Roof Damage and Insurance Claims
Addressing an insurance claim on your roof can seem like a maze of conflicting legalese and protocol. Even if you've been through the process before, it was probably not a very memorable experience - at least in terms of how "the process" is supposed to work. To get the a well-rounded understanding of this potentially complicated and dare I say, "unfair" process, it would be helpful for you to see this issue from a roofing professional's perspective.
RTN Roofing Systems is primarily a flat, commercial roofing contractor. But we have extensive experience in both commerical and residential insurance work. As we've interacted with countless property owners, facility managers, and individual homeowners, describing the insurance process seemed to be a broken record. I found myself explaining the same things over and over again. I thought it would make sense to put down in writing those communications, giving RTN Roofing Web site visitors a valuable resource in the event you ever have to go through the insurance process in order to have your roof repaired or replaced. So here I begin my humble attempt to do just that.
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:
- Your roof is getting old and you need to pay to get a new one
- 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
- You review the prices, compare the quality of the contractors, and then determine the value of going with one contractor over another
- 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.Storm damage often requires filing an insurance claim.
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. (Click on the sample EagleView thumbnail at right. Click your browser's back button when done.) 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 value). 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. To see a portion of a sample page of an Xactimate estimate, please click on the thumbnail at right. Click your browser's back button when done.)
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 "COFC7X_AUG11." In this example "CO" stands for Colorado; "FC" for Fort Collins; "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 Fort Collins, CO that includes current prices as of August of 2011.
As of this newsletter there are about 460 regions in the United States and Canada that the Xactimate software covers. 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. Drip edge is a code requirement for Fort Collins, CO. 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 Colorado 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.
But Don't I Need to Get Multiple Bids?
It seems the single biggest misunderstanding in this entire process is that homeowners feel that they need to get bids from one of more roofing contractors. I hope I've already explained why that is not the case; namely, it is the insurance adjuster that provides the bid.
But ironically, it is the insurance company representatives that confuse the issue. I can understand why homeowners might come to their own conclusions about needing to get multiple bids, especially before they understand how the insurance process works. But when the insurance company is the one telling the homeowner to get multiple bids, that's just ridiculous! It is a pointless request because ultimately it is the insurance company - through the on-site evaluation made by the adjuster - that develops the estimate of what needs to be done and how much it's going to cost to do it.
Maybe the insurance companies are leveraging both sides to keep everyone honest. If they have one or more independent bids from roofing contractors that match closely with that of their adjuster's estimate, then they can be reasonably confident that the adjuster's estimate is accurate. Remember, it is the adjuster's estimate that serves as the basis for what the insurance company will pay. Also important to keep in mind is that a lot of these adjusters don't actually work for the insurance companies as employees; they're independent. But to me, that's not the point. The point is the insurance company is the one paying for the roof, not you. Therefore, they are the ones that are supposed to establish the scope of work and the costs, not the contractor. That's the whole point of the adjuster's report that is usually provided at the time the initial ACV (actual cash value) check is delivered.
So what does the contractor do? A good, experienced, and honest contractor is there to protect your interests. Generally they will verify the accuracy of the adjuster's report to make sure that the scope of work and costs associated with that scope are accurate. If they are not, they can be your advocate to make sure such items are addressed before moving forward.
Ultimately someone has to do the work. Make sure you get a contractor that will make every reasonable effort to get you what you are entitled to under the terms of your insurance policy. Also important is the quality of the installation of your new roof. Make sure the contractor you choose is not one that will cut corners to widen their profit margin only to leave you with getting less than what you were entitled to.
But as to why insurance company representatives sometime tell homeowners to get one or more bids is a puzzling question to me. It's as if the insurance company wants the roofing contractor to do the work they are supposed to be paying the adjuster for. It is as if they don't want to take the time to address the situation until they have independent confirmation of the damage and the costs associated with the claim.
My cynical response is "Don't fall for it. Remember, this is not a competitive bid scenario. Your only responsibility is to choose the roofing contractor that you want to help you with the process in getting your roof replaced. Getting them involved in the process early allows them to be your advocate when it comes to insurance company antics." My more balanced response is to question your insurance company just as thoroughly as you would your prospective roofing contractor. Find out from them exactly why they want a bid or multiple bids when it is their own insurance adjuster that is supposed to provide that. You might hear some very interesting answers.
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.
Point of Clarification 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.
RTN 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.
Point of Clarification 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 RTN 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.Choose a contractor you can trust
Once any and all items in question are addressed to everyone's satisfaction, especially the homeowner and the insurance company, the back page 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. This back page ultimately becomes the contract (once signed) between the homeowner and RTN, 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. In terms of how to choose a quality contractor, you may wish to view our newsletter article The Contractor – Friend or Foe?
I hope this month's newsletter has proved insightful and will help you in the event you find yourself in this situation. If you have any additional questions, please feel free to contact me and I will do my best to answer your questions in a timely fashion. Thank you for your time.