The invisible client

When flooding damaged 40,000 homes across the North and Midlands this summer, there was much talk of a boom for local builders carrying out repairs.

The reality is that, while local builders will get plenty of calls for estimates, much of the actual work will be commissioned through insurance companies. But even that isn’t the full story – in the world of financial services, the real client is a shadowy figure hidden behind a network of loss adjusters, underwriters and management companies.

“It’s a really difficult and complex area,” admits David Williams, claims director at AXA Insurance, which is responsible for £300m of construction work a year. “It depends on what we want people to do.” AXA’s staff manage only jobs worth under £2,000 or more than £100,000. For the stuff in the middle, it relies on loss adjusters or management companies.

For every insurance company, there seems to be a different way of bringing work to the marketplace. Even directly commissioned jobs can be obscured behind an anonymous-sounding joint venture.

Britain’s largest insurer is Norwich Union, which also underwrites the Endsleigh and Saga brands. It commissions £170m of repair work a year on average, although that has nearly doubled this year because of the flooding. In November 2006, it set up a joint venture with contractor Carillion, called Asprea, which now handles all claims from start to finish. So far, 180,000 claims have been sent to Asprea, most for jobs worth less than £10,000.

Three-quarters of the work is carried out by 10 directly appointed contractors around the country, a mix of large and small firms. The rest is subcontracted, though all firms used must be approved by Asprea first. It also appoints its own consultants.

Contractors on the framework are not guaranteed a volume of work, but if they impress they are rewarded with wider catchment areas.

Royal & Sun Alliance (R&SA) takes a more traditional route. It spent £120m on repairing flood damage in June and July. It works with two firms – contractor ROK and a company called Homeserve, which provides a repair service to several of the large insurers and to the public. Work is divided up by postcode and, because insurance claims are unpredictable, firms need to have the capacity to cope with sudden deluges.

Nigel Fleet, R&SA’s service delivery director, says it identified companies with the capacity and reputation it required and invited them to tender. R&SA isn’t planning to re-tender the work in the near future, but Fleet says suppliers should make themselves known to the procurement team to be in with a chance next time.

Other insurance firms, such as Zurich, rely on loss adjusters to commission all their repair work. These are independent firms

We look for geographical coverage, financial stability and delivery to service level agreements. We are obsessed with quality of delivery

David Williams, Axa

that investigate and settle claims, so you’ll need to approach them directly to win work. Big names include Cunningham Lindsey and GAB Robins.

Insurers might instead use a managed repairs service such as Homeserve, either directly like R&SA, or through loss adjusters. Homeserve, which manages 1.2 million claims a year, has a direct labour force and 200 vans, but also uses subcontractors.

Tracking down the real client is only the first hurdle. Whatever delivery model a firm uses, financial services is a fiercely competitive market and insurers rely heavily on their builders to differentiate them from rivals. Homeserve, for example, turns down three-quarters of the subcontractors that apply for work through their questionnaires.

Almost all insurers favour contractors that can work nationally. AXA’s Williams says: “The three things we look for are geographical coverage, financial stability and the ability to deliver to service level agreements. We are obsessed with the quality of delivery.”

Fleet at R&SA tells a similar story. “Both price and speed of delivery are important factors, but good customer service is our top priority. We pride ourselves on providing customers with a high-quality, reliable service, so it’s very important that every company we use operates in the same efficient way.”

Sue Moore, Rok’s strategic developments director, says it has key performance indicators, submits performance statistics every month and is subjected to performance reviews. “The contracts are very rigorously monitored. Claim handlers want a hassle-free experience with the supplier.”

Craig Brown, procurement manager at Lloyds TSB, says insurers also want to be able to trust contractors not to extend the scope of repairs and raise costs. “Scope control is paramount for any builder looking to enter this market. We’re looking for companies that are easy to work with, transparent and reliable.”

He likes contracts with fixed schedules of works so non-technical staff can easily price jobs. Lloyds TSB uses R&SA’s contractor agreements for smaller jobs, but for anything over £15,000, it has a long-standing relationship with a disaster management firm called Ramesys, so any firms interested in subcontracting need to apply there.

So there you go – clear as mud.