Imagine the unthinkable happens—some sort of disaster strikes and severely damages your home, leaving you with thousands of dollars worth of repairs. So you go to file a claim with your insurance company, feeling peace of mind knowing that everything will be covered. A contractor arrives and gives you a quote on what it will cost to fix. Let’s say it’s $5,000. Great! You’re on your way to getting your life back on track.
But then an insurance adjuster comes by to examine the wreckage, and they estimate the repairs at only $2,000. Now you’ve got a $5,000 repair and only $2,000 worth of insurance money to cover it, leaving you scrambling to make up the other $3,000 and wondering where your homeowner’s insurance went wrong.
Here’s the harsh reality: insurance companies will often undervalue estimates in order to boost their profit margins. A common area of dispute they like to argue around is the overhead and profit (O&P) portion of your contractor’s bill. Insurers will question whether overhead and profit are owed on your claim and whether the initial payment should include these expenses. Don’t get stuck with the short end of the stick! There are ways to negotiate with your insurance company when they won’t give you the payment you deserve.
How to Negotiate a Cash Settlement With Your Insurance Company
Learn What Contractor Overhead and Profit Expenses Are
Contractor expenses, also known as O&P, are intended to cover the general contractor’s operational costs (like the cost of equipment, supplies, and labor) as well as generate the contractor’s profit. So while overhead and profit are technically separate cost components, they are commonly combined on an expense report.
Overhead and profit expenses are usually set at “10% and 10%”, which means that 10% of a total job estimate is allocated to overhead costs, while the remaining 10% represents the contractor’s profit. Essentially, this adds an additional 20% on top of the total job estimate. Depending on how challenging the repair is, these numbers can go up or down—for example, a more time-intensive job may mean the O&P is 20% and 20%, while an easier job may mean 5% and 10%.
Insurance companies have traditionally argued that overhead and profit should only be paid if three or more trades are involved in the repair or replacement of the damaged property, also known as the “three trade rule”. They justify this stance by assuming that if multiple trades are involved, a general contractor is needed to oversee and coordinate the entire process. Despite this, it is reasonable to request payment for O&P as part of the overall payment for repairing or replacing the damaged property regardless of the number of trades.
Understand Why Contractor Expenses Are Negotiable
Contractors have legitimate overhead costs (office rent, salaries, etc.) and expect a reasonable profit. Insurance companies might try to exclude these costs, arguing they’re “built into” the labor rate. This isn’t always true, and a skilled negotiator can fight for their inclusion. Here’s why:
Materials & Labor
Different contractors have different pricing structures. Insurance companies may base their estimates on generic rates that don’t reflect the specific materials and labor needed for your repair. If you compare market rates, you’ll see that all a contractor is asking for is current costs for things.
Seasonality
Depending on the time of year, a contractor’s hourly rates can go up—especially if it’s their busy season. It’s not your fault if your house gets damaged during a more expensive time of year, and your insurance company should be able to account for that.
Scope of Damage
Insurance estimators might miss hidden damages or underestimate the repair complexity. A meticulous assessment done by a contractor will ensure that all the damages have been accounted for, thereby causing “discrepancies” between what the estimator guesses and what the contractor actually finds. (Always remember: Just because your insurance company says so, doesn’t mean they’re correct!)
Start Negotiations
If your insurance company submits too low of a repair estimate, it’s time to fight back! Not only is it well in your right to do so, but your insurance company likely knows they’re trying to be sneaky. You, as the policyholder, are entitled to recover O&P expenses in most cases even if your insurance company refuses. We recommend that you:
- Review your policy: Understand your coverage and exclusions before starting negotiations.
- Gather Documentation: Provide receipts, estimates, and contractor qualifications to support your claim.
- Stay cool, calm, and professional: Remember, negotiation is a process. Be assertive but respectful in your communication.
- Walk away if necessary: If the insurance company refuses to budge, then you don’t have to just settle.
- Consider seeking legal advice: Get legal advice or hire mediation (i.e. public adjuster), to step in on your behalf if your insurance company isn’t listening to you.
How Fortitude Public Adjusters Helps
Fortitude Public Adjusters offers expertise in dealing with insurance companies and understanding their negotiation tactics. With extensive experience, we know how to build a strong case for your claim and speak the language of insurance professionals.
As your advocate, we handle all communication with the insurance company, relieving you of stress and hassle. We present your case professionally and persistently, maximizing your chances of a favorable outcome. Don’t settle for less than you deserve! When it comes to negotiating contractor expenses on your home insurance claim, partner with Fortitude Public Adjusters. You can contact us today for a free consultation to find out how you can get the money you deserve.
