June 19, 2013 by Greg Meckbach, Associate Editor
Property restoration contractors are facing increased costs but not necessarily a corresponding increase in revenues, and their industry is therefore “unsustainable,” suggests the president of the Restoration Contractors Organization of Canada (RCOC).
So the organization has contracted with Deloitte Canada, which launched a study on Tuesday to examine how insurance carriers are using Xactimate to calculate the costs of restoration projects.
Xactimate is a software product made by Orem, Utah-based Xactware Solutions Inc. designed to help adjusters and restoration contractors esimate the cost of property claims. Xactware says it researches structural repair and cleaning costs based on actual prices and completed bids in 470 different geographic regions.
RCOC did its own study on data generated by Xactimate and compared it to the costs RCOC found, the organization’s president, Kyle Urech, suggested during the RCOC’s first annual general meeting Tuesday in Niagara Falls, Ont.
RCOC took 18 “of the most common items you would have on an estimate” of a project to repair a damaged property, such as materials and labour. RCOC tracked those costs over three years in eight Canadian cities. Nearly all costs increased, Urech said, but suggested when tracking those costs in Xactimate, the costs were “relatively flat” over time.
“What’s happening is, your costs are going up, your revenue isn’t going up at the same rate, so the ship is sinking,” Urech said to RCOC members Tuesday. “The ship is sinking the slowest in St. John’s, Newfoundland, and it’s sinking the fastest in the (greater Toronto area), but universally, it’s sinking, so this is a recipe for an unsustainable business model.”
In an interview after the AGM, Urech was asked by Canadian Underwriter whether insurance carriers are not taking into account the increase in construction costs when they calculate property damage claims costs.
“The answer is we don’t know what they’re doing,” Urech replied, but added for restoration firms, their “trajectory” of revenue from claims is “flat,” despite inflation. “The insurance company says flat out ‘This is what we’ll pay you, period, full stop,’ and the contractors don’t feel like they have any say in that.”
Urech is a former adjuster. During the AGM, he suggested in RCOC’s own study, the increase over three years in the consumer price index (CPI) was actually lower than 17 of the 18 categories of costs for property restoration contractors. By contrast, he added, the change over three years in prices generated by Xactimate “are either flat or went up marginally or even went down.”
He suggested Deloitte Canada, on behalf of RCOC, will do its own study of restoration costs – intended to be more in-depth than RCOC’s own study – over the next eight to 10 weeks.
“They are going to create a fact base that RCOC members can use to influence the various stakeholders in the industry, because we suspect that if we go to the insurance companies with a well-articulated well-supported business case, that comes from an independent party like Deloitte, one that the insurance companies trust, (insurance firms will be) far more inclined to listen to us,” Urech said.
“We think there might be a disconnect from the ground level, where claims are handled, to the C-suite and management within these (insurance) companies.”
The Deloitte team studying those costs for RCOC will be led by Michael Parent, senior manager for consulting and strategy at Deloitte Canada, who also spoke Tuesday at RCOC’s AGM.
Parent said while RCOC tracked the change in cost over three years of 18 items, his team at Deloitte will examine “up to 75 different SKUs or product samples” used in estimating restoration project costs — including the time required to do the work and the labour costs — in four different regions in Canada.
“This is not going to be just a deep dive on Xactimate,” Parent said during the AGM. “We’re going to look at how users use the tool, we’re going to look at comparative practices between the U.S. and Canada, we’re going to look at different tools in the marketplace and we’re going to look at how Xactimate goes through the process of developing its pricing methodology. We’re also going to look at the cost of Xactimate … versus the benefit it provides its members.”
Once Deloitte is finished, it will present the results to the RCOC board, Urech said, adding the board “will see where we go from there.”
After the AGM, Urech told Canadian Underwriter the results of Deloitte Canada’s study will “point us in the right direction” in RCOC’s goal to address the issue of rising costs.
The answer, he added, “may involve insurance companies, it may not.”
“We may discover the Deloitte project may lead us down a different road altogether.”
RCOC was formed two years ago to represent restoration contractors in matters relating to health and safety, governmental & regulatory affairs and business practices. Its original members founding members were Winmar, Canadian Disaster Restoration Group (CDRG), DKI Canada (originally called Disaster Kleenup Canada Ltd.), BELFOR, FirstOnSite Restoration, Service Master of Canada, First General Services Ltd. and Paul Davis Systems.
As of June 17, RCOC had 35 members, including five who joined during the first day of its two-day exposition and AGM at the Sheraton on the Falls, a stone’s throw from the Canadian end of the Rainbow Bridge crossing the Niagara River to the U.S.
“We’re beginning to gain steam as an association,” he said. “We’re gaining critical mass at this point.”