Why Vendor Programs?

February 3, 2010 Comments Off on Why Vendor Programs?

I was recently asked one of those fundamental questions which initially lead you to doubt the sanity of the asker and then, upon reflection, make you think hard. Here it is (with profanity edited out): “Why are insurers interested in vendor programs?”

Given the RFP/RFI tsunamis of the past two years, it takes an effort to recall the days of the one-page application form  obtained from an adjuster, completed in ink, and mailed back to what had to be a paper shredder – never to be seen or discussed again.

Remember when “contracts” were one-page letters (actually typed on a letterhead and signed by one person who you knew on a first-name basis) and not the multi-signature-bearing shock-and-awe screeds of today that, if ever invoked, would drive you out of business as surely as a claimant will negotiate their deductible with you.

Those were times of trust and much mutual back scratching. The GC repaired what needed to be repaired, the adjuster adjusted things, and both took care of the policyholder. Somewhere along the way a cost was agreed – sometimes tweaked slightly to take into account a favour on a difficult claim in the past and everyone got a good night’s sleep.

But that was then. Before estimating software supposedly made pricing easier to track. Before the building boom, oil sands and the Winter Olympics made some skilled trades tougher to find, hire and retain than getting an IA to process your payment within 6 months. Before the dreaded PSPs.

Preferred Supplier Programs are here to stay. Blame the erosion of insurers’ investment income (and the subsequent need to trim costs of all sorts). Blame the IT firms that saw the opportunity to create estimating software that spew voluminous reports (that keep people employed to produce and analyse these). Blame the consumer for complaining about shoddy service and outrageous charges and skyrocketing premiums. Blame every level of government for ignoring the state of ancient sewer systems that now drown basements in unspeakable fluids as regularly as Big Ben chimes the hour. Blame past generations of consumers whose ozone-depleting lifestyle demands have triggered weather patterns that defy prediction. Blame the big consulting firms that recognised the massive flushing away of funds that used to pass for claims cost management (and went and published all sorts of reports on the erosion of shareholder value and similar ilk).

That’s why insurers are interested in vendor programs.

They’re also interested in these programs because they help create standards so that all policyholders can expect a reasonable level of service. Because it has become impossible not to notice that all the old mutual back scratching led to costs escalating far faster than can be logically explained. Because so many contractors don’t estimate a loss as much as they evaluate what they can charge. Because bigger insurers can hire more experienced people who know how supply chains in other industries operate. Because insurers wonder why they live off razor-thin margins but their supply chain grows as plump and complacent as a brood hen. Because no one has ever met a poor restoration contractor.

Insurers don’t really care about the contractors’ experience of worry, stress, late night calls, working weekends, 18-hour work days, difficult claimants, horse-trading on every job, and free extras offered up on every claim because they go through roughly the same wringer. And they do this for roughly 50% of the income per person.

And, when done right, there really are benefits and win: wins in these programs. Measurable service standards, known processes, agreed pricing protocols, negotiated profit margins driven by sustained business referrals, reliable payment schedules, shared problems, and the opportunity to improve continuously. And, of course, the one spin-off that makes it all worthwhile: a satisfied customer.

That’s why insurers are interested in vendor programs … and why so many contractors are, too.


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