Why Bids Are Unnecessary for Insurance Claims

Following a recent hailstorm, I received a phone call from someone requesting a bid to replace her roof. She already had an approved insurance claim and received her insurance estimate. She wanted to secure several bids from roofing contractors before deciding who to hire for the roof replacement.

I explained that this is different from how insurance claims work in Colorado. Reputable contractors work from the final insurance estimate, with the homeowner only paying the deductible out of pocket and the insurance company covering the rest. She insisted that she needed a bid. We were not a good fit and I wished her well.

I will elaborate on the difference between retail and insurance claim roofing projects.

Retail vs. Insurance Roof Replacement Projects

A roof replacement project funded through an approved insurance claim differs entirely from the same project fully paid for by a homeowner as a retail project.

Roof Replacement Retail Project

With retail projects like finishing a basement or remodeling a kitchen, homeowners are preconditioned to seek several bids (often deferring to 3 bids) to review and ultimately hire a contractor for a fixed bid amount. For example, in roofing, retail projects can include roof replacement for old roofs that do not qualify for an insurance claim or simply one that is sometimes needed urgently as part of a real estate transaction when selling a house. Each roofing contractor’s bid will be different in the price and level of detail. While price may not be the only factor in selecting a contractor, price is routinely the top in most decisions.

Roof Replacement Insurance Claim Project

By contrast, a roof replacement project funded through an insurance claim is entirely different. With an insurance claim, the insurance company establishes the final price based on the agreed-upon scope of damages and variables such as roof dimensions, pitch, count of vents, etc. The homeowner is responsible only for the deductible, which is clearly stated on the insurance paperwork.

The initial insurance estimate is only that, an initial estimate. Many insurance companies include only the bare minimum with an initial estimate and expect a contractor to analyze and submit for additional items missed, such as building code requirements, manufacturer installation instructions, incorrectly counted vents, permits, and more. Insurance companies operate as for-profit companies, so maximizing their profits and shareholder value is in their best interest. Sadly, most homeowners view this estimate as complete and fair without any further knowledge of what may or may not be included that needs to be. Additional items required for review and acceptance into a final estimate are viewed as a supplement, and insurance companies do expect this as part of the claims process.

Reputable contractors work only off the final insurance scope and rates because substantial differences often exist between an initial insurance estimate and a final one that includes the documented supplemental items.

Understanding key terms from your insurance estimate

Causing even further confusion for many homeowners is understanding the terminology between all the numbers and terms in the estimate.

The following are key terms you will view in your insurance claim estimate:

• Replacement Cost Value (RCV). This is the ideal policy coverage that covers the total replacement cost, less the homeowner’s deductible.
• Actual Cash Value (ACV). This is a lower coverage policy that deducts coverage for age and condition. The older the roof, the lower the insurance reimbursement. ACV coverage can leave a homeowner with essentially no reimbursement at all based on the age of the roof and deductible.
• Depreciation. This is the additional amount listed that the policyholder is entitled to and will receive once the agreed scope of work is completed.
• Deductible. This is the policyholder’s financial responsibility for this claim.

Regardless of these coverages, knowing whether your policy covers ‘Ordinance or Law’ building-required upgrades is essential. Ordinance or Law code coverage pays the costs to upgrade an aspect of a roof to meet current building requirements. You will be responsible for the additional cost if your policy excludes this coverage.

The Replacement Cost Value (RCV) is the total amount of the claim based on the scope of damages, including the policyholder’s deductible. The Actual Cash Value (ACV) and Depreciation are RCV components that calculate the amount between the initial check amount and the subsequent amount to be released once work is completed. The listed ACV includes the deductible, so the amount received will be the ACV less the deductible. Provided a homeowner has RCV policy coverage and building code required upgrade coverage on their homeowners insurance policy, they are entitled to 100% of their total RCV less the deductible once the scope of work is completed.

In summary, the insurance company funds the entire claim beyond the deductible. Thus, price should not be a factor. If seeking multiple bids, the company that presents the highest bid will likely include items that should have been included in an initial insurance estimate but were not. This company will expect to work directly with your insurance company to settle the claim successfully.

Profiting from insurance loss

Some people will try to collect bids and choose a lower bid after receiving an approved insurance claim to keep the difference. This action is illegal as they are trying to profit from insurance loss. If a contractor is willing to complete a scope of work for less than the insurance covers, the insurance company will reduce its estimate to this lowered amount. Thus, the insured will still pay his deductible with a lowered total claim amount. Insurance will pay out less, and the homeowner will not be entitled to additional insurance proceeds as they believed.

Further, accepting a lower bid can harm the homeowner, as the roofing contractor may not provide as thorough an estimate as another roofing company. Thus, the homeowner may not receive a quality roof replacement, including all new components. The homeowner should be encouraged that their selected contractor has the knowledge and experience to submit supplements for any missing items successfully.

Quality contractors do not work with the ACV or waive the customer’s deductible. The ACV is simply the initial allocation of funds from the RCV claim value. Provided the homeowner has RCV coverage, they are entitled to receive all depreciation for their claim. Product quality and poor installation will result in future dissatisfaction when choosing a contractor who accepts less than fair market value for their work.

Comparing a roof replacement to an auto claim through insurance

The insurance claim process for property is very similar to the process for an auto claim. Following an accident and visiting an auto repair shop, you will receive an estimate from your insurance company. You can arrange your repairs for this amount because you will only pay your deductible to the auto repair shop. The exception to this comparison is that the insurance company pays the auto repair shop directly for the scope of work, less the deductible.

If the auto repair shop finds any additional damages (beyond the initial estimate), they will document them and work directly with the insurance company to add the additional damage compensation. The vehicle’s owner will remain only paying the deductible.

Many people understand this auto repair process but view property damage claims differently.

Key factors that do matter when choosing your roofing contractor

The following are the factors that do matter for your property damage claim where you should interview and hire the best contractor:

• Knowledge
• Experience
• Professionalism
• Customer service
• Quality installation
• Care for your home
• Local and likelihood they will exist in the future

Note that price is NOT a variable listed.

In life, someone is always willing to do something for less money. With insurance claim work, this is not a good thing. A contractor willing to work for less than fair market value will find ways to profit, whether by choosing lesser materials, using stolen materials, or reusing components that should only be installed once, such as felt, flashings, and vents. These same contractors are also unlikely to pull a permit with the local building department as the building inspector will catch and require corrections to poor quality installation. Having a building permit ensures that the local jurisdiction is aware of any repair or enhancement projects and that a licensed professional will inspect the quality of work to ensure that it was performed correctly and to the current building code.

Colorado Roofing Association

Third-party non-profit organizations like the Colorado Roofing Association or the National Roofing Contractors Association exist to educate and warn about possible bad experiences for roofers and homeowners.

At Metro City Roofing, we encourage homeowners to learn more and become as educated as they like about the claims process, the installation process, and the materials selected for their roof replacement.

Colorado Senate Bill 38

Colorado Senate Bill 38 (SB38), the Consumer Protection/Residential Roofing Bill, was signed into law on June 6, 2012. This legislation includes clear language prohibiting a roofing contractor from paying, waiving, or rebating a property owner’s insurance deductible. (A contractor may not advertise or promise to waive, pay, or rebate the same.) If a roofing contractor is offering this to keep their bid low, that is a red flag.