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Insurance Property Claims - Builder Rate Cards

Updated: 21 hours ago

Written by Matthew Parker, MD, Procurato and SpendQube


Questions we often get asked by insurance companies across Europe are: what are the most effective ways of contracting with builders of Building Repair Networks (BRN’s) and what are the challenges for an insurance company to overcome with best practice/multiple approaches.


In this article, we'll delve into one specific area of these questions which is the use of rate cards. We will look at the different options of how to establish a rate card, their importance, the challenges of rate cards and how to effectively use them to your advantage when operating in the property claims supply chain.


How Rate Cards Are Developed and the Different Approaches

Developing a rate card involves careful consideration of multiple factors, including labour costs, material prices, overheads, profit margins, market conditions, adoption of the rate cards by the builders, how they will be maintained, and audit/analysis of the use of the rate cards.


The complexity of rate cards used across different insurance companies is wide ranging with each having their wn positives and negatives.


The table below summarises the most common types of rate cards used by insurance companies and their corresponding positives and negatives for an insurance company.

Type of rate card

Positives

Negatives

Time and materials

+      Easy to implement and update

+      Easily understood by builders

+      Ability to quickly compare hourly rates across different suppliers

-       Requires effective scoping and ongoing management as there is little incentive for the builder to manage costs

-       Harder to predict the cost of the job at the start or to use to settle cash claims

Activity code pricing designed by the insurance company

+      Accurately reflects the type of claims of the insurance company

+      In full control of it (e.g. pricing changes)

-       Need technical expertise to develop and maintain

-       Learning curve for builders/BRN’s to understand and effectively implement

Builders/BRN’s own activity code rate cards

+      Easy to implement

+      Increased buy in for the usage of the rates by builders

-       Hard to compare and audit activity codes between different builders

-       May not be suitable for the type of your claims 

Industry rates such as the National Schedule of Rates developed by NSR Management Ltd

+      Accurately maintained and updated with the latest pricing and building methods

+      Can focus on activity code usage rather than rate discussions

-       Less control in the pricing

-       May not be suitable for the type of your claims 

-       Not all builders/BRN’s will subscribe to it


The Benefits of Insurance Companies using Rate Cards
A mini shopping cart on an open laptop that displays rate cards

Ensuring Fair Pricing

Activity code rate cards help ensure that the prices quoted for construction and repair work are fair and in line with industry standards such as Consumer Duty in the UK. This is crucial when insurance companies or their partners such as loss adjusters assess claims and determine the payout amounts. Without standardisation, there could be significant discrepancies in pricing, leading to disputes and dissatisfaction among policyholders.


In the past in the UK, Procurato saw that most insurance companies had rate card adjustments for different scenarios such as cash settlement where the customer used a local contractor, DIY (Do It Yourself) rates and rates for using a national contractor which were usually the highest due to the perceived increased costs of a national contractor. Since Consumer Duty came into force in the UK we have seen both instances of insurance companies moving away from such adjustments as they feel this goes against the regulation as well as instances of insurance companies who continue to use adjustments, believing them to be fair.   


Streamlining the Claims Process

When an insurance claim is made due to property damage, the process of determining the cost of repairs needs to be efficient. Activity code rate cards provide a ready reference, speeding up the assessment and approval process. For example, if the insurance company is using cash settlement, they can use these rates to compare against customer quotes and/or provide the customer with clear guidance of how they calculated the cash settlement.


As companies progress with digital claims, activity code rate cards will become more important. Procurato is seeing some insurance companies beginning to use or think about using activity codes to automatically settle digital claims. Key data points are entered by the customer and calculated in the background automatically. Then, a customer has an option to select either a cash settlement option or request a builder, after which the insurer will select the optimal builder based on availability and cost. Due to the complexity of building work, this is still at the early stages in most insurance companies, but we expect to see the expansion of this type of settlement in the next few years.


Better Understanding of Inflation

In the past, when inflation was low, insurance companies depended on high-level governmental or industry inflation measures to monitor it. However, in recent years, insurance companies worldwide have witnessed volatility in both labor and material prices. Procurato expects this to continue with ongoing geopolitical risks. As material prices have been both increasing and decreasing quickly, being able to track what is happening in your books is important to help the Underwriting, Claims and Pricing teams to better price in for such changes.


If the activity code rate cards are very clear, it becomes easier for an insurance company to see trends from a material, labour or plant and machinery perspective. This can be further overlaid by the type of claim such as Escape of Water (EOW) to analyze if inflation is relative to the book of business the insurance company underwrites or in line with market inflation.


For this analysis to be effective,  the activity codes need to separate out labour from materials  along with effective management information that clearly breaks down the activity code rate card analysis.


Challenges of Using Rate Cards

Outlined below are common challenges Procurato sees with rate cards.


Rate card prices too low

Firstly, insurance companies find it hard to cash settle with the customer as the customer will not accept the settlement amount which, as a consequence, lead to more work going into the insurance supply chain or delays at claim registration stage. As a result, it causes the duration and frequency of customer calls to increase (increased workload managed by call centres)  and, ultimately, the expense of managing the claims to increase. The second issue which is related to rate cards being too low is regulatory issues such as Consumer Duty as it can be seen to not be giving a fair outcome to the customer. Thirdly, supply chain issues with the builders finding the insurance work unprofitable and either increasing the scope (i.e. using multiple codes that are not required) or deprioritising the work leading to poor customer satisfaction.


Too Many Rates

Some insurance companies try to think about all of the eventualities when deciding on the number of activity codes or when refreshing them try to expand the number of activity codes to remove a generic code being used. Our experience is that builders find it very complicated to work with, when there are too many codes and, as a consequence, find the work less attractive or stick with existing codes they know.


Too Few Rates

The converse to too many rates is that the builder cannot find an activity rate code that is suitable for the work and they move to the hourly rate or generic code. This then devalues all the benefits we have written about in the use of activity rate codes as well as making it hard for insurance companies to track performance of their building network.


Regional Differences

Construction costs can vary significantly from one region to another. Builders and insurers sometimes do not have rate cards that fully reflect this. This can lead to paying builders too much in certain areas and not enough in other areas.


Keeping Up with Industry Changes

The construction industry is continually evolving, with new materials, methods, and regulations emerging. We have found issues where an insurance company is using their own rate cards that have not kept up with changing standards causing conflicts between the builders and insurance companies.



How to Use Rate Cards for Accurate Insurance Quotes

Keep the rate card up-to-date

Regular reviewing the pricing for the rates in the rate card is key to ensuring you get the right outcome in terms of cost, customer satisfaction and cash settlement. In today’s market conditions, we would suggest reviewing rate cards at least every 6 months.

 

The Right number of codes

As stated earlier in the article, finding the sweet spot between too few and too many is key. We would recommend analysing current code usage to find the right number that works for your company and your builders or alternatively using an industry rate card that is better understood by your builders. Around 500 activity codes is a good starting position.  Alternatively, undertaking a pareto analysis of your existing code usage should provide a  reference point of the number of codes you require.


Adjusting for regional differences and construction

It's essential to have the most current and relevant rate card for the region and type of construction. While rate cards offer a standard guide, adjustments may be necessary to account for unique aspects of a project. Factors such as location, building codes, and the quality of materials can affect the final quote.


Training and Education

Builders and insurance professionals should be trained in understanding and applying codes effectively. We recommend that there is an agreed and documented process for how you use the rates when scoping the job. For example, when you can combine certain codes and when not to combine codes.This education can help prevent errors and improve the overall quality of insurance quotes and reduce leakage. There should be periodic reviews undertaken to ensure the scoping and rates are being correctly applied. We recommend a review at least once a year.

 

Controlling scope

Having the right activity code rate card alone does not always lead to the optimum cost outcome. If the scope of the job is not managed correctly by either the builder, BRN, loss adjuster or insurance company, the cost of the job can quickly escalate. It is important that the job is correctly scoped and any changes to the scope are also managed in accordance with the rate card. This is a big issue we often find as to why claims costs have increased beyond the industry norms. One way of sense checking this is to look at average building costs for a similar sample of rooms over time and see if the average prices are tracking in line with what you would expect. 

 


 The Role of Technology in Managing Rate Cards

Digital city

Software Solutions for Rate Management

The use of scoping technology when combined with activity codes has several advantages and disadvantages, as explained by the table below.


Pros

Cons

  • Can calculate the optimum cost of the job using activity rate cards

  • Ability to scope restoration and recovery jobs taking into account the optimum total cost of the claim

  • User friendly (e.g. tool able to calculate size of room etc)

  • In real time the builder/Assessor is able to build the estimate at the customer premises

  • Automatic validation of repair offer from the supplier

  • Ability to extract detailed management spend info

  • Provide detailed claims analytics to show areas for improvement/concerns at geographic, peril, supplier, claims handler and adjuster level

  • Ability to track and audit code usage and identify issues

  • Measure the room accurately

  • Early warning lead indicators of potential issues

  • Fees for the insurance company and builder for using the tool

  • Adoption of the technology by the builder and insurance company

  • Correct usage of the tool

  • Insurance companies not using the data and insight correctly

There are multiple suppliers who provide scoping software for insurance claims. Each technology provider offers different levels of functionality and how you integrate activity codes. For example some providers supply their own activity codes and pricing, while others allow you to use your own activity codes and pricing or a combination of the two. It is important when you are deciding upon implementing rate cards or making changes to them. You should factor in what technology you will use with them and if the rate card is the most appropriate for this.



Conclusion

Insurance builders rate cards are an indispensable tool in the construction and insurance industries. They provide a foundation for fair and standardized pricing, which is essential for creating accurate insurance quotes and avoiding leakage for insurance companies.  By understanding how to use rate cards effectively, keeping them updated, managing scopes and leveraging technology, builders and insurers can navigate the challenges of quoting and ensure a streamlined claims process.

 

As the industry continues to evolve, those who stay well-informed and adapt to changes in rate card management will be best positioned to serve their clients and grow their businesses.

 

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