Business schools speak of the “Wal-Mart effect” to describe
second and third-order impacts when a corporate giant moves in. You have no
doubt witnessed this: A Wal-Mart type retailer opens and draws scores of
customers because of its vast selection and low prices. Mom and Pop stores do
their best to compete; some succeed and others disappear.
Wal-Mart has unmatched buying power, it can dictate to suppliers what price it
will pay for their products. As a major player in the market, the corporation
can have a dominant influence on wages and benefits for those who work in
retail. Giant corporations are experts
at efficiency and economy of scale. It’s the nature of business in our global
Restoration contractors often consider their businesses
local and relatively safe from such perils.
Yet the dynamics of our industry are changing just as they have for
Mom-and-Pop retailers and local manufacturing plants. Global competition that
could drastically alter the way you and I do business is entering our industry
through partnerships with major insurers.
One major player in this transformation is Crawford
Contractor Connection, a network of managed contractor repair services provided
to insurance companies and consumers. According to its website, the company
handles everything from claims to finished repairs. Crawford Contractor
Connection is owned by Crawford & Co., a global enterprise headquartered in
Atlanta and serving 70 countries with a mission to be recognized as the world’s
leading provider of custom claims and administrative solutions.
Three major insurers are reportedly joining forces with
Crawford through pilot programs and are considering replacing their own
preferred contractor programs with the burgeoning contractor network. According
to Crawford’s website, the company has handled more than 10,000 claims from
Hurricane Irene – a telling statistic describing the company’s reach and
ability to respond.
It may be that the rise of this contractor networking giant
is just a continuation of what has already transpired in the insurance
industry. Adjusters employed by the
insurers who used to visit sites to estimate claims have been replaced for the
most part by desk adjusters on small losses and third party adjusters for
larger ones. By using a corporation to handle the adjustments and repairs, the
insurer will further distance itself from policyholders when a loss occurs.
With pressure on all sides to control costs, how much of a voice will the
policyholder have if he or she is dissatisfied with the repairs and the person
who sold the policy is removed from the settlement process?
I believe we can take a lesson from what business owners in
retail and manufacturing have already learned. Consolidation will intensify
efforts to drive down costs, set prices, dominate markets with
nationally-produced advertising and eventually reduce the number of players in
It is easy to see why insurers, despite having invested
significant funds in their preferred contractor programs, would consider
abandoning them in favor of a network that would handle the challenges in
settling losses. However, selling a cheap garden tool or manufacturing a
synthetic cotton t-shirt is not the same as helping an owner cope with a
property loss or repairing that property to the owner’s satisfaction.
Restoration contractors and insurance agents are service providers. Economies
of scale and efficiency don’t always translate well in transactions that
require a human element.
The implications of this consolidation for the local
restoration contractor are huge. Agents and adjusters have traditionally been
the mainstays of our insurance restoration business. In my next column, I’ll
talk about steps the local contractor can take to prepare for this looming