The following is a short primer and history lesson for the insured property consumer on these two fool’s errands.

For those of us in the property insurance adjusting business, we see the storm clouds gathering given all the recent rhetoric about allowing a policyholder’s insurance company to repair their property following a covered loss.  Given our knowledge and experience, we know the likely outcome of this latest scheme to pump up underwriting profits, but my guess is not many laymen do.  Make no mistake about it, your policy premiums will not drop if these managed repair programs being touted as a savior for you and the insurance industry is approved by the Tallahassee regulators. The irony is that managed repair and its stepchild “option to repair” will most likely be bad for both the insured and the insurer. So given what may be the inevitable, let’s examine both of these repair schemes.

As age should defer to youth, let’s start with the “option to repair” scheme. As most industry folks know (or I hope they know) the OPTION TO REPAIR clause is found in most property insurance policies. Typically this policy provision is found in the Loss Settlement section of the policy. While the wording may vary from policy to policy given all the insurance companies in the market and the forms they have adopted, let’s examine the typical text for the option to repair clause. It usually starts out with something like this:  “At our option we may elect to repair your property, however we must give you written notice of our election to repair within 30 days after we receive your signed sworn proof of loss.”

So clearly an action is required either on your part (you send them a proof of loss, hopefully certified mail so you know exactly when they received the proof) or they send you the proof of loss and demand it be signed and returned to them. For the option to repair to be valid, the proof of loss and its timing are critical for the insurance company to prevail if they elect to repair the insured property.

Under the first example, if they don’t notify you of them exercising their right to repair within 30 days after they receive your signed sworn proof of loss, it’s game over for the insurance company.  Make no mistake about it, there is a lot of gamesmanship that goes on with proof of losses and often it is a very clear signal that an adversarial situation is or will be unfolding with your claim. By exercising the option to repair the insurer is removing any disagreement you may have with them on the scope and cost of your repairs. Think about this, you had a loss, you disagree with the scope and price of the loss and your insurance company says too bad, we will not negotiate with you or any representative you hire. The insurance company’s contractor will come in, pull permits, enter your property and begin some type of repairs. Again, this assumes they have complied with notifying you within 30 days of receiving your proof of loss.

So in conclusion on the option to repair provision, the 30-day clock can be very important.  Pay attention and generally if the window closes on the carrier and they lose this ability to intimidate you, it will likely be to your benefit in negotiating a favorable settlement rather than them holding it over your head with a threat.

Now, let’s look at Managed Repair, the newbie being rolled out by several insurance carriers. I am sure a lot more will follow if the regulators approve this managed repair scheme.  Managed repair is a distinction without a difference, as both option to repair and managed repair propose to take the right to repair your property away from you. But under managed repair there is no safety net like a requirement to notify you within 30 days of the receipt of your proof of loss. Under this plan, they will send out their workers and without your input start ripping out and nailing, painting and whatever else they want to do to “fix” your property.  As it stands now, some companies are still working on their rollout of this program. Others have their managed repair schemes in place and it is a condition of them issuing you a policy that you agree to let them make your repairs.

For policyholders who have already purchased a managed repair plan, you should take a close look at the exclusions and limitations they have added. As an example, if you have a water loss, you may only get $10,000 for the cost of that repair. Think about what happens if you have a managed repair policy and the cost to fix the loss is in excess of the offered coverage; say the water damage is $25,000. Will your insurance company contractors do $10,000 worth of work and leave you with the balance? Not satisfied with the contractor they sent out? Too bad, you will have to get someone else to finish the job on your nickel. And then there is that little pesky detail of the local building department. What happens if the work performed does not meet the current building code?  Who will pay for work the building officials demand to be completed when your insurance company says no? 

And remember, when the next big storm hits, who is going to manage your repairs?

Finally let’s look at some safeguards you may have under an option to repair or managed repair that may help you when the insurance company comes out with their Bubba contractor to “fix” your insured property.

First, demand to see the scope of work.  While you may lose the right to fight the insurance contractor doing the work, you certainly have the right to ask for a detailed scope of the work being authorized by your insurance company. If you or your representative disagrees with the insurer on the scope of work, there is a school of thought that says you can invoke the Appraisal Clause (resolution dispute process) as long as it has not been removed from your policy. The appraisal process has two appraisers (one appointed by you and one by the insurer) and an umpire determine the scope of the loss. The scope of the loss is critical as there is a rule of thumb that if you get the right scope determined, the price of the scope will likely be favorable to allow for the proper repairs. 

I hope this gives all readers a better perspective of this current issue and how it can significantly impact their claim outcome. Let us know what you thing! If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster insurance claim experts.