Insurers Use Managed Repair Clauses to Reduce Claim Payouts
Are you struggling with a managed repair or right to repair clause in your insurance policy?
Insurers use managed repair clauses to control the repair process. They’re growing more common.
Managed repair clauses could allow an insurer to take advantage of you, reducing the cost of claims and paying you less than you deserve. Today, we’re explaining everything you need to know about managed repair clauses and how they work.
How Managed Repair Clauses Work
Managed repair clauses give the insurance company greater say into who repairs your home.
Under a traditional insurance system, your insurance company pays money after a loss based on the estimated cost of repairing the damage.
If a fire causes $20,000 of damage to your kitchen, for example, then your insurer gives you $20,000, minus your deductible, and you repair your kitchen with the contractor of your choice.
Managed repair clauses work differently. With a managed repair clause, the insurance company has a “right to repair” the property and decide who performs repairs – and how those repairs are performed.
Why Managed Repair Clauses Are Bad for Homeowners
Managed repair clauses are not good for homeowners.
They take power away from homeowners during the repair process, putting more power in the hands of insurance companies who may only care about their bottom line.
Instead of making your own decisions about the repairs, you lose that power to the insurance company.
The insurance company takes full responsibility for the repair process, communicating directly with the contractor to complete repairs.
That may sound like a good thing, and many insurers claim it is a good thing. However, it adds significant risk to the home repair process, and it could lead – and has led – to many serious home repair issues.
Risks of Managed Repair Clauses
Some of the risks of managed repair clauses include:
- Substandard repairs
- Partial repairs or shortcuts (like resurfacing damaged materials instead of repairing or replacing damaged materials)
- Lack of control by the homeowner over how repairs and performed and by which contractor
- Lost time while the homeowner stays home to monitor repairs instead of enjoying quality repairs from a trusted contractor
- Unlawful repairs performed by unlicensed or inexperienced contractors (or contractors without permits)
- Lack of recourse for shoddy repairs or unsatisfactory repairs
- Long wait times for specific contractors, especially after a major disaster
Insurers Have Been Caught Exploiting Managed Repair Clauses for Profit
Insurers may claim managed repair clauses are good for homeowners, but they’ve been caught plenty of times exploiting these clauses for profit.
According to an ABC News report, insurers in Florida advertise managed repair clauses as a way to avoid fraud, yet many homeowners complain about problems with the managed repair process.
- One Florida homeowner watched his insurer’s recommended contractors repair his home, only to have the new flooring buckle within months of installation
- That same family found mold and structural problems in the area where repairs were performed; the insurer denies the issues are related to repairs, despite the issues only being found in the area of the home where the contractor performed repairs
- Other Florida homeowners have accused insurers and their contractor partners of short cutting repairs
- The problem has become so bad that one attorney is leading a lawsuit with ten families who blame managed repair clauses for shoddy repair work
In another famous case, a homeowner in Pensacola, Florida was unable to repair his home for seven months because of the insurer’s managed repair clause. That man’s insurer required him to use a specific contractor to repair his home, and that contractor was unavailable for seven months.
Managed Repair Clauses Could Help Avoid Fraud
Managed repair clauses aren’t always a bad thing. Some insurers use managed repair clauses to genuinely help homeowners avoid fraud.
After disaster strikes a region, contractors of all qualities may approach homeowners offering to perform repairs. Some contractors are unlicensed. Others are unqualified. Some offer to take over your claim. Some even offer to pay your deductible.
Many of these contractors are often not reputable, and they may not perform the necessary repairs on your home.
Managed repair clauses and right to repair clauses are designed to give the insurer greater control over which contractor repairs your home. In an ideal world, the insurer chooses a high-quality, trusted contractor with a proven track record of performing repairs. Read more about insurance company preferred contractors here.
In practice, unfortunately, the managed repair clause system has led to plenty of issues preventing homeowners from accessing the repairs they need.
Final Word on Managed Repair Clauses
A growing number of insurers, particularly insurers in Florida, use managed repair clauses to reduce payouts and control the repair process.
Remember: insurers are for-profit businesses dedicated to their bottom line. If they find a way to save money on insurance claims, they’ll likely take advantage.
Managed repair clauses may sound like a good idea. In practice, however, they’ve led to serious problems with repairs.
Check your insurance policy for a managed repair clause. Generally, it’s not a good idea to have a managed repair clause in your policy.