Introduction
Schedules of rates (SoRs) are dull and technical but they have their own part to play in customer service for insurers. The proliferation of SoRs in the property insurance industry is having a detrimental effect on insurers and their customers, and this article is intended to demonstrate why. After 25+ years in the property insurance claims industry we can see that too many schedules of rates:
The problem
As a supplier to the property insurance industry MA Group manages many different pricing schemes, performance management systems and claims processes for its insurance clients. We pride ourselves on our ability to offer a bespoke solution for each client using the excellent systems, staff and training that we have in place to ensure we can do this well.
But for suppliers and surveyors in general it’s even more challenging, especially when they are on the ground dealing with customers face to face, particularly because of one area that needs to be addressed by the industry: what is the right schedules of rates to use? How does the sector drive consistency whilst maintaining commercial and competitive advantage?
Our suppliers have on average 12 SoRs to deal with (that’s just for MA Group clients – there are many more out there in the industry!) Every time they have to survey a claim, they have to work out for which insurer they are surveying, then which schedules of rates they need to use and then sort through hundreds of line items to price for the insured works. One of our suppliers, Proserve Building Solutions Limited, says:
“The problem is the variety of SoR’s itself! They don’t all read the same – and line items don’t necessarily cover the same thing. Some are very basic with not all the line items you need and some read in a completely different way but basically cover the same job. This extends the time for the surveyor to upload the scopes as they have to spend time searching for items on the lesser used SoR’s.
Uplifts differ for each client and prices differ which means the money received for similar jobs can differ quite dramatically from client to client. This can be tricky for contractors as we are all aware profit margins for contractors are slight anyway.”
Independent surveying propositions are generally paid on a fixed price per survey, no matter how small or large, simple or complicated the survey. And they typically have around 20 minutes to do each one, with variations common place and the use of variable costs (Provisional Sums) excessive. No wonder Schedules of Rates are a SoRe point amongst our suppliers and surveyors in general! So it’s no wonder more than 20% of schedule line items never get used.
The basics of a good SoR
How does an insurer know if its schedules of rates is appropriate and working in its best interests, compared to other SoRs? There are some basic requirements all starting with the Royal Institute of Chartered Surveyors (RICS).
RICS promotes and enforces the highest professional qualifications and standards in the development and management of land, real estate, construction and infrastructure. Their expertise covers, amongst other things, property valuation and management and the costing and leadership of construction projects.
A good schedules of rates should list all the construction tasks including the labour time constant, material value, plant requirement, overhead and profit using plain english that anyone can understand rather than construction jargon. The schedules are constructed as a list of construction tasks at a line item level. The challenge is to ensure that the right number of line items is used to ensure adequate scoping and pricing without making the process too complicated.
So this all seems fairly obvious doesn’t it? So why does the longest SoR have 8,500 line items, whilst the shortest has 600? Surely less is more?
There are so many schedules of rates used in the property insurance sector that making a comparison of SoRs is very difficult. And the existence of so many SoRs, combined with the cost and time pressures that surveyors face, creates the perfect environment for excessive use of unscheduled amounts and therefore perceived inaccurate scoping.
Scoping challenges
An accurate scope of works is essential for an insurer so that they can make accurate reserves and reliably control their Core Operating Ratio. To provide an accurate scope of works we must ensure it is:
But how can a surveyor prepare consistent scopes when he has 12+ different SoRs to work with, thousands of line items and very little time to carry out the survey?
If a SoR focuses on where the majority of indemnity spend goes, is easy to follow and encourages the use of scheduled line items rather than provisional sums, then consistent and accurate scoping can take place. In our industry the vast majority of spend relates to decorating, plastering and carpentry so scheduled line items should focus on these areas.
There will always be a need to estimate and price using provisional sums in scoping, but the important thing is to keep them to a minimum. A good, fit for purpose SoR will achieve this, so a good way of testing the quality of a SoR is to check the volume and value of provisional sums compared to scheduled items. If the provisional sums exceed 20% of the frequency and value of works overall, then the SoR may not be fit for purpose.
That’s not to say that sound cost control measures can’t be applied to provisional sums. Provisional sums can be audited and evidenced to ensure best value and control. And if the underlying SoR is suitable for the work that is being carried out, auditing and evidencing provisional sums is not an onerous task.
With over 40,000 line items updated yearly, the NSR publish a range of national schedules in book, data and web format: Building Works, Mechanical Services, Electrical Services, Highways Maintenance, Housing Maintenance, Access Audit and Painting and Decorating. This truly independent set of rates can be used by anyone.
National Schedule of Rates Management – a solution
The National Schedule of Rates Management (NSR) is an independent organisation with over 30 years of experience in publishing schedules of rates for the building industry.
The NSR are the trusted name in Term Maintenance Contracting for buildings and highways and their schedules are the only national basis of pricing that is truly independent. Some of the key benefits include:
With over 40,000 line items updated yearly, the NSR publish a range of national schedules in book, data and web format: Building Works, Mechanical Services, Electrical Services, Highways Maintenance, Housing Maintenance, Access Audit and Painting and Decorating. This truly independent set of rates can be used by anyone.
One SoR for all
So why doesn’t the property insurance industry use one consistent set of schedules of rates, like other industries involved in construction (such as Local Authorities)? There is no competitive advantage to be gained for an insurer by designing and using a SoR from scratch when there are already suitable, well-researched SoRs that can be used.
Having such a wide variety of SoRs in the industry creates unnecessary bureaucracy and makes any RFP pricing process complicated and long. Instead of using a basket of goods approach to the RFP an insurer can simply use a well-known and tested standard industry SoR and concentrate on choosing suppliers who:
Using one SOR across the industry means that suppliers can be compared easily on cost, leakage and variations. Insurers can gain a true understanding of the cost of their claims and can have certainty over their reserving. And supply chain management for insurers would be so much simpler! As Proserve say:
“A universal description and one complete book of line items should be used by all – clients could just put their specific rates against each item”.
MA Group Price Book 2015
Recognising this, and the changes that have been taking place in the construction industry, MA Group has carried out a project to review its own SoR. With the help of NSR, we have analysed several years of our own data, identified where the majority of spend takes place and issued a new SoR called the MA Group 2015 Price Book. The aim of this project was to:
It is only 137 pages long and has only 600 line items yet the 2015 MA Group Price Book should ensure that the scheduled line items account for 80% of spend (volume and value). But it is more than just a SoR. It is a compilation of all of the documents and information required to ensure an insurance claim is scoped accurately, with no ambiguity, minimal use of provisional sums and with little variability on cost.
The sections contained within the book are:
The 2015 Price Book provides clarity to all parties in understanding what is and isn’t included within the schedule of rates. It also provides best practice on how to scope insurance claims and what information is required to validate an insurance claim.
One of our suppliers has this to say about insurance SoRs in general:
“If I had to point out one area of concern on the whole schedule of rates across the industry, it would be the rates given for trades are often undervalued”.
Our new Price Book should alleviate these problems.
Sign up up to the MA Group Price Book 2015
Two of our clients are using our new rates already. If all of our clients were to switch to this new SoR we would see the following benefits for us all:
Other industries (e.g. local authorities) use one SoR making the procurement and management process so much simpler. Why doesn’t the property insurance industry do the same? We believe you should Keep It Simple here at MA Group. But the current plethora of SoRs is creating unnecessary complications and confusion, for an industry where 80% of the building work is really pretty straightforward – i.e. decorating, plastering and carpentry.
So why not join us in Keeping It Simple, let’s all use one SoR and make scoping, validations and the whole property insurance industry more efficient and more focussed on delivering a great service to customers.
The other challenge for the industry is consistent scoping which brings us on to Part 2 – Scope for improvement.
