Colorado Insurance Consumer Freedom of Choice
On September 13, 2007, Governor Bill Ritter signed HB 07-1104 into law. This law prevents insurance companies from controlling – directly or indirectly – which restoration company you use to restore your property after a fire.
Why was this law passed?
Competition is fundamental to the free market system. Unrestrained interaction of competitive forces will yield the lowest prices with the highest quality for everyone. The right of the individual to choose the restoration company that best serves their needs results in better quality and lower prices across the board.
Insurance companies are in business to make a profit. When you file a claim, insurance companies have a conflict of interest. They have a responsibility to you, the policyholder, but they also have a responsibility to the shareholders to minimize the payout on your claim so they can make more profit. This conflict too often resulted in insurance companies taking advantage of policyholders. Property owners were forced – sometimes unknowingly – into using specific contractors who used sub-standard materials or shoddy workmanship to minimize the pay out of your claim.
The insurance companies had the opportunity to resolve this on their own, but the financial motivation to maximize profit was so strong that they just couldn’t seem to help themselves. That is when the Colorado legislature finally decided to intervene. The legislature realized that, even if they want to do right by their policyholders, insurance companies can lose sight of that because of the pressure to perform financially for their shareholders.
“This law represents a first step, and ensures and preserves a consumer’s right to choose who will restore their home or business following a disaster,” said Don Manger, executive director of Restoration Industry Association. “…this bill will go miles in serving the public, and will reduce the inherent conflict-of-interest of insurers who attempt to limit spending on their own behalf, instead of representing the best interests of the policyholder.”
Useful Links
- Insurance Bill of Rights
- Home Insurers’ Secret Tactics Cheat Fire Victims, Hike Profits
- Selecting a Contractor
- How the Restoration Process Works
- Fire Damage Recovery Resources
- Flood Resources
- Frequently Asked Questions
- Abbotts Blog
What are your rights?
2. You have the right to have your claim paid promptly – regardless of who you choose to restore your property. Insurers may not tell you – or threaten you – that the failure to use a specific business may result in non-payment or delayed payment of a claim. In fact, they are required to ensure that the estimate is adequate to restore your property to a pre-loss condition within a reasonable time. They must promptly pay the fair market price for the restoration of your property; in accordance with your policy provisions, of course. They are not allowed to force you to use a contractor where they set the price. Finally, you are entitled to see a copy of the estimate upon which your settlement is paid.
3. You have the right to know if your insurance company has a business arrangement with your restoration company. Your insurance adjuster must tell you about any ownership interests in or affiliated business arrangements with a restoration provider when they recommend a firm in which they have a financial interest.
The full bill can be downloaded here. If you feel that your rights have been violated, you can file a written complaint with the Colorado Insurance Commissioner.
Frequently Asked Questions
Why do insurance companies have “Preferred Vendors”?
By having preferred vendors, an insurance company exert influence over clients to use specific contractors with whom they have relationships. Often those relationships create a substantial conflict of interest for a homeowner. Because insurance companies are the ones that must pay a contractor for restoration services during a covered loss, they are incented to use the cheapest company to do the least amount of work. Preferred vendors can work too quickly and ignore essential tasks involved in the restoration processes in order to save money for the insurance company.
By limiting insurance payouts, insurance companies make substantially more revenue. Essentially the system is rigged against the homeowner. By using a preferred vendor, the insurance company holds all the cards. If the contractor does not want comply, the insurance company may coerce them into lowering prices arbitrarily or they may attempt to refuse payment to the contractor. Failure to comply with an insurance company’s demand to reduce the scope of work are typically met with threats while adjusters convince the policyholder that the independent restoration company is price gouging, despite following IICRC (Institute of Inspection Cleaning and Restoration Certification) standards. Most adjusters are not IICRC Certified and do not have the policyowners interests at heart. Always ask your adjusters about their relevant IICRC certifications which pertain to your project.
The collusion of insurance carriers and preferred vendors often leads to lack of competition resulting in lower quality services being administered to the homeowner. A preferred vendor does not have to perform quality work. When reaching out to their insurance hotline, it’s not uncommon for policy owners to be manipulated into thinking preferred vendors are their only choice. This is illegal in the state of Colorado.
Note: In Colorado it is illegal to threaten a policy holder with nonpayment if they choose to pick their own contractor.
A pro-consumer environment (or “free market”) would require the elimination preferred vendors referrals, as preferential relationships negatively affect the consumer in a free market economy. That is why bill HB 07-1104 was introduced. Once the state of Colorado realized their
residents were going to continue being manipulated or financially bullied by insurance companies, they made the necessary changes to help prevent instances where insurance companies act in bad faith with their customers.
What is a scope of work?
A scope of work is created to return the house or structure to pre-loss conditions. After all, you pay your premiums monthly for these services. According to the law, a contractor cannot leave you in worse conditions than you started in. If a contractor leaves you in worse conditions than before, they are potentially liable for faulty repairs, damages or health issues caused by the work.
What does an Insurance Adjuster do?
It is common for insurance companies to use adjusters for the purpose of saving billions of dollars in payouts annually. An insurance adjuster in Colorado has zero educational requirements or certification requirements (almost every other state in the US requires education and certifications for adjusters)-this puts undertrained and unknowledgeable individuals in positions of considerable power. Despite not having training or education as an adjuster, these individuals can try to limit the scope of work for any project with zero scientific knowledge or construction knowledge. This puts Coloradans at a huge disadvantage when it comes to getting proper restoration services administered and paid for.
Not only that, but adjusters are financially incentivized to save their company money with bonuses related to cutting down claim payments. Insurance companies also hire third party adjusters-meaning these adjusters don’t even work for your insurance provider, and their role
is designed to limit payouts in any way possible, regardless of the ethics involved to do so.
It is important to remember that adjusters in Colorado do not have any certification requirements or educational requirements. An adjuster will typically “negotiate” the payout of a claim. As assertive as they may seem, it’s important to note that they lack the technical knowledge of
restoration. There is nothing preventing them from slashing your services to a bare minimum, despite their lack of science and evidence to make those decisions. Its arbitrary and frustrating-worse of it all is how inconsistently adjusters treat their customers.Since adjusters are heavily incentivized to save insurance companies money, this problem will persist. Some adjusters claim their companies pay (or don’t pay) for certain restoration tasks outright. Others even say their company has never paid for certain restoration tasks, which is extremely concerning when those tasks are required by the IICRC standard! These are all distractions from the core problem: which is that you need your home returned to pre-loss conditions and anything less is acting in bad faith.
Here are some common rebuttals used by adjusters, which you should be prepared to hear as a homeowner:
“Those services are not required”
➔ Restoration companies follow IICRC standards. Quality restoration companies use the standards fully to avoid creating health risks to clients. Performing the required scope for restoration work also helps prevent structural damage which may reduce the value of the home.
“I found a cheaper invoice for the same services with another qualified company”
➔ Adjusters sometimes use invoices from their “preferred partners” which are cut down to the minimum amount of work or less. Sometimes the invoices even represent inadequate restoration projects that were not fully completed. To save money on claims, they will say the services can be rendered for less cost by using invoices from large franchises with questionable relationships to the insurance companies.A common manipulation tactic insurance companies will use is to state that the “estimate is too high.” This comment should be met with caution because restoration companies use Xactimate software to create estimates. Every company has access to the same pricing via Xactimate, which means the only way a preferred vendor can “save you money” is by cutting corners throughout the process to make the invoice seem more appealing to the insurance company. If an insurance company fights back and claims a restoration company is overcharging, it’s important to remember that pricing is universal in restoration because we all use Xactimate software. Comments about overcharging by the insurance company should be met with caution, especially because cutting corners can lead to detrimental health effects or further damage to your property.
The reason the insurance’s process is so predictable is because it is an extremely profitable set of patterns and processes.
➔ For example, if an insurance company refuses to pay an Emergency Call Fee (commonly used afterhours or when disaster volume is high) to 1,000,000 million customers annually, they are effectively generating $200,000,000 in savings every year.➔ When they repeat this process with other commonly denied services, insurance companies are saving billions per year by avoiding paying for essential tasks at scale. Finding the cheapest invoice for comparison is irrelevant as jobs are on a case-by-case basis, and it does not provide the customer with an accurate assessment. Yet some insurance providers and adjusters will reach toward the bottom of the barrel to save money on their bottom line. Performing all required restoration services for customers as per IICRC standards is what objectively helps the customer.
“They do not need personal protective equipment”
➔ Another popular tactic used by insurance companies is to claim that personal protective equipment (PPE) was not required to be used by the restoration company. This is not just questionable and risk-inducing, it’s an attack on restoration companies who are obligated to protect their employees-this perspective also goes against OSHA’s core values to keep the US labor force in good health.
The restoration process will expose technicians and project managers to mold, biohazards, and carcinogens daily-sometimes asbestos is involved. There would be no point to manufacturing and sales of PPE in the United States if it wasn’t necessary to use when individuals are
exposed to water damage, fire and smoke damage, mold, biohazards, and more. There’s a great reason that PPE exists, and that is to protect the technicians that render restoration services. It also protects the client, which insurance companies will not mention. By wearing PPE, an exposed technician can safely roll up their protective gear and dispose of it without cross contaminating the environment. An unprotected technician contaminates unaffected areas whenever they don’t wear PPE while causing damage to their health. Cross contamination should be taken seriously when it comes to performing restoration services, especially mold remediation and fire damage cleanup. What is the point of performing these services if we are going to put our employees and clients at risk throughout the process by not wearing PPE?
How can I better understand the price of restoration restoration services?
Restoration companies use industry-wide estimating software called Xactimate. It’s difficult to overcharge when we all use a standardized program for estimating the cost of services required to complete a job. Our duty is to complete Xactimate projects with an accurate scope of what is required to return that structure to pre-loss conditions as per IICRC Standards.
Colorado Law: Changes Via House Bill
Due to inappropriate conduct among home insurance providers, Colorado implemented a law to prevent insurance companies from controlling which restoration companies you use-whether it be directly or indirectly. Not only has Colorado fought back against insurance providers on behalf of its residents, but there are still battles to this day.
When the Marshall Fire in December 2020 affected over 1200 homes (not counting the smoke odor and contamination in homes that survived those neighborhoods), the home insurance companies did not hesitate to slash restoration tasks that would be crucial to the safety of occupants in a home or structure. Insurance companies saved millions of dollars by cutting corners on services for those affected by the Marshall Fire.
Due to this disservice with “preferred vendors,” a town hall meeting was set to discuss the urgency of the Marshall Fire situation, and locals were furious that insurance companies were failing to return homes to pre-loss conditions. Some preferred vendors lied outright about completed line items, and its beneficial for the insurance companies to protect that behavior. Despite it being a state of emergency, it was clear that insurance companies were looking out for themselves and not their clients-who despite paying their premiums year after year, they did not experience a fair encounter with their insurance company once disaster struck.
