When Hurricane Katrina stormed ashore last year, ravaging the Gulf Coast, an estimated 275,000 homes were damaged or destroyed. Several months on from this disaster, the rebuilding continues with no end in sight.
Insurance industry groups now estimate property insured losses at between $40 billion and $60 billion, as a final multi-year tally. If that holds true, Katrina will go down as the most expensive U.S. natural disaster, by far, in terms of insurance losses.
If ever there was an opportune time to be in the insurance restoration business, this is it. And Robb King II, vice president of operations for Florida-based Paul Davis Restoration Inc., acknowledges as much, coming as Katrina did, on the heels of a record 2004 storm season in the state of Florida.
“If you look at something like Katrina and New Orleans, you are going to feel it. We are going to see changes in the numbers,” King says. “Florida last year — that also was pretty incredible. Hurricanes usually result in moderate damage in Florida every year. But when you have five go through and they all do significant damage — that’s a little different.”
According to King, with the exception of Katrina in ’05 and the five Florida storms in ’04, the insurance restoration industry has held remarkably steady in terms of residential and commercial activity over the years, despite the increase in property values. Insurers have controlled claim amounts, says King, by increasing deductibles and increasing out-of-pocket costs for insured when named storms are the cause.
Catastrophic losses, man-made or natural, have run at an extremely consistent clip over the past 20 years, he says. Residential losses average between $27 and $30 billion per year, while commercial losses run in a tight band between $14 and $17 billion per year. To his point, King explains that because Katrina was so large it won’t be felt as a single event, but rather as a slight increase over several years.
“We won’t feel the full impact of Katrina for years because it is just so devastating,” explains King. “It sounds totally bizarre. You are going to have your Cats [insurance industry appellation for catastrophes] and your mini-Cats throughout the year. In a way, it is just the normal flow of business that averages in.”
King’s business-as-usual approach in the face of unprecedented catastrophe echoes a distinguishing hallmark of most insurance restoration firms. Since 1966, when remodeler Paul Davis first began tailoring his local business around the specific needs of insurance carriers — in effect creating the insurance restoration market — restoration professionals have made it their business to exert control over their construction business to the extent that they can remain flexible and responsive at all times. Today, when Paul Davis Restoration Inc. screens potential franchise buyers, the company is primarily looking for management attributes along these lines.
“We run them through some screens,” says King. “We want them to get an experience of a couple ‘days in the life.’ We want them to see if this really is a business that they want to be in. It is clearly not for everybody. It is controlled chaos. It is crisis management. Everything is so time-critical. And best laid plans for the next day, and one good emergency fire or flood, can really mess up your schedule.”
The demanding nature of responding to catastrophes and the reality of a stable but slow growing insurance restoration market, have led Paul Davis Restoration Inc., now celebrating its 40th anniversary, to proceed along two key strategic lines going forward, says King. First, the company will solidify its base, bolstering the needs of the company’s 220 franchise owners. Second the company will continue its expansion into the “discretionary” remodeling business.
Solidifying the Base
After five years fine-tuning some best and better practices, and having had some success in catering to the needs of the insurance carriers to mitigate damage to property and repair and restore them, in 1971 Paul Davis began offering franchises in various parts of the country. It was a way to fill a need expressed by national insurance carriers, who sought contractors operating like Davis in other areas.
“It was wildly successful,” says King. “Because of the techniques and technology that came out, the insurance companies were able to settle the claims for less money. And the property owners had some great solutions that got them back in their homes sooner.”
The techniques and technology that spurred the growth were important. Paul Davis was the first company to use “unit-cost pricing” instead of time-and-materials. Until that time, insurance companies typically hired local contractors on time-and-materials. And, more often than not, carriers would simply settle their claims with the property owner and cut a check. The unit-cost pricing provided insurers a degree of certainty and control about their losses and allowed them to enter “direct repair” relationships with Davis and his franchisees.
Technology also played a key role, notes King. The company proudly claims to have, in 1982, computerized and automated many of its pricing and estimating functions, predating comparable systems within the insurance companies.
“Just the practices and methodology offered solutions to carriers they never had before,” explains King. “We were the first organization to introduce the concept of partnering with an insurance company, where you had a preferred vendor. Because, there again, you had a situation where our category of contractor did not even exist. So the concept of even using someone specialized was new. And that is what really got the whole organization moving.”
Franchisees that signed on with Davis also found a business relationship between the home office that was less autocratic and more democratic. From the beginning, changes in offerings or policies required passage through various franchisee committees at national and local levels. Today the company counts 218 franchisees with average revenues of between $1.7 million and $1.9 million. The democratic style of the organization, says King, also helped keep each individual organization in sync with current best practices so that national insurance carriers providing jobs in all parts of the country would see the same standard of service.
“Committees are formed internally with franchisees participating,” explains King. “They literally vote on the ways they would like to see the network as a whole operate. There are certain things you have to participate in when you sign a franchise agreement.”
In addition to committee participation, weeks of training at the local and national levels are heavily emphasized. The training is offered across all disciplines with the local office: finance, marketing and operations. These traditional core-building activities within the company will continue to be an important factor for the company as it goes forward, notes King.
“We are focused on making sure we have very healthy franchisees that will provide this service to our business partners year after year,” says King. “There are a lot of advantages to being in an organization. The downside of being in an organization is that all of our operations say Paul Davis Restoration over the door. If somebody screws it up, and it does not matter where they are, it has a negative impact on everybody. So we are not about huge, uncontrolled expansion. Just the fact that we have been in business for 40 years and that we have 220 units speaks to that.”
Steven Rigsby, owner of two Paul Davis Restoration franchises in the Cincinnati and northern Kentucky areas, joined the company in 1982. Last year his operations accounted for over $4 million in billings on approximately 500 jobs for an average job size of $8,500. Officially, his locations in West Chester, Ohio and Latonia, Ky. are called Paul Davis Restoration & Remodeling.
Three years ago, Rigsby decided to take advantage of a company initiative to add discretionary remodeling to his operation. He runs the remodeling operation as a separate division within his operations. Running different service offerings within his franchises was not new to him. The restoration businesses are already segmented into major offerings: Mitigation — work done during a crisis like removing flood water and boarding windows; Mold Remediation; Commercial; and Reconstruction — where properties are rebuilt in a “like and kind” manner. Since 2002, Remodeling has been added to the mix. According to Rigsby, remodeling activity has correlated with a 15 percent increase in his business.
“It has been a direct benefit to my personal franchise because we are becoming more publicly known,” says Rigsby, who sold commercial fire and security systems prior to joining Paul Davis. “Before, we were pretty much a b-to-b franchise. We dealt with insurance companies. But we are starting to see greater name recognition by the public because of the advertising and promotion about doing other work beyond fire and floods.”
For Rigsby and the entire Paul Davis Restoration (and Remodeling) organization, discretionary-remodeling spending offers the company a shot at business in a market that is growing faster than the insurance restoration market. It also gives the operations team a boost. As Rigsby puts it, “It gives us a chance to work on their dreams instead of just their nightmares.”
Making the transition to remodeling was not difficult, says Rigsby. Already able to handle the construction and design aspects, the company began to focus mostly on the marketing side. In that regard, they began with direct mail to past customers.
“We are focusing in on bathroom remodels, kitchen remodels and basement conversions,” says Rigsby. “We target people who do not want to leave a certain location and who want to bring their older home up to modern standards. So that is the reason we chose to focus on those areas.”
The transition to remodeling has been easy for several Paul Davis Restoration franchisees that joined Paul Davis with an existing base of remodeling business. Remodeler Greg Brumley joined Paul Davis Restoration with a $1 million base of business and now runs a $4 million operation in Contra Costa, Calif. Builder/Remodeler Keith Trembley also joined Paul Davis Restoration as a franchisee with a $1 million base of business in and around Bangor, Maine. Today his firm bills approximately $5 million in revenues, says Robb King.
If anything, says Rigsby, the insurance restoration experience is good experience for the remodeling side. The fast moving timing and the precision of estimates and scheduling can be important difference makers with their remodeling clients, he says.
“We understand the inconvenience of displacement or the nonusage of a bathroom or a kitchen,” says Rigsby. “So we want to make sure, because of our expertise and project management, that we can get a project going, get it completed. We understand time is of the utmost. We want to make sure we get the project done in the shortest amount of time, so the clients can utilize their home once again. That is what is important to us.”
Fast Facts: Paul Davis Restoration Inc.
- Founded by Paul Davis in Jacksonville, Fla. in 1966. Sold to FirstService Corp., Toronto in 1997
1 Independent Dr., Suite 2300
Jacksonville, Fla. 32202
- Web: www.pdrestoration.com
- Key management: Scott Baker, president and CEO; Robb King II, vice president of operations; Tim Robinson, VP of finance Tracy Bachtell, VP of business development; Ken Sussex, director of strategic marketing.
- Company tagline:
- 2005 Revenues: $364.6 million
- Franchises: 218
- Cost to open a franchise*:
Total investment: $114,900 to $162,000
Initial franchise fee: $52,000
Royalty fee: 3.5 percent
* Source: The Franchise Mall.com
Available at headquarters: 4 weeks
At franchise’s location: 2 weeks
Follow-up training at 6-month anniversary: 3 days
- Paul Davis Restoration Firsts
- Created the insurance restoration niche in 1966
- First to offer unit-cost pricing
- First to computerize front and back office
- First company to partner with insurance carriers in “direct repair” relationships locally and nationally
- Claims are called within 30 minutes of assignment to company
- Emergency service is provided within 2 hours
- National customer satisfaction measurement program
- First to analyze carpet and other samples with third-party firms to ensure the client gets “like kind and quality” replacements
- First to use a third party claims administrator
The Direct-Repair Relationship
Company founder Paul Davis pioneered the concept of partnering with insurance carriers and forging “direct repair” relationships. Robb King estimates that the company currently does business with 80 percent of all insurance carriers operating in the U.S.
QR: Can you describe the “direct-repair” relationship?
King: Insurance carriers need contractors who they can partner with so that when their insured customers have a sudden emergency, a contractor can be dispatched who is already familiar with the program and the procedures that need to be followed. They need someone that is skilled and has the equipment and the expertise. In this way, their customer is served promptly and expertly and everybody wins. Paul Davis Restoration has been developing insurance carrier partner relationships for many years. We follow a time tested five step process that includes a needs assessment, an operations and communication plan and always includes the important piece of account management and maintenance, all which work to serve the customer while managing costs for the insurance carrier. Service level agreements are made and continually reviewed to make sure the program not only works today and can be changes quickly as needs and expectations change. Paul Davis insurance carrier partners have learned to rely and trust us because we work diligently to delight their customers and make every effort to make their decision to partner with us a good one.
QR: Does PD allow its local franchisees to have their own direct-repair relationship with smaller, more regional insurance carriers?
King: Absolutely. We call them direct-repair, but some of these programs, locally, may not be that far off. They may have a relationship with a local adjuster who understands the quality of the work they do and the level of customer service they provide. Our local team meets the adjuster’s criteria. Our standards are pretty high. The adjusters know that if they are getting a Paul Davis Restoration office, they are working with a qualified contractor. We’ve got the insurance coverage on our team and on our work. We have a very high level of protection for the carrier and the property owner.