In our first installment of this two-part discussion, we noted, when talking to restoration contractors about TPA’s the most commonly expressed emotion is apprehension. Some of the expectations set by TPAs can sound overwhelming. Now we want to examine the TPA relationship with respect to franchises.


What is a TPA?

Jeff: Let’s start by recapping 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.


What can I expect from the TPA?

Jeff: To reduce apprehension, proper expectation alignment is critical to your success as a TPA vendor. As a restorer, here are some areas of focus to ensure compliance and success: 


Service Level Agreements (SLAs) are your roadmap to compliance and, assuming your work is excellent, overall success as a vendor. Review the SLAs carefully and ask yourself if you’re currently able to satisfy the requirements Alternatively, ask yourself what changes you’ll need to make internally to be compliant. When expectations are mismatched and the stretch is too great for your human and capital resources, significant challenges may occur.



One of the main appeals of joining a TPA is consistent workflow. When you’re a primary vendor in a given market, there can be a lot of assignments given and the TPA relationship can go quite well. I’ve also seen in saturated markets that there may not be enough work to go around. It’s important to have frank conversations with your TPA relationship manager to learn how much work is in your market and what volume you’ll realistically receive. Be sure your expectations match reality.



This industry is known for high employee turnover which can negatively affect operations. TPAs have little sympathy for companies experiencing personnel issues. Negative policy holder experiences, missed deadlines, and not following SLAs will quickly reduce your assignment volume while your overhead remains the same. Be sure your team is ready and able to handle the requirements and be sure your internal processes are documented, fine tuned, replicable, and easily cross-trained. If your on-call tech fails to make a first contact late at night, be sure there’s a backup. If the responding technician fails to “push a button” on time be sure there’s a reminder either by other personnel or leveraging technology to ensure this is not forgotten. Compliance metrics are everything to the TPA.



A potential benefit to joining a TPA is direct payment. Many TPAs will pay the restorer directly, however results will vary, especially when the mortgage company gets involved. For larger projects such as fires and reconstruction, a draw schedule may be implemented and it’s important to know how draws are scheduled, what qualifies for a draw, and how long it can take to receive the draw payment. As with both non-TPA and TPA work, access to capital is important as overextension and subsequent financial issues can happen if you are waiting on payments long after you’ve paid your team, subcontractors, and suppliers.


Insurance carrier interest

TPAs are beholden to the insurance carriers they contract with. There is competition amongst the TPA companies to attract and retain their carrier clients. Insurance carriers are very interested in smoothly running claims that minimize payouts. With this in mind, it is important to remember that TPAs work in the best interests of themselves and clients. Their fees are commonly a portion of the amount saved between what a normally priced project would be and the reduced fee, or a flat percentage of the referred job.


How will joining a TPA impact my ability to sell, manage, and invoice jobs? 

Sell Jobs

Jeff: Closing ratios on TPAs are likely higher than an organic referral as you’re an approved vendor and, to an insured, there is a sense of comfort that a pre-approved vendor has been referred. The responding technician will also be asked for fewer up-front estimates knowing that the referred company works directly with the TPA.

As mentioned before, a high performing TPA vendor can receive a lot of assignment volume.


What if an organic project is sold but is part of TPA? 

Ricelli: When you sign with a TPA, you are bound to their Standard Operating Procedures (SOPs) - even when the job comes to you through digital or relationship sources. Understanding the impact this can have on your profitability is important to decide if you will be mainly TPA driven or if you need to create a plan for slowly converting TPA work into relationship driven leads. 

I saw one of my clients go from over 70% TPA work during their first year to high 60% relationship-referring jobs during their seventh year by 1) documenting all the adjusters, agents, property managers and other contractors associated with a TPA generated job and 2) marketing to them personally, using their connections through the TPA as a vetting process for their quality of work - encouraging those professionals to refer directly. This is of course an over simplified sales and marketing strategy that took months but eventually led to direct work through relationships.

The other advantage of signing up with a TPA is direct assignments with a low cost of customer acquisition. Though there are known impacts to your profitability and Cost of Goods Sold (COGS), TPAs usually charge around 8% to produce the job. That’s right, job, not a lead. They come to you through the system as assignments and not an opportunity you need to sign.


How does joining a TPA impact my profitability?

Saving marketing fees

Ricelli: Cost of Customer Acquisition is indeed one of the advantages of joining a TPA. Considering relationship-referred work can cost up to 30% in the first year, the 5-8% the TPA takes for work that comes directly from the TPA can be quite appealing. (If you want to learn more about Cost of Customer Acquisition, reach out to Ricelli Mordecai for her lead calculator.)


Knowing your costs

Jeff: When joining a TPA you are agreeing to abide by their pricing and line-item usage guidelines. These requirements will reduce your revenue per job and the savvy restorer will need to manage their production and administration costs against their acquisition costs and profitability. Some restorers may find it acceptable to pay the fees for regular work and higher volume to keep their employees busy. Others may find the reduced profitability is unacceptable for their business model. Having regular financial reviews, at least quarterly, to measure metrics of TPA work versus organic leads will help you determine if continuing with a particular TPA is right for your organization.           


Franchises and the effect on TPAs

Jeff: The larger franchises act as a form of TPA when securing program work for their franchisees. They compete against each other in an effort to gain a larger percentage of the available claims assignments. For the independent restorer, it’s important to know that you may also be competing against the franchises for claims in a market. For example, let’s say there are 20 available losses in a market. 10 of those may go to the franchises and the remaining 10 may go to independent restoration companies on a TPA list. It’s also possible that there are multiple TPAs servicing one carrier. State Farm, for example, could assign losses to a franchise, TPA Company A, and TPA Company B. The franchise model is one of marketing, consistency and brand reputation. There is an appeal to the carriers to work with franchises in volume instead of with smaller more fragmented independent companies with TPA vendor relationships.


SLA’s (again)

Carriers and large franchises regularly meet to discuss and renegotiate their agreed upon SLAs. As a franchise owner you may be bound by the SLAs the franchisor and carrier agreed upon.



In addition to the negotiated SLAs, there may be preferred vendor discounts required. I have seen these exceed the discount required when contracting directly with a TPA. Further, since carriers are cost driven, the regular renegotiations may include deeper discounts as time goes on. When these are combined with reduced line-item usage, increased administration overhead, marketing and royalty fees, this franchise-provided program work can be lower margin than desired.


Competition amongst the large franchises/dots on maps

There is no guarantee that once you’re approved to work as a franchised vendor, you’ll remain one. Competition amongst the franchises is steep. Program franchise owners in a given market are scored against one another, and there is little room for error. Minor errors either on a job site, button pushing, estimate uploading, or invoicing can result in a sudden and substantial reduction in work. Even if you’re an A+ vendor with excellent metrics, work can suddenly dry up with little-to-no explanation provided.

The franchises like to flaunt the number of locations they have nationwide as dots-on-a-map. This equates to more coverage for the carriers with the hope that the more franchise offices available to receive claims, the more claims the franchise system will receive overall. Remember, franchise royalties are a percentage of each franchisee’s revenue, not profit.



As with every business decision, there are benefits and disadvantages surrounding joining a TPA. We encourage you to look closely at whether your business culture is capable of working under TPA guidelines. Some otherwise excellent employees hate working with TPAs and will rebel. If you determine that joining a TPA is right for you, then keep a close eye on your metrics such as Cost of Customer Acquisition, Cost of Goods Sold, compliance with your internal SOPs and TPA SLAs, and overall profitability. Be open minded, expect some headaches, and give it a try. It’s not permanent; you can always leave the TPA if it’s not for you.