Rosebrook's Restoration Trends: Grading 2019 Predictions
Part one of two in an annual series on current industry trends.
Editor's Note: This is the first of a two-part series from Phil Rosebrook of Business Mentors. In part 1, Phil will look back at his predictions for 2019 and see how his predictions played out. In part 2, Phil offers his projections for the restoration industry in 2020. Enjoy!
Welcome to my mostly annual thoughts on the top trends that will impact your business in 2020. This is the start of a new decade that promises to be exciting and transformative. Perhaps I will attempt to discuss my thoughts on the decade ahead one of these days, but that is not the purpose of this article. I do think many of the issues that will impact your business from automation, blockchain, robots, artificial intelligence, machine learning, and other new technology is well underway at this point. However, I do not see most being marketable in the next year or so. Because technology is moving so fast right now, it is in your best interest to stay in touch with these new trends.
I find it remarkable that the insurance industry may start pushing some of this technology on our industry since insurance is notoriously slow to adopt new technology. I think that outside influences, including new competitors, are pushing conservative insurance companies to adopt new ideas. There is so much movement in this space that it will be difficult to anticipate the successful platforms. I suspect winning players may not be the most productive solutions (consider Betamax versus VHS as an example).
Prior to revealing my thoughts on 2020, which you can read here, I want to review my thoughts and provide a review on my 2019 thoughts. This is relevant for several reasons. The first is that it offers accountability on my perspective. The second reason is that it offers credibility on my newest predictions. I think that I was relatively accurate on my thoughts from last year although I think that I overlooked some big ideas.
Prediction 1: Labor Shortages and Wage Increases
My number one prediction for this year remains unchanged – Labor shortages. Labor shortages continue to be a big issue in most restoration companies today. If unemployment goes from 4 to 4.5% this will have little impact on your business. Looking through postings on various LinkedIn pages shows, literally hundreds of open positions at various restoration companies. One company that I am familiar with, stated they currently have 100’s of open positions in their company alone! I would expect some pressure to be relieved near the end of 2019 yet, I don’t think that will impact the pool of talent available in your company. This shortage covers all positions in restoration from frontline technicians to all management positions. In addition, it is very difficult to find skilled construction workers in most markets. The laws of economics tell me that this will lead to increased cost of labor. There are some companies that are severely limited in their growth because they cannot find needed people to fill the available positions in their company.
Grade for this prediction: A. The only issue that I think I may have missed is that I predicted that the labor availability would lighten up a bit by the end of last year. I have worked with many companies that have had to limit their growth because they could not complete any more work.
Prediction 2: Weather Events Continue
Catastrophe and large losses are one of the biggest challenges for major client groups – TPA, property managers, insurance companies. This will start to drive claims decisions. These groups will start to make vendor decisions based on their ability to respond to local and regional events more than everyday claims decisions. In most areas it is easy to solve claims needs in a normal environment – it is during peak periods where companies are feeling exposed. I expect weather events to continue to be a challenge in 2019 and the foreseeable future. This includes cold weather, spring rains, summer storms, tornado events, wildfires and hurricanes. I am not brave enough to predict hurricane activity this year, I will leave that up to the scientists at Colorado State University. I do expect wildfires to continue to be a challenge. The forests in the West have such a high fuel load and forest management practices have led to a dangerous environment, especially when combined with low rainfall and mountain snowpack. I find it interesting however that the everyday restoration market is slow in many areas of North America, but catastrophe events are driving record insured losses. I am seeing companies outside the CAT zone struggling to maintain revenue and those inside struggling to keep up with the onslaught of work.
Grade for this prediction: A. Last year was a big year for regional catastrophes even though there appeared to be a steady volume of everyday claims in most regions of the market. 2020 has started slow in several regions but it does appear to be a very typical claims environment for many other regions.
Prediction 3: Actionable Technology
Technology. This has been a slow-moving trend but it is starting to become a reality for today’s restoration and insurance companies. I have been watching the insurance claims industry as they assess new technology to streamline operations and provide better and more accurate service. This year many of these treads are becoming actionable. I know that franchise groups have specialists that are studying the technology options, so their companies are aware of the coming trends but are you? If you are not looking at technology for your business, then you will be left behind. Here are some things you should be aware of because they are becoming a reality in the claims world and the technology is affordable and available.
Grade for this prediction: A. If you are not researching how to utilize technology in your business then you are missing out of ways you can increase productivity and reduce costs in your business. One obvious example for the use of technology in restoration is the Matterport camera and also Docusketch. Both of these tools have helped restoration companies to massively expand the capacity and also efficiency of one of the highest paid positions in restoration. I am aware of many restoration companies that area using the cameras to move a substantial portion of their estimating to a virtual estimating desk. This substantially removes windshield time from a high paid position and provides the estimator the ability to double their production – or more! The AI programs that are being used by some restoration companies to provide more accurate and complete scopes. Take a look at www.askaime.com/about to add that last percent to your estimates.
Prediction 4: Cost Inflation
This is not a new trend however it is a continuation of issues that have been building over the past couple of years. Input costs are increasing due to labor issues throughout the supply chain as well as pricing for many construction products and services. Your pricing database is measuring this, however I have not seen a commensurate price list increase. Contractors are in some-ways responsible for this situation as well, as they are not updating retail pricing. Every uploaded estimate is sent through pricing feedback which affirms the prices used in that estimate. It is my expectation that the construction industry will see continued price escalation throughout the year. If we experience another wildfire or strong hurricane season, then I would expect that to impact prices as well. Construction continues to be strong and the available pool of skilled trades and available employees are not growing with the demand.
Grade for this prediction: A. This is becoming an acute situation in many markets. It is difficult for many companies to work for some insurance companies and to provide expected service levels. I see restoration companies limiting service and cutting back on some clients due to lack of pricing elasticity. This is diminishing some as prices have started to increase in some markets. Understanding your costs and managing budgets is essential in this market. I am also starting to see an escalating wage reality in some markets. This is a problem when margins are compressing, and companies are also trying to maintain balance with their existing staff. Retention will perhaps be much more important than locating new staff.
Prediction 5: Cyber Crime
This is not a big deal; until it is. The attacks are targeted and will not hit companies at once or the the industry as a whole. It is not an industry trend, but it is a reality that your business needs to have a plan to address. Being hit with a cyber-crime can destroy your business – or at least be an unnecessary distraction that will keep you from properly serving your clients and may have a substantial financial consequence.
Grade for this prediction: B. This has been a big issue for some companies and a non-issue for others. I have not spoke to individual companies that were impacted but the news is full of stories of cybercrime. I personally was offered multiple insurance programs to protect my privacy after my personal financial information was compromised.
Prediction: More Flexibility in Program Work
I am not sure if this is a prediction or just wishful thinking, but I expect to see some more flexibility for management of contractors in these programs. I am hearing developments right now that are very detrimental to contractors from previously strong insurance companies. In the current work environment – labor shortages, increasing costs, increasing customer expectations and a strong economy – I think that the contractors have some leverage. The TPA’s are not able to fill the demand for services in some key markets. Many of their best contractors are reducing zip code coverage. Right now, the claims examiners and adjusters are aggressively managing the claim and the contractor – I am hopeful that this will change. Perhaps a TPA will emerge that is friendlier to the contractors. This is not evident at the beginning of the year – but maybe it will start to change in Quarter 3 or 4 this year. Consider this a bonus prediction – because my confidence is low.
Grade for this prediction: B-. While some might offer an F for this prediction – I tried to lower expectations when this was written last year. The first thing that is in development is the emergence of Core. This has great potential to be a good – contractor-focused or contractor balanced program. If you have not heard about this, I recommend you at last investigate. It is a new program and I have not heard others that have any experience. I am not sure if they are actually offering work or just crating their network.
There were several big misses from my predictions last year:
1. The Advocacy and Government Affairs movement from the Restoration Industry Association.
I was aware of the underlying issues prior to the start of 2019 and had been given an advanced copy of the Our Greatest Need article from Mark Springer. This article discussed the challenges faced by the restoration industry. He made case that if something was not done, then we would not recognize our industry in 10 years. Mark wisely not only made a big claim, but he also added a detailed action plan that needed to be followed in order to salvage our industry as we know it today. This detailed plan included a strong call to action. While the AGA did not make a big impact in 2019, as a matter of fact there was little impact, the foundation of a major movement is being built. A group of intelligent, successful and influential leaders, are taking steps today that will make our industry, and your business better in the future. This was not a miss because of the impact, rather because of the momentum of this movement in 2019. Look out for this to be included in my 2020 predictions.
My 2018 predictions discussed consolidation that was taking place in restoration. I knew that this was a strong influence – but I also did not expect this to occur with the volume and size of companies. There were no fewer than 10 major (over $20 million) companies last year, that were purchased. This does not even consider the dozens of smaller transactions. I suspect this will continue over the next couple of years and will substantially impact the industry. Look for this trend to continue and be updated in my 2020 predictions.
The restoration industry is in a real time of change. There are many influences from in and outside of our industry, as well as items that are in our control, and others outside our control. It is more important than ever that you are in control of your business and your strategy. The decisions you make today will allow you to be a victim, or a great success. Now it is more important than ever to be a leader in your business and your industry.
Be sure to read part two of this yearly series, where Phil offers his predictions for 2020!