What the Looming Consolidation Means for Restoration Contractors
November 22, 2011
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.
Because 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 economy.
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 the field.
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 change.