As 2015 dawns, changes in the water damage and fire damage restoration industries continues to unfold. We can chalk this up to simple maturity of a relationship between insurance companies and restoration contractors. Some of the changes are a result of abuses by less than scrupulous contractors and some of it may be looked at as insurance companies looking for ways to modify their business model as factors such a lower interest rates on investments, translating into lower ROI on those investment, make such a change necessary.
The damage restoration industry enjoyed a long run a loose controls and the opportunity for truly significant margins for a lot of years in the last quarter of the 20th century. This isn’t unusual for a immature industry. It takes time for a wide audience to identify the opportunity and competition to begin to flood into the market. The damage restoration industry was, not that long ago, an almost secret society, with closely held secret formulas and techniques to accomplish the task if restoring damaged property. The dawn of the internet saw the increasingly free exchange of information about “how to” work the magic spells of removing odor and restoring damaged material. Actually the exchange wasn’t necessarily free as aging restorers saw an opportunity to quit responding to difficult situations 24 hours a day and offered education (for a price) in the sorcerer’s ways.
For many years insurers were more than willing to trade premium and claim dollars as their ability to invest andgain substantial returns made the claim dollars a means to an end rather than a end in and of itself. .The despicable acts of 9/11 resulted in a rapid change of that model as insurers saw reserves dwindle as the many of costs of the damage to the economy were reimbursed by insurers as a result of coverages that had never really been exploited.
The trend continued well beyond the immediate affects of 9/11 had diminished as insures saw claims dollars as an opportunity to increase margins with management of those costs. This shift lead the birth of TPA’s or third party administrators that managed the property claims process for a fee. This “new” industry has grown by fits and starts as new players enter, each offering to lower costs and provide relief from abuses, both real and perceived, that may occur in the restoration industry. Their share of the market has increased slowly, but steadily over the past several years and it is believed they control somewhere around 20% of the claims market at this writing.
The relationships between the insurers, the TPA’s and restoration contractors are tense at times as some restorers believe they are on the receiving end of abuses of unfair price control and improper scoping of damage.
These relationships will continue to mature as less efficient players are forced out of the restoration marketboth on the restorers side and the TPA side. The ride is a little bumpy at time presently, but repairs, restoration, damage mitigation and require the ability to respond to and adjust to changing condition to be successful. That hasn’t gone away, just the face of the industry is evolving to meet the current challenges of the market.