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Restoration Companies Lock In Record Profits As Severe Weather Causes Major Disasters

Oct 31

As water damage from hurricanes, storms, and floods continues to plague property owners throughout the United States, a conflict of interest is slowly being exposed between water restoration companies and insurance providers.

As water-damage claims have increased nearly 25% in six years, water damage restoration has become one of the largest revenue generators for property insurers. As water-damage claims continue to rise above $1 billion per year, it has been suggested that insurance carriers are absorbing much of the water damage claims by artificially increasing premiums on homeowners' policies. In turn, water-damage contractors are capitalizing on this opportunity through an industry practice called "price gouging," or inflating prices drastically in order to charge insurers more money for services rendered

According to the Federal Trade Commission (FTC), water-damage restoration companies are allowed to charge whatever they want when working with insurance providers, but price gouging is not permitted.

"You cannot impose unconscionable prices or rates for water damage repair services," FTC spokesman Frank Dorman said. "There's a number of factors you'd have to look at in order to determine if it were unconscionable."

For water-damage contractors, the process of price gouging entails collecting significantly more money than necessary for water damage restoration work. This practice could involve charging $150 per hour for labor instead of an average industry wage of $50-$80 (depending on region). Water-damage companies may also inflate the cost of supplies and equipment by marking up prices at least 200%.

"It's an unfortunate situation," water-damage contractor with Naples Service Pros,  David Pierce said. "We've seen it in the past, where contractors will jack up their prices when they know water damage is involved."

As water-damage claims continue to rise with no signs of slowing down, property insurers are beginning to raise premiums on homeowners' policies in order to keep water-damage restoration companies in check. However, this has done little to address the root cause of water damage incidents that plague homes throughout the United States.

According to property insurer State Farm, water damages account for more than one out of every five home insurance claims. The average amount paid out by water-related property claims is $7,300. These water-damage claims have caused premiums on homeowners' policies to increase by roughly 10% per year since water-related incidents began reaching record highs.

Despite water damage being one of the leading causes for property insurance claims, it appears as though water-related incidents won't slow down anytime soon. According to meteorologist John Revere, severe thunderstorms are expected to produce flooding throughout the Midwestern United States during the months of April and May.

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"These were intense storms that evolved rapidly," Revere said. "We're expecting this pattern to continue through summer."

As water damage restoration companies continue their battle with property insurers over water-related costs, home insurance premiums are likely to come under further scrutiny in an attempt to rein in water damage incidents.

"There is an opportunity for water-damage companies to work with insurance providers to reduce water-related claims," water-damage contractor Pierce said. "However, water restoration companies must understand that their business exists within the confines of a property insurance market."