For the thousands of people in the Colorado Springs area who had to file insurance claims this year as a result of the hail storms, it has become very obvious that the property insurance process has changed and is changing. It will continue to change as more and more catastrophes require more and more insurance claims. Many of you have already noticed these changes.
Premium rates have already increased. We’ve worked with many people in 2018 who had no clue that their deductibles were dramatically increased. We heard of deductibles ranging from $2500 to $12,000, and these were from folks who thought they had a $1000 deductible. Some insurance companies are now transitioning to writing Actual Cash Coverage policies for their clients. These are policies that start off as full replacement coverage, but after 20 years, 10 years, or some times even as few as 4 years, the coverage converts to Actual Cash Value, which means that you, as a homeowner, will only be paid the amount that your roof is worth, minus depreciation. That means that you will have a much larger share of the expense of replacing your own roof if it is damaged in the future. There have been people in this area who were told that their insurance coverage was being dropped as a result of claims from this storm season. There are even a lot of rumors floating around that insurance companies will be requiring homeowners to have separate riders on their policies in order to have wind and hail coverage.
How Did We Get Here?
We got here by feeding the beast. By “we” I mean roofing contractors and homeowners. By “feeding the beast,” I mean we have been working with and in the system that is now not working in our favor.
Let me be clear that by “the beast” I do not mean the insurance companies, agents, or adjusters. I mean the insurance industry. When the insurance industry can get roofing contractors and homeowners to play the game their way, they save more money and they win. They win because their stock value doesn’t go down, so their shareholders win. But by saving money in the claims they pay out, the homeowners and their contractors lose. To get people to play the game their way, they have some effective tactics.
- XACTIMATE – Xactimate is a software program that 80 – 90% of insurance companies use to write their loss estimates. It’s a very robust piece of software and does a very good job of scoping the work that needs to be done to restore someone’s property after a loss. The problem with Xactimate is that it is only as good as, 1)the knowledge of the adjuster using it, and, 2)the pricing within it for the loss items. Most insurance adjusters who visit your property do not have any background in construction or restoration industries.
They will arrive at a home with a checklist of items they will look at and if necessary, will include in a claim. Usually, they have an Xactimate template with the most standard items in it. The adjuster will plug in the measurements of the damaged area and Xactimate will spit out a claim document with a bunch of line items of things that need replacing. Unless the adjuster is knowledgeable about the trade required to do the repair, chances are very good that there will be a few, or a lot of items missing.
We see this happen all the time with roofing claims.
Starter shingles are required to be installed on every roof. If there is no starter, the roof will be meet the manufacturer’s requirements for their warranty, and the roof won’t pass county inspection. Your roof has starter shingles on it now, so that’s a product that must be included in an insurance claim when the roof has to be replaced. However, nearly every insurance company does not include this in their claims. There are two very large insurance companies that also don’t include payment for ridge shingles, which also must be installed and currently exist on homes at the time of a loss.
Another glaring example is in painting. The Xactimate template that most adjusters use will typically include two lines items to repaint a house – pressure washing and repainting. They never factor in all the prep-work that has to be done. Consequently, the insurance estimates for painting, as well as roofing, are always too low.
- THREE ESTIMATES – Another tactic used by insurance companies is to tell a homeowner to get three estimates for the repair work. I’m definitely not opposed to a homeowner interviewing three prospective contractors, but getting three estimates to send to your insurance company will not work to the homeowner’s benefit because if three estimates are sent to an insurance company, the lowest one will be accepted, even though it may not represent all the necessary work and material to do the roof.
The frustrating thing about this is that contractors who know what is necessary to do a good job and build their estimates to reflect their knowledge, are called scammers and con artists by the adjusters.
- BY THE NUMBERS – The insurance industry keeps close tabs on their numbers, just like any good business should do. They know that approximately 11% of homeowners will not have the repairs completed that they have received money to do. They “take the money and run.” That means that 11% of the money paid out for insurance claims is never used to complete repair work. Therefore, the insurance industry is incentivized to keep their estimates low initially.
Of the remaining claims, the insurance industry knows that about 35% - 40% of those homeowners will choose a contractor who will accept the job for the amount of the insurance claim pay-out. Those contractors won’t file any supplements or ask for any increases in the claim. Again, with this knowledge in hand, the insurance industry is incentivized to keep their initial estimates lower than they should be.
For those contractors who submit their own bids to the insurance companies and expect to be paid for their work, the insurance industry has a ready answer, “We don’t pay for that.” Whether it’s ridge shingles, starter, drip edge, or whatever, we fight daily with desk adjusters who claim that their companies don’t pay for legitimate items.
Roofing contractors continue to feed the beast by playing its game; by being commission-hungry and trying to get as many roofing jobs as possible. Homeowners feed the beast by choosing contractors who are looking out for their own self-interests rather than the homeowners.