Storm Damage and Insurance Claims - A Roofer's Perspective
Don’t Confuse Insurance Work with a Competitive Bid Scenario
As it relates to roofing, the best way to understand how the insurance process usually works is to compare it with what most people readily understand: the competitive bid scenario. Such a scenario would go like this:
1. Your roof is getting old and you need to pay to get a new one
2. Assuming you don’t already have a chosen roofing contractor, you call two or three of them and request that they put together a bid for you
3. You review the prices, compare the quality of the contractors, and then determine the value of going with one contractor over another
4. Finally you select your contractor, sign a contract with them, and the work gets done
But if I may overstate the obvious: insurance work is not a competitive bid scenario. With insurance work, steps 1 and 2 do not apply, and step 3 applies only partially. Here’s why, step-by-step:
If your roof has been storm-damaged by hail, for example, the insurance company - not you - is on the hook to pay for the roof as part of your policy coverage. Since the insurance company is paying for the roof, they play a significant role that would have otherwise been addressed by you and/or your roofing contractor exclusively.
Because of Step 1, you call your insurance company and they send out an adjuster who verifies the damage and the extent of it. It is true that many homeowners call their roofing contractor to first determine if there is enough storm damage to justify starting the claims process. But the point is this: it is the insurance company – through the adjuster – who spearheads the process of verifying the extent of the damage, what needs to be done to rectify it, and how much it is going to cost.
The adjuster visits the property and does an extensive evaluation. If storm damage is found – hail in this case – they will put together a comprehensive report that not only itemizes what needs to be done (scope of work), but also assigns the costs to do so. (As already alluded to, the contractor doesn’t have the authority to dictate to the insurance company – the one paying for the new roof – what has to be done and what it’s going to cost to do it. They do have a position at the table, but they’re not sitting in the captain’s seat. More on that later.)
Most insurance companies use two special programs to establish the cost. First, they typically use EagleView, which provides an aerial photograph of your roof that allows for an adjuster to measure up the roof with computer drafting tools. This allows them to determine the total square feet of the roof, the total lineal feet of hips, ridges, valleys, eaves, rakes, etc. Sometimes they will hand-measure the roof and then verify with EagleView. In even fewer cases they’ll only hand-measure.
Then they use another program (all of them I’ve dealt with anyway) called Xactimate. This software is designed so that when you plug in a specific item; i.e. “Laminated – comp. shingle rfg. – w/out felt,” and specify a quantity, it will then return the industry-standard cost to install that item – labor and materials. That report will also specify the total amount of the itemized costs (RCV = replacement cost value and ACV + actual cost valute). The difference
between the RCV and the ACV is the amount of depreciation the adjuster assigned to the item in question. (By the way, we use the exact same tools the insurance companies use in order to verify the adjuster’s report. This is done deliberately so that we can speak their language. It’s much easier that way.)
There are typically several places on the report that specify roof-related items; i.e., material taxes, code upgrades, base services charges, etc. That report will also contain other items that are covered by your homeowner’s policy that have also been damaged by the storm. For example, condenser fins (HVAC), fences, decks, windows, gutters, downspouts, etc. But on the first page of that report (or the page that lists your claim and policy numbers), there will be a designation for a “price list.” After that designation there will be the name of the price list, which will look something like “NCFC7X_AUG11.” In this example “NC” stands for North Carolina; “AUG11” for August 2011, which specifies the month and year that the price list went active. The “7X” is a designation that further separates this price list from other price lists that may have also been released in August. So as you might have already guessed, this would be a regional price list for North Carolina that includes current prices as of August of 2011.
The Xactimate program is an Internet-based program, so the most recent price list is automatically available for immediate download. The price list is based upon recently completed surveys, estimated transactions, roofing contractor association information, supply house pricing, and hands-on field research. So when the report says to ‘remove and reset’ a roof vent, the price provided to do so is based upon real-world conditions that are relevant to that particular region. The price combines labor and materials.
The reason I bring all of this to your attention is because this is precisely why a roofing contractor that understands the insurance process does not provide bids; the insurance company has already provided the bid – that’s what the adjuster’s report is. The costs are established by the insurance company, not by the contractor. In fact, the contractor is supposed to get a copy of the complete report because the contractor must (1) comply with the insurance company’s requirements and specifications and (2) needs to be able to verify that the insurance adjuster included everything. Adjusters are usually well trained, but they are not roofing contractors and therefore, it is not uncommon for the adjusters to miss items that must be included. A perfect example is that of drip edge. But many adjusters fail to include that in their reports. This is often exacerbated because when a storm event happens, the insurance company may send many adjusters into an area several states away. That means that an adjuster on your roof in North Carolina may be from Texas and will not know certain local code requirements. Due to heavy demand, some adjusters are “green” and just learning the process themselves. To protect your interests, it is imperative to have a roofing contractor you can trust to be your advocate in this process. The contractor should not be treated as a 3rd party, but as an integral part of the process.
Because of the way the prices are calculated, the report is usually very accurate. Generally the only time it isn’t accurate is when an adjuster forgets to include something; i.e. drip edge, or when he/she makes a math error. Both of these are easily correctable when you have your contractor involved and when they are able to verify the report’s accuracy. Other factors are involved in creating an accurate estimate, so don’t just assume the prices are ‘good enough.’ Have your contractor review the information for you – they are in the best position to verify the information. Of course, if you’re using a contractor that doesn’t understand this process you might find that at the end of the day, the items not included in the report are going to be paid out of your own pocket. So don’t get fooled by a contractor’s fancy talk or the “just-trust-me” mentality. Ask yourself, is this contractor educating me to help me make an informed decision? Do they understand my needs, my concerns? Are they in a position to service their work after it is done? Do you trust that they will act as your advocate or do they seem more intent on just “signing you up”? These and other questions need to be considered. Don’t be afraid to ask prospective contractors direct questions. But at the same time don’t forget that most quality contractors do know the process more than you do. What you may find evasive may simply be the contractor innocently taking for granted your knowledge on the subject. Since not all roofing contractors are created equal, you must be careful to choose one that can be trusted. As mentioned, your choice of roofing contractor is the most important decision you have to make in this process; make it wisely.
To help to further establish why getting bids is unnecessary, please consider the following. If a contractor could do the work for less than what the insurance adjuster’s estimate is for, the insurance company would simply pay less. That’s because the insurance company pays based on an invoice from the contractor. So, if your roof costs $10,000 to replace according to the insurance company, the contractor would submit an invoice to the insurance company for $10,000. Then the insurance company would pay you $10,000 minus what they’ve already paid you, minus your deductible. On the other hand, if a contractor could do the work for $9,000, then the insurance company is invoiced for $9,000. Even though the adjuster’s report might specify $10,000, the insurance company is only going to pay the invoiced amount of $9,000, minus what they’ve already paid, minus your deductible. There is no legal way to pocket the difference, even if it was possible to do the work for less. Therefore, your biggest decision is to choose a contractor that knows how the insurance process works and that you can trust to do the work according to the requirements of local codes and the insurance adjuster’s specifications.
There are a couple of points of clarification to the above. Let’s take these one at a time.
(1) A roofing company that uses their pick-up as their office and works for wages could do the work for less than a contractor like us, who has a real office/warehouse and has paid employees that do the work. But as already indicated, that difference simply means the insurance company will pay less. You don’t benefit at all. If you do find a contractor that would lie by submitting a larger invoice than what the actual costs were, they would be guilty of insurance fraud. Of course, a company willing to do that would also be willing to cut corners on the quality of your roof in order to extend their profits even more. Remember, the price list used by the insurance adjuster (COFC7X_AUG11, for example) is based on a local and legitimate contractor doing the work for the costs established by the industry in a particular region. For those reasons, there is no benefit or reason to get a specific bid from a contractor – you already have that from your insurance company. Furthermore, there is even less reason to get multiple bids – the insurance company sets accurate industry-standard prices and pays the RCV based on invoice only; a lower bid only means that the insurance company pays less. Again, either way, there is no benefit to you. In fact, any such arrangement would almost certainly be to your detriment.
For example, since the report is usually very accurate, a lower contractor bid means one or a combination of the following: (1) the contractor does not know how the insurance process is supposed to work, (2) the contractor forgot to include something, (3) the “contractor” works out of their pick-up, works for wages, or may not have mandated insurance coverage, (4) the contractor does less than quality work, or (5) the contractor may be deliberately misleading the homeowner in hopes of getting the work and then "go after" the insurance company
after the fact to make up the difference. NC Storm Repair does not operate that way. We stick to what the insurance company specifies unless we can legitimately substantiate a reason for needing to do something different. If that’s the case, those discrepancies are worked out before any contract is signed and before any work is started. This ultimately protects you and keeps our stellar reputation intact.
(2) As described in a little more detail below, the insurance company usually will pay for storm-related damage in two checks. The first check, known as the ACV (actual cash value), is paid at the time you receive the report from the adjuster. The ACV is the depreciated value of the damaged items covered by your insurance policy. It is usually less than the RCV (replacement cost value). So you get your ACV check initially. Then you have the work done at which time the contractor invoices the insurance company. Then the insurance company will send you the balance, which is then forwarded on to the contractor for the work rendered.
With the above process, the insurance company has a lot more leverage to dictate what gets done and for how much. Occasionally, however, the ACV check is the equivalent of the RCV check. This means, in effect, that you get paid the entire replacement cost value from the very beginning. In such a scenario you would now hold all the cards and the circumstances morph into a more competitive bid-type scenario. Of course, if your report is wrong and the adjuster has forgotten various items, you still need to follow their protocol to make sure you are fully covered. Sometimes homeowners that have received the RCV up front begin to shop around for the lowest bid because a bid lower than what the insurance company has already paid the homeowner can be pocketed. But be careful if you find yourself in that situation. Sometimes homeowners are so eager to pocket the proceeds of a low-bid contractor that they get less than quality work from them or find out that the insurance adjuster forgot items that the contractor doesn’t bother to address. It is my experience that if you want to get the job done right, don’t shop around when the insurance company is paying for it. Use it to your advantage to get the work done correctly. How sad it would be to pocket a few hundred dollars only to find out later that the contractor didn’t install new felt or other code-required items. Remember that cost is only part of the equation; quality and value matter more in the long run. And there usually is a good reason why a contractor significantly underbids what the insurance company says it will cost; that reason is often because corners are being cut, quality is being sacrificed so that the contractor can still make money and be the low bidder.
At times we have avoided doing business with homeowners that have received the RCV up front for the very reason that they are now focused so much on how much they can pocket, they no longer care enough about quality. We cannot compete with contractors that sacrifice quality to be low bid, so we try to avoid being in that circumstance.
You thought I forgot about this step didn't you? Anyway, this step of the conventional, competitive bid scenario was to 'select your contractor, sign a contract with them, and get the work done.' Comparing this with an insurance work scenario, this is one of the only steps that stays the same because you still need to choose a contractor, sign a contract, and get the work done. (That sounds familiar.) But if this part of the equation is still the same, does that mean that the actual 'contracting' of the work is the same too? Maybe, but usually not. Let's tackle that point next.
The way we and many other quality roofing contractors address the unique needs of insurance work is to operate under an Agreement arrangement. The front page of our Agreement does not obligate the homeowner to anything. It basically authorizes NC Storm Repair to communicate directly with the homeowner’s insurance company to address any discrepancies or issues that come up as a result of fulfilling the requirements of the insurance adjuster’s report.
Furthermore, our Agreement indicates that our price will not exceed the insurance estimate or approved supplementals. This is, in effect, our bid – as we are agreeing to do the work for what the insurance company specifies. If circumstances develop that required us to address missing items or other discrepancies, then we work that out with the insurance company before the homeowner or anyone else is obligated to anything.
Once any and all items in question are addressed to everyone’s satisfaction, especially the homeowner and the insurance company, the details of our Agreement gets filled out and signed. This is where any additional scope of work items or conditions are clarified. It is also where the specific color of the shingles is chosen and authenticated. These specifics ultimately becomes the contract (once signed) between the homeowner and NC Storm Repair requiring us to do the work in compliance with the insurance company’s specifications.
How Money Changes Hands
A quick statement about how the payment arrangement is made: It various from contractor to contractor. Though payment arrangements do vary from contractor to contractor, keep in mind that this is not a competitive bid scenario. As such, some contractors will request payment of at least a portion of the ACV check proceeds already received from the insurance company when materials are delivered to the jobsite. Then after the work is completed, the remaining amount of the ACV funds designated for the roof are paid to the contractor. Also upon completion of the work, the insurance company should be invoiced for the work completed and the materials used. Thereafter, the insurance company will submit an additional payment to the homeowner to cover the total RCV (replacement cost value) of the roof – minus any payments already made to the homeowner, minus their deductible. The final invoice to the insurance company may also include what are known as “supplementals.” These are common and expected by the insurance company. They include such things as permit costs, rotten wood replacement (if needed), etc. Any balances owed the contractor are paid out of the funds submitted by the insurance company as part of the RCV check. Keep in mind that the homeowner’s contract is with the roofing contractor. So even if the insurance company fails to pay in a timely fashion, or for some reason fails to pay at all, the homeowner is still obligated to pay the roofing contractor in accordance with the signed contract.
A Final Word
There are many other nuances to the above-described process, but these are often addressed on a job-by-job basis between you, the insurance company, and the contractor. The bottom line is that you, as the homeowner, need to choose a contractor that understands how the insurance process works and that knows how to speak the insurance language. Don’t try to micro-manage this process as if you hold all the cards. You don’t; the insurance company and the roofing contractor hold some of those cards too. Work with them and choose a contractor that is willing to work with you.
Looking at this through the prism of a competitive bid scenario will only complicate matters. The insurance company is paying for the work. Make sure that the work they are paying for is comprehensive and is not missing relevant items. Also, make sure the work gets done correctly. The only way to do that is to choose an honest roofing contractor (yes, they do exist as we demonstrate every day). Let them be your advocate.