The Truth About “Preferred Vendors”

The Truth About “Preferred Vendors”

Many homeowners who have suffered a property loss have heard of the concept of preferred
vendors. What this concept essentially means is that the insurance company has a list of Preferred
Service Providers that you can choose from to get the work done needed to restore your home. You are
not required to choose a vendor from said list, but there are obvious reasons as to why the insurance
company would “prefer” you do so. We here at Built would like to shed some light on this concept and
discuss some pro’s and con’s.

Pros:

  • Insurance companies often ultimately save money to repair and replace property damage
    when using preferred vendors. This can provide an opportunity to pass any of these
    savings onto the insured.
  • Contractors on a Preferred Vendor List have a consistent stream of work available to
    them, as long as they remain on said list.

Cons:

  • The insurance company has more control over the scope of replacement. As a result,
    saving money is often in the companies best interest as well, which can lead to the scope
    of repair and replacement falling short of actual needs.
  • Contractors on the list are more likely to accept the scope of work negotiated by the
    Insurance Company because they want to do so in order to remain on the list and receive
    the work provided.
  • Contractors often find themselves having to negotiate with the insurance company on
    behalf of the policyholder. This can lead to many instances of the contractor trying to do
    the work of an adjuster and can muddy up the process.
  • Insurance companies working to save money on the scope of work leads to shrinking
    margins for contractors. This ultimately makes it very hard for contractors to make a
    profit while being on the preferred vendor list. Many go out of business or leave the list,
    which creates a type of revolving door of contractors working as a preferred vendor.
  • The reduced profit margins leaves contractors trying to find other means to increase
    profit while working as a preferred vendor. This may lead to them using less than
    adequate labor, material, and other factors.
  • Given the insurance companies influence over the scope and price of work needed, it is
    often hard for a contractor who is not on the preferred list to submit a competitive
    estimate for the work.

In summation, it mat be fairly obvious that the Preferred Vendor Programs are largely in place
to benefit the insurance company. This occurs by allowing them more control over the claim and
process as a whole. This “control” can lead to many issues and creates problems for the policyholder as
well as the contractor attempting to do the work. We hope this information helps if you are ever in a
situation where you are considering these types of things. As always, if you have any further questions
feel free to contact us here at Built Restoration any time.

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