Third-Party Administrators (TPAs) play a significant role in the property claims process, often acting as intermediaries between insurance companies and contractors. While TPAs are designed to streamline repairs and ensure quality, there are several hidden challenges that being a TPA contractor and property owners might face when dealing with them. This post will explore some lesser-known issues associated with being a TPA contractor, and offer insights on how to navigate these complexities.
The Advantages of Working with TPAs
On the surface, TPAs offer several advantages for both insurance companies and property owners. For insurers, TPAs provide a network of pre-approved contractors, ensuring that repairs are handled promptly and consistently. This can save time and reduce administrative overhead for the insurer. This also provides a means to get a mitigation contractor out to the insured’s home quickly in an emergency. This is valuable when it comes to the prevention of secondary damage to the property.
For insureds, TPAs often promise benefits like a workmanship guarantee, which ensures that any necessary repairs are handled by a licensed contractor and come with a set warranty period. These guarantees can provide peace of mind to property owners who may not know where to start when choosing a contractor for their repairs. With a TPA, the insured feels confident that their repairs will meet industry standards, and they won’t have to worry about additional costs if the repairs need to be redone within the warranty period.
The Hidden Costs for Contractors
While the arrangement can seem beneficial on the surface, contractors working with TPAs often face several hidden costs. Being a TPA contractor usually means conforming to strict pricing guidelines (estimating guidelines) and standards set by the TPA and carrier. These may not always align with fair market rates nor industry standards set by the IICRC, RIA, NORMI, etc. This can limit a contractor’s ability to operate in line with such standards, which can further compromise the integrity of the work being performed. This is especially true when unexpected challenges arise that require additional time or resources.
Moreover, the administrative burden of adhering to TPA requirements can be substantial. Contractors may spend significant time and resources managing documentation, communicating with adjusters, and ensuring compliance with the TPA’s standards. This can detract from the contractor’s ability to focus on delivering quality service to the insured. Additionally, TPAs may impose penalties or withhold future work if contractors fail to meet their timelines or standards, which creates a constant pressure to prioritize TPA work over other clients.
The Impact on Insureds
For insureds, working with a TPA can sometimes limit their options and lead to frustrations. Since TPAs often have pre-approved contractor networks, property owners may have little choice in who performs the work on their home or business. This can be particularly challenging if the insured has a preferred contractor who is not part of the TPA network or if the pre-approved contractor is not a good fit for the specific needs of the repair. While this does not seem too problematic, this can become increasingly daunting for the insured as they work through communication and workmanship issues throughout the job process. Most often the TPA does not allow for an adequate repair – which leads to subpar work being performed during the repair process.
Furthermore, the contractor’s primary accountability may lie with the TPA rather than the insured. This potentially leads to conflicts of interest. In some cases, contractors might feel pressured to prioritize the TPA’s requirements over the insured’s preferences or unique needs. This can and does compromise the quality or suitability of the reconstruction process.
Reality for the TPA Contractor
When you decide to become a TPA contractor, you agree to follow the strict guidelines set by the TPA and the carrier. While these guidelines are meant to streamline the process, they often limit your ability to charge for necessary work and make professional judgments on-site. There are many instances where you need to charge for something essential to the reconstruction process, but the guidelines restrict your input on such matters.
For example, TPAs may dictate: “Remove supervisor hours, per program,” “Remove replacement of dishwasher connection, per program,” or “Change drywall painting charges to reflect specific coverage, per program.” These adjustments often ignore the nuances of each job, and the real costs involved.
This constant “per program” oversight can be frustrating, especially when these decisions compromise the quality or completeness of the work being performed. However, being a TPA contractor, you’ve signed an agreement to abide by these guidelines. While you can attempt to argue each line item, the TPA can simply respond with “per program” to maintain their established estimating guidelines.
Ultimately, being a TPA contractor often means compromising on quality to fit within rigid guidelines. For contractors who truly care about the integrity of their work, this model can be more of a hindrance than a help.
Alternatives to Relying on TPAs
Given the challenges associated with TPA work, many contractors find greater success by building their businesses independently. By focusing on organic growth, contractors can establish strong relationships directly with property owners, public adjusters, and insurance claims professionals – creating a more sustainable business model that isn’t dependent on TPA assignments.
Let’s be honest, most of us begin our business with the intention of doing something different than the competition. If that’s you, then being a TPA contractor is more than likely not something you want to be part of. Get out of your comfort zone and focus on building lasting relationships with some of the referral partners mentioned above. You should invest time in networking, attending industry events, and directly connecting with insurance professionals, and property managers who value your expertise and quality of service. By cultivating these relationships, you can create a strong foundation for your business that isn’t dependent on the constraints of a TPA, allowing you to operate with greater flexibility, set your own standards, and truly differentiate yourself from the competition.