In a recent article, a contractor was publicly shamed after the insurance carrier refused to pay his labor cost and forced the policyholder to pick up the bill. The carrier in question used “fair market pricing” in Xactimate to determine the labor amount but the contractor argued that the rates in the system are out of date and inaccurate.
But is Xactimate’s labor pricing actually fair?
We asked Andrew Behrens, head of our internal Investigations Division and certified Xactimate Trainer, five key questions about Xactimate pricing to find out! Read to to see the answers and insight he provides on how contractors can get fairly paid.
Question #1: Other than policy coverage specifics and damage photos is there anything other than Xactimate that an insurance company will use to determine how much an insurance company will payout on a claim?
Typically, insurance carriers will utilize one of two methods when determining the cost of a claim:
1. Hypothetical estimation software, like Xactimate or Sybility
2. Will use contractors to provide cost proposals.
Estimating programs have to provide a median baseline for restoration costs. If an insurance carrier opts to bring in a contractor, it usually has complications of its own, such as 1. They have usually no interest in performing the work, 2. the contractor only sometimes use Xactimate to provide their costs, and generally use it incorrectly and 3. They are usually “quantity” contractors who can sacrifice price – usually equating to quality – to perform the job.
One of the issues here is that insurance carriers will depend on Xactimate, which is usually misused, putting it well below median pricing; or they will rely on contractors who are usually “lower market” contractors relating to price. Both of these scenarios disregard the upper half of the pricing market that ranges from the median, all the way up to the upper price points of the market.
Question #2: Are there instances you can think of where a contractor’s labor cost would be higher than what is listed in Xactimate? Do you see that happen often?
Definitely. Since Xactimtae only represents median pricing, theoretically, there could be labor costs much higher, but more often than not any increases are a split between materials and labor. I would say more often than not they are material price increases. Labor tends to me more in line with the contractors we work with regularly, and sometimes even a little higher. There are contractors who have wide ranges of labor rates though across each trade.
Question #3: Would an insurance company ever pay a higher labor cost rate than what is listed in Xactimate? Ex. policyholder chooses contractor that is 10% higher than what Xactimate lists.
They should absolutely honor that price. Do they? Not often. They will typically use Xactimate as a defense in those cases, and use “median pricing” as a means to argue that any higher price is unreasonable. Xactimate has a bulletin entitled “Roofing Prices in Xactimate” that explains that they frequently see a 50% variation in price from low to high of any given market, and that 100% variations are not “uncommon”.
Question #4: Are there factors other than labor pricing that could impact if an estimate in Xactimate is “fair” – meaning the cost of damage matches what it will actually cost to replace?
Materials and equipment costs are the two big ones. Labor costs within Xactimate are where markup is built-in, so there are instances that even when hard labor costs may meet needs, the markup or overhead needed may be less than what some contractors require.
Luckily, Xactimate has an “open for inspection” functionality, that allows a user to determine all components and their costs, even down to overhead/profit percentages on a sub-contractor level, allowing a user to modify any component to meet the project at hand and/or the company in general. Unfortunately, this takes training.
Question #5: Is it possible that contractors accidentally make mistakes when writing estimates in Xactimate that would reduce the amount of money that an insurance carrier would be willing to pay?
Absolutely. There are countless potential mistakes. Even though most may seem small, they can really add up over the course of many claims, especially to a contracting company.