When I first began in this industry, the common practice was for the Insurer to send an adjuster to the claim-site; the adjuster would perform a preliminary determination of damages, obtain experts for further assessments as necessary, generate an estimate for repairs, authorize contractors’ estimates, make decisions on coverage, and issue payments to Insureds. Over the years, adjusters have been replaced with desk adjusters (i.e., people who manage the claim from a distance), most of whom don’t directly work for the Insurer. These persons work for a company called a TPA. 

The TPA will establish a system whereby contractors must qualify to work for the TPA (usually involving the TPA’s terms of service and payment, communication, insurance, and pricing) and, upon receipt of a claim by the Insurer, contact those contractors in their network to perform the work as per their agreement. While this system has helped reduce some of the conflict of interest practices between insurance adjusters and contractors, they’ve inflated the cost of claims and, in many cases, compromised the quality of the work performed on claims. That said, not all TPA personnel do poor work. For every one TPA personnel that I’ve come into contact with that has performed poorly, there’s another who does a good job. The issue with the system is that (1) it fails to comply with industry based knowledge or federal, state, and local regulations, statutes, and ordinances, replacing them, instead, with the contract between the TPA and contractor’s corporate office, (2) the focus of the TPA’s organization is profit and loss for the Insurer without regard to advertised claims handling procedures, (3) the cost of the project is inflated by TPA fees, and (4) there are, often, delays in the start of the claim and the authorization of the contractor’s work because everything has to be assigned to and then filtered through the TPA. I’ll illuminate the first three of these: 

John Doe Restoration has written an estimate for mold remediation. Because OSHA requires workers utilize engineering controls (e.g., containment and air filtration devices (AFDs)) and wear Personal Protective Equipment (PPE), John Doe Restoration has written an estimate that includes those things. The TPA, however, informs John Doe Restoration that they don’t pay for those things; that the restoration company will either have to absorb the cost of those things or not erect the containment, install the AFDs, or wear the PPE. Of course, if John Doe Restoration agrees to perform the work as per the TPA’s instructions, they will not only be in jeopardy of harming their own employees, subcontractors, etc. but other building occupants as well. This increased risk is a form of inflated cost that may manifest in occupant illnesses, lawsuits, citations, and other unwanted conditions. 

Additionally, the TPA analysis of profit and loss is mathematically based on income verses claims’ cost. Very little in the form of inflation, upgraded regulations and standards, and other pertinent information is included in the on-going review of claims handling/processing organization. As a business owner, myself, I can tell you all variables have to be analyzed before organizing a business for success. Success isn’t just measured in how much money is brought in over and above the cost of doing business, it is measured in customer satisfaction and on-going relevance in the marketplace. The TPA economists don’t look at branding impact (e.g., Florida’s Citizens Insurance has one of the poorest customer service ratings of all insurance providers in the country) or relevancy. Thus, another issue that leads to (1) increased premiums, (2) increased policy exclusions, (3) costly requirements of homeowners and business owners to renovate their buildings to keep their property insurance, (4) and other unwanted outcomes.