Are Vendor Programs Dying?

May 30, 2011 Comments Off on Are Vendor Programs Dying?

Restoration contractor vendor programs have been around for years. They started out as informal relationship management processes and evolved into insurers’ weapon of choice in the fight against rising costs and falling service standards. However, we now seem to be in a period of reflection as insurers make up their minds about these programs. It has become apparent that professionally run vendor programs are difficult to sustain. That’s because they need constant attention – which means they compete with other programs for limited resources. Another issue is the difficulty in measuring the benefits these programs are supposed to deliver – an extremely complex undertaking that has surprised every insurer.

Make no mistake: these programs are a definite improvement over the freewheeling relationship-based systems they replaced. However, although they always start with best intentions, they sometimes deteriorate into a miscellany of muddled initiatives. Goalposts move with bewildering frequency; frustration and disappointment pile up in a familiar pattern. Contractors moan, “Here we go again!”, adjusters throw up their hands and grumble about confusing instructions, and the ‘head office’ boffins declare everyone else is stupid or corrupt  or both. Why does this happen again and again? There are four principal reasons:

Communication

The single biggest cause of failure in vendor programs is ineffective communication. It’s the first thing to break down and the last thing that’s properly planned. Vendor programs are created with meticulous attention paid to the exact wording of RFP’s, the precise meaning of contractual terms, the accurate definition of key performance indicators, and the strict definition of service standards. Yet when it comes to informing, training, and notifying key stakeholders, everyone assumes telepathy will kick in and complete understanding will spontaneously occur. Effective communication is difficult stuff. To work it right, one has to put themselves in the place of the other party and this doesn’t happen when neither party understands the other in the first place.

Training

Close on the heels of poor communication as a cause of failure is inadequate training and development. Professionally run vendor programs are still new to insurers and contractors. It isn’t enough to pour everything into two documents – the ubiquitous ‘Contractors’ Manual’ and ‘Adjusters’ Manual’ – email these out to the appropriate parties  and expect common sense and harmony to prevail ever after. In all fairness, most insurers will get their training departments to participate in some internal training but this is always done as a one-off project and once the training sessions are done, they are never repeated. People forget stuff, new employees join the team, and practices change but the training department never returns and the vendor program starts to corrode. Blame it on tight budgets and scarce resource mixed with short-term thinking. It’s like applying a single coat of cheap paint on a wall and expecting it to last forever. It just doesn’t sense.

Data management

Next up on the list is data management. The industry is awash in oceans of data. Sadly, most of the data intended for property vendor programs are not very good. There are a couple for reasons for this:

First, most insurers have legacy data systems that provide useful high-level financial information – traditionally the closest insurers ever got to managing knowledge. This worked well in the past. However, effective vendor programs demand detail. They need transactional data broken down to the individual vendor level and they need a robust service-measurement process. Insurers have realised this and moves are underway to implement better systems but these take time to deploy and embed.

Secondly, there just has not been enough attention paid to inputting worthwhile information in the (mostly) very good estimating programs used by the industry. These programs run alongside existing legacy systems but do not interact with them in any way so there are absolutely no data validation opportunities between the two. It is virtually impossible to take a batch of information from one system and match it to a similar batch of information from the other. So, almost inexplicably, insurers have poured millions of dollars into license and user fees in return for head-scratching information. There’s every reason to believe that no insurer has ever made a sound decision as a result of analysing data from a commercially available estimating program. The industry is several years away from really understanding data and that’s assuming contractors and adjusters immediately start collaborating on the proper use of these expensive software programs.

Internal issues

Now for a somewhat arcane cause of failure: Most insurers run their vendor programs under a different management line from their operations department. In other words, the people who manage the RFPs and select vendors and populate scorecards and discuss improvements with contractors are in a different department from the adjusters and supervisors and claims managers who approve estimates and issue indemnity payments and settle vendor invoices. So what? Well, this is a huge issue. Here’s why:

(a)  Split Control: The vendor department has to prove that all the clever stuff they do with selecting the best vendors, creating price lists, and scoring vendor performance actually creates a few ongoing benefits such as lower claims averages and improved customer satisfaction indexes. The trouble with this is that actually doing the things to achieve these benefits sits squarely in the hands of adjusters – and they don’t report to the Vendor Department. They report to the Operations Department. Competing priorities kick in. The result is that all the metrics the vendor department comes up with rarely hit their mark because adjusters are too busy scrambling with file workloads, irritable claimants and lippy contractors. The vendor department wants everyone to focus on vendors. The operations department wants to streamline operations and extract more files from fewer adjusters. The last thing they want is more directives, more forms, more work. Somewhere in the turmoil the vendor department’s stuff gets shoved into the bottom of the pile and the program starts to slide sideways.

(b)  Competing Budgets: As anyone with corporate experience will tell you, departmental survival depends on budget allocation. The claims department gets a chunk of change and has to allocate funds to each department within it (operations, finance, training, vendor management, auditing, auto, accident benefits, property, and several other subsets exist within the overall claims umbrella). Matters usually work out reasonably well but funds slow down in lean times. That’s when blending departments starts to make sense. Since vendor departments are usually the last to be created, they’re often the first to be trimmed or even disbanded.

(c)  Old Hands vs. New Cowboys (or Cowgirls): It’s guaranteed that every contractor has heard a complaint or a snide remark or a derogatory comment from an old-school adjuster about the new ‘desk-jockey’ vendor-fella. Things like how the new rules make no sense, how the new hire doesn’t know a soffit from a Smurf, how life has been irreparably damaged. This is undoubtedly one of the most unprofessional things an experienced adjuster can do – but it happens.

So, is the demise of the vendor program imminent? Absolutely not. Even though most vendor programs have failed to live up to their lofty objectives, they have still produced results far superior to anything in the past. They have also attracted a new breed of professionals to insurance companies and these people continue to influence and lead change. Similarly, many forward-thinking restoration contractors have hired from the insurance industry and they will benefit from the new perspective and insider knowledge that these people bring. These changes will start to make an impact in the near future and vendor programs will develop into their next phase where realistic and sustainable benefits are achieved under the leadership of knowledgeable people.

Management structures will change, data acquisition will improve, dependency on off-the-shelf software will reduce, and training and development will advance. Vendor programs have been around for years and they’re finally about to develop. Are you?

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