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In today’s claims adjusting environment it is not uncommon for an insurance adjuster to request, and often times demand, that an insured obtain multiple estimates from contractors for their required restoration. While many of you may be saying, “makes sense to me”, I’m going to shine some light on how this practice translates in most situations to the underpaying of claims.
The practice of utilizing bids from contractors to underpay claims is actually quite effective, and majorly used by insurers in the claims game. It works because it plays upon engrained construction best practices at the consumer level, and leverages them to benefit the insurer. Let me explain.
If you were going to build a new house, you would likely interview several general contractors to evaluate the project. You would likely base your decision in selecting a contractor on multiple factors such as, reputation, experience, warranty, quality of work and of course the cost. This is a common practice in a retail construction environment, so why would it not be utilized in a restoration construction environment?
Most insurance policies obligate an insurer to indemnify the insured, which essentially means returning you to exactly your pre loss condition, no more, no less. This includes paying the “amount actually spent” for the restoration of the property, according to common policy language.
Most states have statutes or ordinances dictating that it is at the sole discretion of the insured to whom they select as their restoration contractor. It is the sole discretion of a contractor as to what they charge for any given project, and given policy language, it is the responsibility of the insurance company to pay that contractors invoice. The problem here is that prices for construction vary widely between retail and restoration construction, and more widely from contractor to contractor. This poses a problem when an insured’s chosen contractors price for a restoration project exceeds what an insurance company believes to be fair, as this dips into their profits as a result of increased payments.
Insurance companies now utilize standardized software’s, which are used to determine an approximate prevailing cost for a project based on the necessary scope of repairs. These software systems are theoretically a representation of market prices based on a given area, and the construction needs. Insurance company adjusters use these systems to develop their own estimate, giving them an approximate cost of repair for market prices in that area. Here in lies the initial point of this problem, in our experience 99.9% of insurance company adjuster know SQUAT about construction, and I do mean squat. Most adjusters receive training on what a restoration estimates in these software systems should encompass from their superior’s. But they don’t have the expertise to evaluate each project based on its specific needs.
Most insurance companies have implemented policy on what their adjusters can include in their estimates, often eliminating many specific items to save money. By manipulating their estimates they can save thousands of dollars per claim, do the math on hundreds of thousands of claims and you begin to understand the concept. Insurers use this narrow estimate made internally to measure and gauge future estimates for the project. Subsequently accusing any estimate that is more thorough than theirs, or higher in price, to be “outside market pricing”.
If these adjusters are not highly trained construction professionals, and their companies have trained them to limit to the scope of their estimates, then why are insured’s going to allow them to make critical determinations on costs of construction and the insured’s chosen contractors? Generally the answer is lack of knowledge on behalf of the policyholder. This is how this method takes advantage of policyholders.
Insurers will rely on the practice of obtaining estimates, to direct an insured to seek cheaper costs of construction. If an insured obtains 3 estimates, I would bet you 9 times out of 10 the insurance adjuster will pay of the lowest one. It is not uncommon for an insurance adjuster to either subtly or blatantly demand an insured do exactly this, despite prevailing laws and claims practice expectations. In my experience of adjusting or contracting several thousand claims I have seen it countless times. Whenever and insurance company feels the contractors price is high based on their manipulated and narrow estimate, developed by an untrained adjuster or preferred contractors they will do whatever they can to pay less. This can be demanding a policyholder use another contractor, obtain lower estimates or just refusing to pay the contractors price if the first two tactics don’t work. This is why obtaining estimates only benefits the insurance company.
So what is the best practice for policyholders in determining what contractor they will use for a restoration? Here is my list.
- Check with the top manufacturers and identify contractors in your area who have achieved the highest of construction credentials. These contractors have worked hard to obtain and maintain these high construction designations from the manufacturers and will usually signify a higher level of knowledge, capabilities, quality controls and warranty.
- Interview three to five of these contractors; ask them how many projects they have completed? What is there warranty period? Who will be in charge of supervising the project? What are their quality control practices? Do they have a long list of references?
- Research the contractors with the BBB. Call their references. Manufacturers reps can also be a source of reference as to the quality of a contractor.
- Ask these contractors to look at the project and provide their opinion on the extent of damages to the property.
- Determine the contractor YOU choose and enlist their services.
- Then once they have determined the cost of the project submit that to the insurance company, and stand by your choice of contractor, and their estimate.
- If you question it ask another third party contractor to opine, DO NOT rely on an insurance adjusters accusations or opinions of the costs, if the scope of necessary repairs is accurate. They are often times highly biased, conditioned and highly inexperienced in construction.
Never forget as a policyholder that YOU choose who completes the restoration of your valued asset. YOU pick the highest quality contractor that you are comfortable with. You are owed this; the insurer must indemnify you for the reasonable costs to repair your property. DO NOT EVER let an insurance company force you to choose lower quality construction, warranty or service in a pursuit to save them money.
As the policyholder you will be forced to choose if you would like your home or building repaired at the quality level it was built with, or to allow the insurer to dictate the quality of construction. This is not always the easiest choice or path in a claim, but this is the reality of the claims environment. The insurance company is entitled to seek as many estimates as they choose, but you choose and stick to your contractor and their price.
Seek out the opinions and support of experts in the field, it often times can be the difference in hundreds to thousands of percent increase in money you are owed in a claim.
If an insurance company tells you to seek multiple bids when you have chosen your contractor, remember this only helps them underpay your claim.