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The price of a commodity, in this case, a repair or replacement to an insured loss is primarily and foremost a natural combination of a contractor's cost plus the profit he must have to justify his risk.  If he is too high, he doesn't get the job.  If he is too low, he can't complete the job.  Things that can not perpetuate themselves tend to stop.  No contractor can lose money and remain in business forever.

This concept is fundamental to a free market. 

Published estimate prices are "estimates".  Price leaders pay more attention to their own actual costs, their profits,  their success bid rate percentage, and their market share than they do to published pricing.  That is why they are leaders. 

Up and coming contractors chase the prices of the  leaders.  They must match the products of the leaders and exceed it in some way (price, quality, or unique service)  to carve their own niche in the market. 

Estimating price systems like Craftsman, Xactimate, and others seek to gather the data to determine where the market is taking prices. To do this, they must follow the prices as they are established.  Maybe they get skilled in anticipating the market, but by their nature they are always a step behind reality  They must catch up fast or they lose all useful credibility.

Just as a price leader will lose market share when he is wrong on prices....so will the publishers of prices.  Players in the market soon realize when a price is wrong!  Everything goes into the final price, labor supply, demand, materials, expenses...nothing is ignored by those that continue in the business.

Sure there are contractors that estimate from only the pricing guides.  Some apply experience factors and some just estimate by the guides alone.  That is not the optimum way to stay in business, but it works for the marginal producers.  Even they soon know when the guide they use is either too high or too low.  When that happens they either adjust or go out of business.

Estimating price lists that are too low may squeeze out the leaders and the middle teir...leaving the followers and the wannabe contractors to take jobs below market.  If these guys can do the work at these prices...there will be a downward pressure from the pricing databases to the market price...but if these prices are genuinely too low, the willing low bid contractor supply will dry up and the database will become meaningless.

Ultimately price databases do not have any more permanent effect on market prices than price controls by a government.  When these pricing databases are not adjusted to reality...they become meaningless. 

They reflect prices like the moon reflects light from the sun. 

The free market marches on.  The pricing databases can get in front, follow, or get out of the way, but the market finds its own level.

RandyC

Dave, I used the wrong word. As far as I know all pricing guides are valid based on their methodology and assumptions. What I should have said is that no created database that I know about can be assumed to provide the actual materials and labor costs for the claim at hand. As Randy points out well in his post database creation is a complex operation.

As an over simplified example to make my point say we research roofing prices in Podunk and fine there are only three roofing contractors working in the area. It just so happens each put on 1,000 squares of three tab shingles each year. They all bid offering the same services and one charges $165 a square, another one $175 and another if $195 per square. When I did the math the average price came out to $178.33 a square.

While $178.33 is a valid reference price it is not the “correct” price from any of the three contractors in Podunk.

The adjuster will be systematically overpaying 2/3’s of the roofing claims and underpaying 1/3 of roofing claims in Podunk on average if he or she insists (or required to do so) on using the canned prices out of a book or estimating software package.

There are other things of interest posted but the leaves got the best of me today but hey they have been put in their final resting place. : )

Randy et al:

Your post truly reflects the position of the contractor and the down ward spiral of our industry.

Having been involved for the past 5 decades in ground-up construction, reconstruction, remodeling, fire and water damage restoration, new construction and any other type one could conceive, it is abundantly apparent that the pricing data bases on the market could easily be referred to as “Estimating for Dummies”.

The contractor that survives from year to year, and is there to support our needs, takes into consideration, the true cost of being in business. Such as fixed salaries, rent, utilities, insurance, equipment costs and  amortization, repair and maintenance, vehicle costs, maintenance and cost of operation, licenses, inspections, legal representation, accounting costs, and a myriad of items not mentioned. This coupled with the cost of labor, materials, acquisition, clean up, guarantee’s, overhead and profit, connote the selling or agreed pricing.

Whilst the other contractors, whom we refer to as “jack-legs”, opportunists, or pick-up truck contractors, whom only consider the cost of labor and materials and anticipated per job profits.( Any wonder why they can do the job for less?) One only ever gets what they pay for.

The existing pricing data bases often do not consider the accurate and necessary costs to perform an operation, such as:

1)      Does it cost the same amount per square foot to install ½ inch drywall in 4 x 12 sheets in a two car garage as it does to do the same in a three story, no access Victorian?

2)      Does it cost the same to R&R a shingle roof, on a walk-on 4/12 pitch rancher as it does to do the same thing on a 3 story, cut up no access, Victorian?

3)      Does it cost the same amount to rewire a residence as it does a commercial building?

Is there a simple solution to this quandary? Of coarse there is. All the data base or soft wear uppliers have to do, is provide an explainable percentage (%) "difficulty factor" for every line item in the data base.  That way, whatever unique, or untoward condition that may be encountered can be addressed and accounted for. (Too simple, YUP)

Does it enter your mind that there may be a supplement, and there are many that are requested, it may or may not be honored by the carrier, but for sure you WILL NOT be paid for the additional items. Perhaps the secondary adjuster will be paid for the supplement, or even for the entire adjustment, with your hold back being used for it, and your net result is ZERO.

Will the existing pro forma change? Doubtful to me, as the carriers are pre-disposed to seek out and utilize the lowest pay-out data base they can, irrespective of the potential fallout. Almost every claim is not reopened, unless there is a glaring error.

If you are pleased to work in this manner and are in the profession to accommodate the carrier or IA firm, (Who incidentally looses as much as you do, by under estimating the claim), Peace be with you.

On the flip side, if you are concerned that the loss is the loss, remember the 3 “C’s”, and choose to do your assigned task properly, by investigating, pricing and arranging for an agreed price, with a qualified, insured and licensed contractor, or the insured, all of which will indemnify the insured, then you are right on the mark to being a real professional adjuster. If you do not feel comfortable with the methodology that an employer insists that you use or your actions, it may be time to move on.

The intent of the response is not to beleaguer the industry, the IA firms, Carriers, Soft wear manufactures or the data base suppliers. It is meant to offer some insight to where we are headed, DOWN, and in a hurry.

What with the outsourcing of the claims to foreign countries, the use of “Desk adjusters” some of who could not tell you which end of a hammer to hold, the hiring of untrained, unskilled and ill-knowledgeable “adjusters”, by IA Firms and Carriers is surely a design for the demise of our profession.

Dave, it was about 13 years ago before I really became aware of the adjusting industry due to getting to know the son of my next door neighbor. Having been active developing for the adjusting industry for over 10 years I agree with you in many respects with your view about the downward spiral. My struggle is to determine if this is bad or just the norm in all industries.

While I learned how to do mechanic work in the late fifties and sixties from working with my father today I see the shops that are staffed with “later” models of mechanics while they may know less in an intuitive sense then those in that industry in the pass however some are very good with the code scanning computers that read the info from the onboard computers. They may not be able to drive a car around the block and know what is wrong but they may be able to trouble shoot it quickly and precisely with the use of the computerized equipment.

The genie is not going back in the bottle. Even though a case can be made that there is a “dumbing” down of adjusters but this is not true in most all fields including the field of medicine. Many doctors of yesteryear read their patients but today MD’s read MRI’s and lab reports. In fact the doctor(s) that diagnose the patient today may be 2000 or 10,000 miles away and never meet patient.

Those of us born in 30’s, 40’s and 50’s sometimes have a hard time with the fact that tomorrow is going to be very different than today which was very different from yesterday. I work in a company where the average age is under 30 and was about to go crazy with the way they think and do things because clearly they were wrong because they did not do things the way I thought they should be done. A few years ago for some reason I stopped one day and observed them doing things their way. What I was surprised to learn was when left alone their approach often worked better than mine.

That was a turning point for me and enabled me start letting go of forcing my way but instead focusing on making sure they know and buy into the overall objectives and let them go with some oversight for a short while. Our children just turned nine a couple months ago and I find myself trying to correct them all of the time to only to learn the approach they had selected was just as valid as “my” approach. The fact is while today’s generation is naturally short on experience they are often superior in their ability to be successful in the changing world we live in today.

Since the persons selling the building material, building the buildings today are clueless in many ways as to what the “ole timers” knew why would we not expect the new generation of adjusters to be like wise?

While by the year 3000 AD some think the dependence on computers will totally destroy civilization we can bet for the next few hundred years they will continue to empower the youngest generation in the work force. Last week I picked up an Auto Xray 4000 code scanner along with the dedicated battery tester. Last weekend I worked with my son and he picked up on how to use the battery testing tool much faster than I did. You walk though the menus with up, down, right, and left arrows and then hit the enter key when you selected the test to run or change the value settings for the CA (cranking amps)and CCA (cold cranking amps) values printed on car batteries. Where he learn this? Playing games on DVD’s using the TV remote. It blew my mind how much the auto code scanner looked like a TV remote once I drew the parallel. He correctly decided the battery on the Blazer while four years old still was of acceptable values and that it should not be replaced before winter. I may still replace it because I do not trust technology the way he does. : )

Dave maybe we are washed up and washed out but just have not realized it yet and the young ones just look at us and smile when we express our views? : )

Dave, all that know you know you would in no way beleaguer any player in the industry. Had you not given us some critically important input back in January of 1999 PowerClaim may not have been around very long. While in my last post I was jesting somewhat about how we have gotten to the age where we fret about the future of things just as did the generations before us fretted about the generation following them.

A young adjuster stopped by and visited late this afternoon and we wound up eating supper at the Cracker Barrel in town. He had been working CAT claims up until this past April so adjusting was one of the main subjects of discussion.

As we have discussed on CADO for years there really are few “adjusters” that work CAT claims. In 2004 and 2005 many claims were “serviced” by those who were less of an adjuster than me. I remember maybe 5 or 6 years ago Jim Flynt and others estimating there were only about 300 experienced adjusters that worked running CAT claims.

What you, Ray Hall and others have discussed is perhaps the wave of the future. Assuming the major carriers have a total of 30,000 highly trained property adjusters even a 5% exodus rate due to retirement, quitting, etc would mean a lost of 1500 quality adjusters per year. The new ones coming on board do not have the same background as those who came on board 40 years ago.

Another thing I see is the number of carriers that are willing to pay $100K+ for someone with little or no adjuster training or experience is on the decline. Sending out men and women to talk to the homeowners, take a statement, photos and some measurements is not what many think of as “adjusting”. In a sense as many adjusting in the past see things a case can be made that the adjusting industry is not head DOWN but is gone.

If one can “assume” the banks of telephone/inside adjusters are meeting the needs of their employers and the homeowners then a case could be made that to send a highly trained adjuster to handle that same type of loss would be a sorry business practice especially if they are making the pay of the President of the USA.

Just as in the case of car repair the computer aided adjusting tools will do more and more of the men and women handling insurance claims. Today the carriers have the research to show three different highly trained and experience will come up with three different claim totals. That is grounds to show a lack of valid of the claim files in general by skilled adjusters.

When one listens to reports of people visiting MD’s and the varied and changing statements made to patients clearly indicate that three MD’s with the same test results/scope still can come up with three different diagnoses so this is not just an adjusting industry issue as I stated in my last post. By 2020 a large number of adjusters in the industry will be gone with a life time of experience. What does that mean in the light of this thread?