This is the second in a two-part annual series by Phil Rosebrook Jr, CR. Part one, published in the March issue, reviews Phil’s predictions for 2020 and grades them. Now, in part two, Phil reveals his predictions for what’s on tap for the restoration industry in 2021.
Welcome to my mostly annual thoughts on the top trends that will impact your business in 2021. It is my hope we do not ever see a year like 2020 anytime soon, but as you take a look forward it is important to find the good, the growth, and the opportunities created over the past 12 months.
Last year should have led to greater leadership skills and a more nimble and flexible business. If you lost family or friends to the pandemic, then I pass on my sincerest condolences and hope we all realize how fragile and valuable our health and families are.
The challenges of 2020 should cause us to take a longer look at the sunset, spend more time with our family and enjoy the simple and major blessings in the everyday. Now that we are armed with the values taught to us through the disruption of 2020, let’s roll up our sleeves and get ready to embrace 2021!
2021 Trend Predictions
1. Insurance companies move toward underwriting profit.
This is a revenue and cost effort on their part. An underwriting profit means an insurance company makes a profit on the ratio of premiums-in to claims-out. This pressure will come from unknown risks – or ones that are difficult to quantify, combined with an equally unpredictable investing market. The good news is if the stock and bond market continues to be strong, it will offer a margin of security to the insurance industry.
Insurance revenue strategies:
- Increase in insurance for your business and personal policy driven by the realities of a hard insurance market and also the unknown risks following the pandemic and a big catastrophe year. Insurance companies are still trying to figure their loss exposure from the pandemic since many cases are working through the courts. Regional events including a record number of hurricanes, destructive wildfires, along with regional wind and rain events. If you have not already experienced sticker shock for your new policy then get ready, it is likely coming.
Insurance cost reduction strategies:
- Increase in deductibles will be commonly encountered. Expect to start seeing deductibles as a percent of the policy.
- I don’t think it is as common, but due to increasing prices of labor and materials, you may find many insureds that are underinsured or maybe even at risk of a co-insurance problem.
- When I worked as a consultant for restoration companies during the beginning of the mold remediation “boom” in the early years of 2000, there was a fear of turning in a claim because the insured might get cancelled or their premiums would substantially increase. I am not sure if this is across the board but in high-risk areas this may be common.
- Higher scrutiny of estimates, supplements, and pricing for restoration services. This is nothing new, but I expect a continued pressure on pricing especially in managed programs and through TPA’s. I also expect pressures on the areas of our business where there is greater room such as mitigation, drying, and contents processing. I don’t think this is a one-way street because I do see movement in price lists and greater compensation for skilled restoration labor rates. If the contractors in the US think that prices cannot go lower then you need to take a look at the pricing in Canada, Australia, UK and likely most other insurance markets across the globe.
- Higher deductibles and fear of raising insurance rates will increase the quantity of jobs that will not run through insurance. This trend will require several responses. The first is to make sure your web presence facilitates cash customers that are looking for information and resources to save costs. The second is to assure you have a solid cash and collections policy. This may include credit card processing, building relationships with financial companies that will assist with home equity loans or other financing options, and building a solid collection team and processes. Protect your lien rights and make sure your paperwork is complete and followed on every project.
- Develop, execute, and adjust your web presence on a routine basis. In some areas, deductibles are several thousand dollars. If you average claim is $3,000 then you may have to find those jobs outside your insurance sources. This strategy will also help when the clients are given a cash out settlement and be in need of your services.
- Continue to investigate resources that help the accuracy of your estimates.
- Look at AskAime to assure you are using all the Xactimate line items. Even great estimators are leaving items off their estimates.
- Look at Actionable Insights to get clarification on price list changes, code upgrades and clarity on pricelist items.
- Provide updates to Xactimate on non-program and retail jobs. Look at your retail price list and make sure that it accurately reflects your costs and learn to adjust the yield as needed to reflect your cost of producing work.
2. Labor shortages
This continues to make my top trends for at least the third year, but it is not as acute as last year. The covid shut down reduced much of the labor supply pressure. The stability of restoration as a essential service has increased the awareness of restoration as a service and also demonstrated that work in restoration is vital and will continue in uncertain times. With the overall lack of available workers, it is essential that your business has a plan to both find new staff and to retain your current workforce. The first area of pressure is in the skilled trades. Low interest rates and rising home prices has increased the demand for construction services. That makes locating subcontractors and in-house labor very difficult. The second area of pressure is for quality management staff. People with skillset to be marketers, estimators, department managers, and financial administrators are still difficult to locate and in some markets are expecting compensation in excess of their commensurate value in your business.
- When looking for new staff, you will have to find them where they are currently working. Your job will be to convince them that they have a better opportunity in your business and in our industry. I am always skeptical of people that are out of work right now but you may find people that are not working due to the reality of a post covid world.
- One of the primary responsibilities of an effective business owner is to be a talent-scout. Be on the lookout for great people and create a company that makes room for top performers.
- Create a company with a career path. It will be easier to develop ways to bring people up through your organization than it is to find new people that fit into your company culture.
- Focus on reducing turnover and invest in your existing staff.
- Utilize technology to improve efficiency. It will take years to come to fruition, but it is evident that technology will replace many jobs. It is important that you create a nimble company, that is able to exist in a changing environment. I predict that many jobs in administration and also estimating will cease to exist in the future. Keep an eye on this trend and create a nimble management structure that can react to this environment when it evolves.
- When looking for new subcontractors – make it a business activity. Make sure that you have someone – or ideally a group – looking for great subcontractors every day. Realize that they are not likely going to knock on your door looking for work.
- Create a successful compensation program that allows you to pay top dollar for great staff but first assures the company is making money first.
- Expand the industry – Find people looking for a new career path. Successful, growing companies are looking outside the industry to locate candidates with the character and work habits that will transition well into the industry.
- If you are hiring outside the industry then I recommend that you create a strong orientation, on-boarding and internal training program. This will allow you to “fast track” their skills in restoration.
3. M&A Consolidation
This past year had many significant acquisitions on a local, regional and national scale. I expect this trend to continue. I am expecting changes to the tax code that may impact some of the sales – but that is speculation at this point. The incoming administration has discussed changes to capital gains rates, top income rates and corporate taxes. This could change seller’s desire to sell for 3,4 or 5 times (or more) earnings if the top tax rates take a significant portion of the sale. That being said, restoration is a difficult business and the thought of receiving a significant paycheck in return for removal of hassle and risk will continue to drive this trend. There are many large companies looking to expand their national footprint, equity companies investigating the industry and I expect to see large vertical integration or interest from players outside of North America to look at the US restoration market. There is no doubt that the significant move by Blackstone (Servpro) and First Services (Paul Davis and Global Restoration) will lead to other large purchases by major corporations. I also expect that in the next several years you may see some of the larger companies merging or acquiring another major player.
- Realize that a potential acquisition could change your competitive market overnight. Build barriers to entry by creating an exceptional, growing company.
- When you create an exceptional company that is the target of buyers, it also creates a company that is easier and more fun to operate. Create a saleable company (but you don't’ have to sell.)
4. AGA Progress
Keep an eye on moves made by the Restoration Industry Association’s (RIA) Advocacy and Government Affair’s movement. In the past year they have created formal programs to address and change pricing, write position papers to address challenges with TPA’s and Third Party Consultants, hire an Advocate to speak for and represent the interests of the industry and much more. I expect more progress on key issues affect every restoration contractor.
- Join the movement and attended the Restoration Industry Association’s annual convention in June. If you have not financially supported the movement this year – then send a check to support the AGA. www.RestorationIndustry.org
5. Mainstream Technology
I think that this year will create a tipping point for technology that will change your business. Artificial Intelligence and Machine learning are moving very quickly and will be integrated into systems and technology that you are currently using. Some of this will be driven by the restoration industry and much will come out of Insure-tech software that is driving changed in the insurance world. This technology will affect everything from estimating, first notice of loss, loss prevention, documentation and images, reduction cycle time and more. The hardest part of this transition will be identifying the winners and losers in this space to you meet the insurance world ahead of the curve in their transformation.
- Become a student of the industry and the movements in insure-tech. I am not sure if they will be a long-term significant player but if you have not heard of Lemonade (the insurance company) then you are not studying the trends. This is an example and not a recommendation.
- Use digital process to increase accuracy and cut steps from your process (Docusketch, Matterport, Encircle and more)
- Learn how technology will improve service and add clarity to your process and procedures as well as improve your communication. (KnowHow, Encircle, DASH, Xcelarate, Job-Dox)
2020 taught us that we need to be prepared for the unexpected. I don’t expect social and political strife to disappear, but I suspect that this will subside at last for the short term. Protests, anarchy, destruction of personal property, civil disobedience and violence has been elevated to new levels, but a return to normal school, work and a slow-opening of society will diffuse some strife as well as a lower tensions between the media and governing officials and the coronavirus cases will diminish substantially due to vaccines and the move to herd immunity. Weather will continue to be in the headlines but my (non-scientific) prediction is that this will not be as large of an issue this year – especially because last year was so significant (wildfires and hurricanes). Although Wildfires will be here for the foreseeable future since nothing has been done to mitigate the causes. The lesson of 2020 is that change continues to accelerate. Given this uncertainty, your job is to mitigate risk in your business. Create a nimble structure, develop and execute a solid strategic plan, improve gross profit, reduce debt, upgrade your team (through training, hiring and getting rid of bad-fits), manage your overhead and create a deliberate company. Restoration is a great industry, and you need to take steps to develop and exceptional company.