Cleaning Up a Dirty Secret

By Rachel Stewart | June 29, 2018 |

In the restoration industry, we are in the business of clean up. We get called when everything’s a mess – when things are covered in mud and sludge and water, when all that’s left is dust and ash and soot. We are needed after a disaster, in the middle of chaos, or whenever something has gone terribly wrong.

We are the cleanup crews. We make things right again.

But there is a grimy little secret in our industry and it’s time to shine some light on it and get it cleaned up. Some restoration contractors have been involved in excessive plumbing kickback scheme and it’s dirtying the water for the rest of us.

How this works is that when a plumber is called to fix an emergency plumbing situation, he or she then recommends a particular restoration contractor to do the cleanup and reconstruction. In exchange for this recommendation, the contractor pays the plumber a kickback. These referral kickbacks are not cheap; historically, these kickbacks were based on a flat fee ($500-$2,500 cash) but recently, things have become even more egregious with plumber demanding 10-30% of the overarching project amount. We are talking tens of thousands of dollars per referral.

When the kickback is this high, it’s nearly impossible for the restoration company to make any money on the job without inflating claim cost. Profit margins are inherently tight on these kickback jobs. To overcome this deficit, these nefarious restoration contractors then engage in unethical and dishonest business practices, such as padding the bill or doing extensive demolition work before an insurance adjuster has seen the property or approved any repairs.

An article in the Sun Sentinel in South Florida quoted Paul Handerhan, the Senior Vice President for the Florida Association for Insurance Reform:

“Plumbers, as the first respondents in water emergencies, are uniquely situated to steer contractors to homeowners. But referral fees of $1,000 to $2,000, while not illegal, often exceed the price of the emergency repair. If a plumber is getting a $2,000 referral fee, his new job is not being a plumber, His new job is to market himself to the [water] restoration guys,” Handerhan said. “Plus, the plumber is in a situation where he could be incentivized to create more damage than there already is.”

The kickbacks also drive up the cost of claims with assigned benefits, he said. “Clearly $1,000 to $2,000 has to be billed back into the services.”

These contractors are also known to get homeowners to sign binding contracts that give them sole ownership of any money paid out by the insurance company and also make the homeowner responsible for any bill not covered in the process, all before the insurance adjuster has even inspected the property. This can leave homeowners on the hook for exorbitant fees and unnecessary repairs, or it leaves the insurance company in the unenviable position of either having to pay bogus claims or disappoint, mistreat, and offend their customers. I know of homeowners that have been swindled out of tens of thousands of dollars through this scheme.

Homeowners and insurance companies aren’t the only ones hurt by these dishonest practices. When these stories come to light, everyone in the restoration industry suffers a hit to their trustworthiness, credibility, and integrity. Additionally, insurance premiums go up across the industry and reimbursement becomes even tighter as insurers worry about fraud and abuse. This ultimately harms everyone in the industry from being able to build and sustain their businesses.

So what can we do?

1. Be Honest – As simple and trite as it sounds, you really only have control over your own business practices. You can set your own standards, keep them high, and refuse to participate in kickbacks or the disreputable tactics used to pay for them. Be scrupulously honest and transparent in your work.

2. Support Reform – In several states there are current bills proposed to enact laws curbing this abuse, but many are hampered by a lack of support and competing interests. The bill in front of the Florida House and Senate right now, for example, is reported to have stalled for the fourth year in a row. Clearly, the industry needs some regulation in this area and reputable restoration contractors can add their leadership and support to the issue. I know over-regulation can be hard to deal with and is a legitimate concern in our industry, but making these kickbacks illegal is the kind of regulation that makes us better and allows us to provide the best possible outcomes for our customers.

3. Blow the Whistle – When you know something, say something. For too long, restoration contractors have looked the other way or swept this practice under the rug. Perhaps it didn’t feel like your business or your problem. But we all look bad when unfair an unethical business practices are tolerated. All of our margins are affected when insurers cut payouts because of fraud and abuse. Don’t do business with companies that engage in these tactics. Warn others of plumbers and restoration companies that work within this kickback model and share your concerns with community business leaders and organizations that regulate the fair business practices in your area.

We are in the business of restoration. We make things better. By holding firm to ethical industry standards and supporting noble business practice, we can restore our reputation as an industry and our good name with insurers and homeowners alike.