Closing the Gap – Part 10

Challenge #9  — Value Justification

Everyone competing in today’s market has the need to spend resources wisely. This is true for mutual companies, stock companies and restoration companies. No one seeks to waste precious resources.  Thus all expenditures are theoretically reviewed on a regular basis to ensure that there is an appropriate return on the investment made (ROI).

For restorers, it is easier to justify a return on investment in their services. For a price, the restorer will return a property to its pre-loss condition, and in fact, usually better than it was. The investor (the property owner and/or the insurer) can visibly see the impact of their investment just by looking at the before-and- after pictures. While it is true that there are periodic challenges to the amount of the investment “because Uncle John, my normal handyman, could do it for less” or because there is a lack of knowledge on the part of the investor regarding psychrometry, stachybotrys, lead certification, containment, clearance testing and other factors related to a restoration that follows industry standards, these challenges tend to be on the margin. Restorers generally have no need to cost justify what they do; only how much they get paid to do it.

By contrast, insurers have a more difficult time validating their expenditures related to the property claims process, primarily within their own organizations.  The claims department is a cost center for an insurance company; the department generates no revenue. Further, there are two types of costs: indemnity costs (what they must directly pay to cover each loss) and adjustment costs (what they must pay internally to manage the claims process.) It is these latter costs – the adjustment costs – that are most under the microscope, especially the largest subset of these costs, which are people costs.  It is critical that each employee (or retained vendor) demonstrate the financial value that their work brings to the table (a positive ROI). The easiest way to do this is to demonstrate savings —showing some way that their work has specifically lowered the insurer’s cash outflow.

Suffice it to say, this need to deliver a positive ROI to justify headcount expense can periodically create friction costs between restorers and insurers.

(To be continued…)

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