me if I misunderstand how the process works.
What’s the difference? Maybe it is having the power of the NICB and the postal authorities to act as your thugs. Maybe the McCarren Ferguson Act is long overdue for an overhaul, but this dance has been going on for a long time . Numerous insurers have spent considerable energy working to establish these rules. I believe, that this is a case of the pot is calling the kettle black, while hiding behind the skirt of a US District Attorney.
This part of the reason we opted out of the 10 and 10, preferred vendor, Xactimate pricelist system some time ago. We have to crash the party to get a chance to dance, but we don't have to worry about smelling like a pig.
Tuesday, August 12, 2008
Vertical Integration of the Damage Repair Industry
In the early 70's a book was written called Sovereign State of IT&T . It told the story about International Telephone and telegraph company, which at one time was one of the largest (and some would argue most powerful) multinational corporations in the world.
As I remeber, at one point in the book, the author told how IT&T decided that because it ran canteens for its employees all over the world, the most sensible approach would be to buy the company(ies) that supplied product to its food operations and therefore keep the profits paid out to vendors to itself.
It seems that insurers have adopted a similar philosophy and are vertically integrating their traditional role as the provider of an insurance product that provides financial support of the property owner when a claim occurs into the delivery of service to accomplish the making whole of the property owner.
There are some differences in the relationship between the insurer and the insured that make such a trend different than a free market evolution.
As some insurers exploit the advice to squeeze the profits out of the claims side of the insurance contract that were suggested by the McKinsey Consulting Group by ostensibly denying, delaying, and if necessary defending ,efforts to get fair settlements, the conflict of interest that is inherent in the move becomes increasingly obvious.
Insurers have a duty under the law to protect the interests of the public. Practices such as trading the referral of business to captive contractors who are required to use the (below market?) Xactimate database as a pricelist, entering into agreements with material suppliers to skim margins off the purchase of materials by requiring captive contractors to purchase product at a particular supplier where undisclosed discounts are exchanged or acting as contractors by specifying, directing, paying subcontractors directly reward behaviour that is contrary to that duty.
Even without the implementation of the questionable strategies of the McKinsey Consulting.
These practices have led to a dramatic cut in the balance of money paid into insurers for their investment ventures and the money paid out to the public as a result of claims. That balance dropped to a mere 58 Centson the dollar in the last year compiled, historically claims have hovered near a break even proposition. The investment reserves of insurers rose to over $500 billion dollars during the same period.
The McCarron-Ferguson Act, enacted in 1945 exempted the insurance industry from many of the anti-trust regulations that control intersate commerce.
Maybe it's time that congress exercised some of its power under that act to enact regulation to return the balance to the claims equation.
As I remeber, at one point in the book, the author told how IT&T decided that because it ran canteens for its employees all over the world, the most sensible approach would be to buy the company(ies) that supplied product to its food operations and therefore keep the profits paid out to vendors to itself.
It seems that insurers have adopted a similar philosophy and are vertically integrating their traditional role as the provider of an insurance product that provides financial support of the property owner when a claim occurs into the delivery of service to accomplish the making whole of the property owner.
There are some differences in the relationship between the insurer and the insured that make such a trend different than a free market evolution.
As some insurers exploit the advice to squeeze the profits out of the claims side of the insurance contract that were suggested by the McKinsey Consulting Group by ostensibly denying, delaying, and if necessary defending ,efforts to get fair settlements, the conflict of interest that is inherent in the move becomes increasingly obvious.
Insurers have a duty under the law to protect the interests of the public. Practices such as trading the referral of business to captive contractors who are required to use the (below market?) Xactimate database as a pricelist, entering into agreements with material suppliers to skim margins off the purchase of materials by requiring captive contractors to purchase product at a particular supplier where undisclosed discounts are exchanged or acting as contractors by specifying, directing, paying subcontractors directly reward behaviour that is contrary to that duty.
Even without the implementation of the questionable strategies of the McKinsey Consulting.
These practices have led to a dramatic cut in the balance of money paid into insurers for their investment ventures and the money paid out to the public as a result of claims. That balance dropped to a mere 58 Centson the dollar in the last year compiled, historically claims have hovered near a break even proposition. The investment reserves of insurers rose to over $500 billion dollars during the same period.
The McCarron-Ferguson Act, enacted in 1945 exempted the insurance industry from many of the anti-trust regulations that control intersate commerce.
Maybe it's time that congress exercised some of its power under that act to enact regulation to return the balance to the claims equation.
Wednesday, May 14, 2008
Xactware-The 800 lb Gorilla
The Xactware company http://www.xactware.com/ , a subsudiary of the Insurance Services Office (ISO) http://www.iso.com/ markets an estimating application for the damage restoration industry called Xactimate. Xactware claims some 50-80% of the property claims settled by the insurance carriers are processed on the Xactimate platform. Xactimate is the 800 lb gorilla of the damage restoration industry.
Xactimate was origianlly developed by a contractor named James Loveland as a tool to assist contractors in writing accurate cost estimates and bids to complete work . Over the years, insurance carriers have seen Xactimate as a tool to collect data and use that data in an effort to standardize and to control the amounts paid to settle property damage claims. Xactware has been (willingly) metamorphized from a tool to assist contractors into a tool to allow insurers to manipulate pricing and claims settlement practices. The recent aquisition of Xactware from the Loveland family by the ISO removed any doubt about which side Xactware's bread was buttered on.
As time has passed , the effort by insurers, through their surrogate, Xactware, to represent the data collected and published as the "pricelist" has become increasingly widespread. While Xactware still publicly denies that they establish the price of services, they market their data as a "pricelist" and insurers increasingly and openly demand adherence to the pricing published by Xactware as a condition for entry into or continued operation by contractors in the marketplace.
The fact is, the data published by Xactware is highly suspect as it depends to a great deal on a function called feedback-which is overwhelmingly the submission of prices paid on settled claims by insurers and the prices charged by captive contractors who have agreed to use the "pricelists" published by Xactware. It is a self-fulfilling prophesy at best. It is price-fixing at worst.
The bulk of restoration contractors have just a willingly ridden along as this change took place, exchanging autonomy for convenience. This due in great part to the fact that a savvy operator of the software could manuever their way through the application and its pricing database to produce more than acceptable margins, with little concern of scrutiny.
Insurers , however, are data collection machines and increasingly look for opportunities to tighten control or to simply take control of all or portions of the scope and pricing in the claims process. The separate agreements by insurers to contract floor covering services, roofing services, etc. apart from the general restoration contractor's control (and markup) are examples of areas where insurers are moving from a traditional role as the funding agent to one historically within the purview of the restoration contractor.
The question is whether this trend is in the long-term interest of the property owner.
Xactimate was origianlly developed by a contractor named James Loveland as a tool to assist contractors in writing accurate cost estimates and bids to complete work . Over the years, insurance carriers have seen Xactimate as a tool to collect data and use that data in an effort to standardize and to control the amounts paid to settle property damage claims. Xactware has been (willingly) metamorphized from a tool to assist contractors into a tool to allow insurers to manipulate pricing and claims settlement practices. The recent aquisition of Xactware from the Loveland family by the ISO removed any doubt about which side Xactware's bread was buttered on.
As time has passed , the effort by insurers, through their surrogate, Xactware, to represent the data collected and published as the "pricelist" has become increasingly widespread. While Xactware still publicly denies that they establish the price of services, they market their data as a "pricelist" and insurers increasingly and openly demand adherence to the pricing published by Xactware as a condition for entry into or continued operation by contractors in the marketplace.
The fact is, the data published by Xactware is highly suspect as it depends to a great deal on a function called feedback-which is overwhelmingly the submission of prices paid on settled claims by insurers and the prices charged by captive contractors who have agreed to use the "pricelists" published by Xactware. It is a self-fulfilling prophesy at best. It is price-fixing at worst.
The bulk of restoration contractors have just a willingly ridden along as this change took place, exchanging autonomy for convenience. This due in great part to the fact that a savvy operator of the software could manuever their way through the application and its pricing database to produce more than acceptable margins, with little concern of scrutiny.
Insurers , however, are data collection machines and increasingly look for opportunities to tighten control or to simply take control of all or portions of the scope and pricing in the claims process. The separate agreements by insurers to contract floor covering services, roofing services, etc. apart from the general restoration contractor's control (and markup) are examples of areas where insurers are moving from a traditional role as the funding agent to one historically within the purview of the restoration contractor.
The question is whether this trend is in the long-term interest of the property owner.
Monday, May 12, 2008
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