Back in the days before computers, adjusters used handwritten, detailed line item estimates separating labor and materials. Adjusters, professionally trained by their companies, understood what operations were included in their construction repair line items and, possibly more important, what operations and materials were not included and had to be added to the estimate separately. Each page of the estimate was then totaled using a 10-key calculator, and the resulting paper tape was stapled to the page. The last page of the estimate contained a calculator tape of the totals for each page and the final totals for the estimate.
Somewhere between the Kennedy and Ford administrations, labor and materials estimating went the way of the 8-track tape player and the unit cost method of estimating took hold. Publishers of construction data provided books, pamphlets and “cheat sheets” containing unit costs for the vast majority of common repairs. These costs were calculated using labor rates (hourly rates for the various trades people involved in the rebuilding process), labor productivities obtained from construction time studies or reference materials, and material and equipment costs from lumber yards and other material suppliers. Unit costs were then averaged for different parts of the country—either by zip code or by larger cities for each state.
Adjusters and the insurance industry quickly adopted the unit cost approach to restoration estimating. Unit cost estimates were faster to generate and made estimating easier for the adjuster. Adjusters no longer required extensive training to estimate labor and materials since the construction cost data publishers did that for them.
Contractors on the other hand—whose livelihood depends on accurate estimates—were not so sure about unit costs. They had been writing labor and materials scopes their entire careers, and this new method of estimating made them anxious when dealing with adjusters. Loss negotiations were difficult. Estimates, unlike today, could not be compared apples-to-apples due to the difference in estimating philosophies. The scope of the repairs would be discussed and, if the final totals were close, the claim would be settled.
Slowly, contractors became more comfortable with unit costs. No one was going broke and most contractors had money in the bank at the end of the day. It was about this time that the “20 percent for overhead and profit” came into use. Since the unit costs published at the time contained no additional monies for overhead and profit, the contractors felt justified tacking on “10 and 10” (10 percent for overhead and 10 percent for profit) at the end of an estimate. The perception among insurance carriers at the time was favorable.
Today, we use computers to settle the vast majority of property claims for the insurance industry. Whether due to budget concerns, high adjuster turnover, or a combination of circumstances, company training for property adjusters is unlike a couple of decades ago. The industry now relies on computer software, for the most part, to estimate losses and determine the best outcome.
Software developers provide sophisticated estimating applications for all knowledge levels of adjusters, but they are not the eyes and ears at the loss site (at least not yet anyway). Insurance carriers need to know that estimating software in the hands of untrained adjusters can cause more problems than handguns and tequila combined! Okay, maybe that’s an exaggeration, but it can result in millions of un-owed claims dollars racing out the door.
Double and Triple Over-Scoping Repair ItemsOver-scoping occurs for a couple of reasons. The first is a lack of attention to detail during the estimating process. Adjusters will remove drywall from the walls of an area and then pay (again) to remove wallpaper or texture from the same walls. They will pay to finish pre-finished paneling or cabinetry, or pay to frame the entire wall areas of two adjacent rooms while forgetting about the common wall shared by both areas.
The second reason is somewhat software related. All of the major estimating platforms publish written specifications or explanations of what is and what is not included in the repair line items in their respective databases. In some applications, these specifications are found on the same screen the user sees when selecting line items for the estimate. In other applications, the specification may be a couple of clicks away, requiring the user to do a little searching. In either case, many adjusters fail to read the entire specification and end up paying for items twice. For example, when replacing a door, the specification may include a jamb and molding for one or two sides of the door. If adjusters don’t know this, they may select these items, too, thus unnecessarily increasing the estimate. Replacement of drywall may include sealing and/or texturing. Painting may include surface preparation, removal of outlet and switch plates, and/or protection of adjacent areas. Adjusters using computers need to read and understand the entire specification for each item in their estimates.
Over-scoping using computers is, by far, the single biggest offender in estimating errors, and costs the insurance industry countless dollars in unnecessary claim overpayments. These types of errors certainly can be minimized, if not completely avoided, with adjuster education and training.
Here are some other examples of common over scoping of losses:
- Insulating interior walls when, except for rare occasions, only exterior walls contain insulation.
- Replacing blown acoustic ceilings and then painting the acoustic. No painting is necessary.
- Replacing roof trusses and then replacing ceiling joists when the bottom of the truss is the ceiling joist.
- Failing to measure a roof properly (or at all) because it is a two-story, or is partially or completely burned away.
- Replacing the more expensive subflooring line item when only underlayment is required.
- Replacing vinyl or other floor coverings under base cabinets when the materials only butt up to the bottoms of the cabinets.
- Using one-line-item lump sums or square foot pricing for specialty trades like electrical, plumbing and HVAC that should be estimated line by line.
- Adding multiple minimum charges for the same trade when unit costs should be used.
- Adding waste to replacement operations that already include waste in the unit cost.
- Selecting a large dumpster when a smaller one will do (ask the contractor).
- Guessing at permit or dump fees (ask the contractor).
- Including fees for engineering and/or architects when one or both may not be needed. Check with building authorities and ask the contractor.
Under-Scoping the LossIn all fairness, as much as we have talked about overpaying a claim, insurance carriers want to “pay what we owe – not a penny more or a penny less.” Here are some common examples of how adjusters miss the mark and come up short in their estimates:
- Ceiling and wall insulation not adjusted to the correct R-value.
- Not adding waste to required manual entry items such as roofing.
- Not rounding up when it is necessary for items such as countertops.
- Replacing a breaker panel box and not including the breakers.
- Forgetting that range and dryer outlets and breakers are 220V.
- Underestimating the number of circuits required in a breaker box by leaving out wall switches and lighting fixtures.
- Forgetting rough-in costs when estimating plumbing fixtures.
- Forgetting toilet seats when not included with the toilet fixture.
- Replacing a single plumbing line with a sink and tub when two lines are needed.
- Replacing sinks and tubs and forgetting to add accessories such as faucet sets, shower heads, soap dishes and towel racks.
- Forgetting to seal new drywall before painting.
- Not adding additional money for contents manipulation and/or protection of undamaged areas of the structure
- Not taking into account additional removal and dump fees for hazardous materials, such as asbestos or home heating oil.
By remembering the items above, adjusters can avoid preparing estimates considerably lower than one that is properly scoped, and can avoid additional conflict with a correct scope of repair.
Incorrect MeasurementsAnother common mistake among adjusters is the inaccuracy of their measuring knowledge when it comes to restoration construction. Here are some examples:
- Assuming all walls are 8 feet – many are not.
- Replacing moldings without deduction for openings.
- Not deducting all openings when wallpapering.
- When calculating garage wall square footage, not removing the garage door opening.
- Squaring off rooms when they contain closets and offsets.
- Rounding up more than 6 inches.
- Including appliances when measuring base cabinets
- Measuring base cabinets to the corners on both walls, thereby over scoping the quantity by at least 2 feet.
- Measuring the linear feet of the upper cabinet equal to the linear feet of the base cabinet when it should be less if there is no cabinet above the sink base cabinet.
These mistakes can be avoided with less than a half day’s training in the art of correctly using a tape measure or laser device while measuring claim related structure damage.
In summary, be sure you and your fellow adjusters and estimating personnel know the basics of creating an accurate estimate—we’ll all win in the end.
John A. Postava, R.P.A., has been a licensed Florida adjuster for over 20 years and is currently president of
Simsol Insurance Services, Inc. based in Niceville, Florida. He can be reached at 800.447.4676 x321 or via e-mail at
john.postava@simsol.com.