When talking to most restoration contractors about TPA’s the most commonly expressed emotion is apprehension. Restorers often consider the impact of joining a TPA on their Cost of Goods Sold (COGS), a change to their operating procedures, and profitability. As with other business decisions, there are benefits and drawbacks to joining TPAs. We’ll take our combined restoration industry experience and answer some of the common questions and share our sometimes conflicting views of TPAs and whether they are right for the industry and right for restorers. This first installment will address TPAs expectations of restorers.

What is a TPA?

Jeff: First, let’s explain what a TPA is. TPA is an acronym for Third Party Administrator. These are companies that are contracted by the insurance carrier to adjust their claims in an effort to reduce overall claim cost, personnel costs, and decrease cycle times. Since a TPA is not a carrier, but rather a service provider to a carrier, signing up with one TPA might give you access to working with a variety of insurance carriers. This, of course, can be in exchange for a fee and comes with rules of engagement of how the job should be done and how paperwork is completed. 

Ricelli: There are several resources providing lists of available TPAs and the carriers they work with and their individual requirements to be a vendor for them. It’s important to remember that, if you do not wish to work with a particular carrier, do not sign up with the TPA that represents that carrier. This might seem like a no-brainer, but I’ve seen people sign up with TPAs and then talk about all the challenges they wish they were not having to deal with. 

Consider an investigative approach to how certain carriers are viewed in your territory, their presence in the marketplace and challenges they might be experiencing (such as trying to leave the state due to a high number of claims after a natural disaster). One way to get information on the top carriers for your region, the amount of claims they covered, breakdown by claim category, etc. is to connect with www.ambest.com and order a report. 

What do TPAs expect from a restorer?

Jeff: Restorers should be aware that there can be very strict requirements to be eligible for enrolling with a TPA and, also, that signing up for a TPA, paying your fees (if applicable), and being approved, does not mean you will get work. I’ve heard many stories of approved restorers being placed on wait lists in saturated markets and going for months before ever receiving their first assignment. It’s important to ask your client relationship manager when you can expect to receive an assignment and how long their waiting list is. 

SLA’s

When signing up for a TPA, you will be expected to adhere strictly to a formal Service Level Agreement (SLA). These are the terms and conditions you are expected to perform to in order to remain in good standing with the TPA and receive assignments. I’m going to dive into some of the requirements I’ve seen being a part of TPAs.

Button pushing

Reducing cycle times and high policyholder satisfaction are of paramount importance to insurance carriers. These metrics help carrier executives measure success as they define “success.” In order to capture these metrics and remain compliant, most TPAs will require restorers to accurately log their initial calls, initial inspections, have estimate requirement upload times, and job completion schedules adhered to. The timelines can feel compressed, and some restorers feel these requirements interfere with their ability to actually execute the work. Therefore, they hire administrative help to remain compliant with timelines, which increases overhead cost. 

As a former program restorer, I found myself at odds trying to push buttons and make initial calls from my vehicle while the homeowner was inside waiting for me to actually begin the work. If I was out of compliance, however, I was at risk of losing future work. Meanwhile the homeowner was wondering why I was pushing buttons and making calls to “water mitigation units” while their basement was soaking wet.

Timing/Ticking Clock 

Expanding upon button pushing, are timing requirements. When I was on program work I was required to make contact with a homeowner in less than two hours, I had to upload preliminary estimates through Xactanalysis in less than 24 hours, I had to call “mitigation specialists” and discuss with them the scope of the loss prior to beginning any work (sometimes this could take over an hour), upload an initial estimate in a prescribed format within 24 hours of initial inspection, make regular updates to the assigned adjuster, and upload the final estimate within 24 hours of receiving a completion certificate. I purposely used the word “estimate” because frequently the desk adjuster would treat what is actually an invoice, as an estimate, and reduce the amount as desired – sometimes out of line with the SLAs.

In Colorado, asbestos is heavily regulated and the state requires asbestos testing on all projects requiring demolition, regardless of the age of the property. Sometimes our local IH and labs were backed up, and getting results could take 2-4 business days. It could be even longer if it was the holiday season during winter freeze break season. These delays could negatively affect our TPA scores regardless of the reason. We could not break the law to satisfy the TPA, so sometimes we just had to get dinged.

Pricing

Independent restorers are able to set their own prices. Restorers signing up for TPAs need to understand they are agreeing that they may only be able to charge Xactimate or Symbility prices. Other TPAs may charge below Xactimate pricing which you are bound to. It’s very important to know your numbers including overhead, production rates, labor burden, gross and net profit margins when determining if you can work for these rates. There is a major difference between being busy and being profitable.

Line Item Limitations

Xactimate has a vast library of 20,000+ potential line items. In the hands of a knowledgeable estimator, Xactimate can be an excellent tool to begin the estimating process and then modify line items to meet the restorers needs. Possibilities include custom line items, modifying labor yields, changing prices, modifying labor rates … there are so many customizations. Once you enroll with a TPA however, you’re unlikely to be able to use anything but Xactimate line items and prices. In some scenarios you may be permitted to use a bid item and add the customary 10/10. And, if you’re a part of a franchise, your margins get squeezed quickly with bid items because royalties are usually paid on top-line revenue. 

Further, you may be limited to what line items you can use. For example, we have seen:

• Labor minimums not permitted
• Limitations on Equipment, Setup, Takedown and Monitoring hours
• Limitations on PPE charges and permissible scenarios
• Drying equipment limitations
• After-hours fees not permitted
• No Emergency Service Calls
• No supervisory hours
• No fuel surcharges
• Limitations on debris haul and dumpster sizing depending on the amount of demolition necessary. Who places drywall in a dumpster like they are placing books on a shelf?
• Not paying for a moving truck for contents packout/back
• Requiring the reuse of dirty boxes for a packout and paying labor only to pack them. 
• Not paying to properly inventory and document contents during a packout/packback
• Air scrubbers not permitted during the entire duration of drying
• Air scrubbers only permitted on Category 3 losses
• Equipment decontamination not permitted
• And a seemingly endless list of line items that are a “cost of doing business”
• All doors and windows must be reduced from the square footage of their respective walls
• Limitations on waste factors for flooring, roofing, and other materials
• Not paying to blend drywall texture beyond the joint
• Only allowing for one coat of paint
• And more!

Estimating/Software Requirements

When signing up for TPA work, restorers are most often required to use Xactimate + Xactanalysis. Others require Symbility which is a different skillset than Xactimate utilizes. It can be tough to hire an estimator equally proficient in both Xactimate and Symbility. Further, some TPAs require investment in other software such as CoreLogic’s MICA and/or Dash systems. These additional costs must also be considered as they’ll affect your bottom line, especially if multiple user licenses are necessary.

Business Operation Requirements

The operational requirements vary by TPA however in my experience, most mandate a minimum number of years in operation. There are also requirements for certain amounts of insurance coverage usually with requirements of additional insureds to be named as well. Remaining in compliance can be a tedious task between staff licensing and certification renewals, background checks, OSHA respirator fit test requirements, etc. Often a TPA will require a subscription to a compliance manager such as Profile Gorilla. Again, more overhead. 

For some TPAs there may be a requirement that your restoration company provide both mitigation and reconstruction services. Those companies that solely provide mitigation services may still be accepted, however you may get few, if any, assignments when carriers require full service. Conversely, I’ve also seen the inability to solicit the reconstruction contract after mitigation is complete.

Last are facility requirements. Many TPAs do not permit a home-based business. They will require a facility of a certain square footage and signage. Some will also require inspections to be granted to ensure compliance with the SLAs.

OK, that’s what the TPA might expect of you. In the next segment, we’ll discuss the TPA relationship with respect to franchises.