Handle With Care
A cost analysis of current fabric restoration options for property claims.
One important aspect of property claims management is fabric restoration. Historically, when a property loss occurs that involves fire- or water-damaged fabrics, the carrier either writes off the insured’s contents, pays the insured to clean those contents, or asks the insured to take the items to a favorite retail dry cleaning establishment. In some cases, these options still are exercised, but today, most often a fabric restoration specialist is brought in to address this aspect of the claim.
There also is an emergence of general cleaning and mitigation companies that solicit clothing restoration on claims, indicating that they can clean these goods in-house at a reduced cost, rather than referring the work to a specialist. Is this new trend part of a winning strategy? Are fabric restoration specialists still needed, or can this aspect of the industry be absorbed by the restoration and mitigation companies that offer one-stop shopping? How do you make the best decision on how to handle the clothing?
Let’s answer those questions and detail the way to calculate the overall cost of handling clothing and fabric items while also providing some insights about the potential risks associated with each option.
Salvaging the Situation
The most straightforward way to calculate your true cost for fabric restoration is to add the vendor’s total cleaning invoice with the replacement cost of any articles that did not fully restore. The salvage rate is the only concrete indicator of the quality of cleaning that your insured receives, and replacement costs often are the largest and most significant expense associated with fabric contents in a claim. Surprisingly, replacement costs and salvage rates almost always are overlooked. How do you calculate salvage rates, and how do you know how much you are paying because of this salvage rate?
According to the NPD Group, consumers spend upwards of $180 billion per year on clothing, and an average household has $25,000 in textile contents. The average fabric restoration project involves cleaning an average of 600 textile articles in a 1,500-square-foot home with four residents. The following numbers are based on a medium soot/odor fire that has affected each room of the dwelling. The salvage rate is the number of items that were restored properly divided by the total number of items cleaned.
Using the $25,000 number, let’s divide by 600 to find the average replacement price per fabric article, which in this case equals to $41.67. Based on this number, the cost of replacement increases by $250.62 for every one percent decrease in salvage rate.
- A salvage rate of 95 percent represents a replacement payout on 30 articles that did not fully restore. Total replacement cost $41.67 x 30 = $1,250.10
- At an 80 percent salvage rate, 120 items will have to be replaced at $41.67/unit, which equals $5,000.40.
- At a 70 percent salvage rate, 180 units will have to be replaced at $41.67/unit, which equals $7,500.60.
- At a 60 percent salvage rate, 240 units will have to be replaced at $41.67/unit, which equals $10,000.80.
On an average fabric restoration claim, an insured who cleans fabric items himself will recognize a salvage rate of around 60 percent. This means that of the 600 articles cleaned, 360 units will be restored and 240 units likely will need to be replaced, with an estimated replacement cost of $10,000.80. Why is the salvage rate only 60 percent? Mainly because an individual’s access to the proper cleaning supplies is limited to what is available in the retail market. She will not have access to the best cleaning and stain removal techniques. If her access to equipment, supplies, and education is low, her salvage rate also will be low.
This solution is, however, cost effective when dealing with someone who is underinsured. Here, the insured can spend the available insurance dollars on the essentials, and, hopefully, their textile cleaning will be fairly successful. Replacement costs aren’t a factor since policy limits will be reached. Otherwise, this method can be expensive for the carrier because there is such a high replacement cost, along with the expense of reimbursing the insured for her time and supplies. It’s also worth noting that this option is very time-consuming for insureds because they are at a point in their lives when they are already emotionally overwhelmed.
The next option to consider is the one-stop-shop restoration companies that clean clothing in-house. It is very enticing for busy claims professionals to have the luxury of only having one vendor handle a claim from start to finish, so it’s understandable that there is an interest here.
The emergence of one-stop-shop companies that offer to clean the fabric goods can be attributed to the promises of considerable profits that will come if they purchase a certain washing machine that is being heavily marketed to restoration contractors. Companies are drawn to this machine because it appears to be a way to maximize per-claim profit and promises to simplify the cleaning process so significantly that anyone can do it, regardless of experience or education.
However, many find that after purchasing this equipment, there are significant limitations regarding the items that can be adequately cleaned—not to mention that there is so much more to fabric restoration than just washing the contents. After a generalized cleaning, spots have to be treated, odor removal treatments may be needed, certain garments will have to be reconditioned, and, most importantly, items have to be presentable to the customer, meaning that they have to be pressed or ironed, which is very time consuming and labor intensive. So, many end up buying the washing machine and, after a few claims when they realize their limitations, they revert back to the fabric restoration specialists.
That said, does this mean that this equipment is bad, or that all of these restoration companies are unethical because they are delivering a substandard service to their customers? Of course not. No one can blame a company for trying to diversify or improve its margins. But those increased margins should not come at the expense of quality. So when claims professionals explore this option, it would be wise to consider not only the cost of the invoice, but also focus very closely on the cost incurred for replacement of nonsalvage fabric items on these claims, as well as feedback on the customer’s level of satisfaction.
With this option, salvage rates will increase to approximately 70 percent. This is because the average restoration company will have only five claims per year that require fabric restoration. Naturally, it would be very difficult to gain enough experience to perfect one’s fabric cleaning methodology if there are only five cleaning opportunities per year, or one fabric restoration claim every other month. There just simply is not enough opportunity to perfect the process or enough volume to justify investment in dry cleaning, pressing equipment, or racking technology. This presents a risk that the client’s clothing articles may not be finished with quality equal to a retail dry cleaner or a fabric restoration vendor.
Dry Cleaning Route
The next option is utilizing a local retail dry cleaning establishment. These establishments probably will be able to salvage 70 to 80 percent of the articles, on average. However, these percentages may be lower if there is significant soot staining or smoke odor. Six hundred clothing units cleaned with a 75 percent salvage rate will yield 450 units that fully restore and 150 units that need to be replaced. Replacement cost comes to $6,265.50, and there will be additional costs associated with all items that the cleaner attempts to restore, regardless of success, as retail cleaners do not offer to rebate cleaning charges for items that do not fully restore.
This salvage rate is better than 60 percent, but still is less than ideal. To thoroughly restore fabric items, specialized equipment, such as dry cleaning units with upgraded filtration and ozone injection systems, are needed, as well as specialized cleaning methods that are beyond the knowledge of most retail dry cleaning establishments. These are available, but they come at a cost. Unless a retail dry cleaner handles a lot of fabric restoration, the significant expense of this upgraded equipment and education is difficult to justify. Most dry cleaners also do not have the space or infrastructure for managing this type of volume, and their retail methods for inventory control become overwhelmed. They have systems set up to manage the inventory of hundreds of clients who bring in only four or five units at a time, compared to the 450 units per customer for an average fire damage claim. This means that there is an increased risk of lost items.
Does this mean that fabric restoration specialty vendors are the only choice or that they provide a perfect customer experience, a stellar salvage rate, and remain cost efficient? Absolutely not. There are many problems that come along with fabric restoration vendors, too. Often, claims professionals will feel that their direction was not heeded and the restoration vendor did more work than was necessary in order to inflate the bill. There also may be companies that do not fully resolve a customer’s complaints.
In these cases, exploring your options may be a necessity. Just know that the standard salvage rate of an experienced fabric restoration specialist is 95 percent. A replacement cost of $1,250 is much less expensive than a cost of over $6,500. Additionally, it’s wise to expect that issues regarding bill inflation and subpar issue management probably will occur with some of the one-stop shops. The best way to approach these issues is to require a vendor to provide a scope of work prior to starting the project and review the initial estimate prior to allowing work to proceed. With whomever you choose to work, it is essential to vet their issue management processes up front prior to authorizing their involvement in the claim.
Lastly, we all know that managing claims successfully requires navigating conversations and knowing what to say or do so that the problem doesn’t escalate. Companies that are less skilled and experienced in the fabric cleaning and inventory control process are, by extension, less skilled in issue resolution. So be sure to evaluate what will happen to an insured who has a bad experience and becomes very upset that her favorite clothing items are now faded, still smell like smoke, or are lost.
Who will pay to make it right for this customer? Who will spend 30 minutes at a time discussing this issue with the insured as she details what items are damaged and how disappointed she is? Who is going to help the customer make the list of items cleaned versus a list of items that did not restore successfully? How much time will it take this customer to get her list together of the items that need to be replaced? How long will that open file languish until it can be closed as a result of this issue? Make sure it’s someone you trust to take ownership and make your customer whole.
Every option has both strengths and weaknesses, and an appropriate choice on one claim may not be the proper solution for another. Knowing how to calculate your potential costs and being aware of the common risks and rewards of each option can assist you in making an educated decision on behalf of your insured.