Down the Rabbit-Hole: How Does an Insurance Claim Work?
Updated: Jun 5, 2022
I know how an internal combustion engine works. In theory, at least. I am a grown man in my 30’s, so I’m pretty much expected to know this, right? But, like most guys, when the neighbor lady next door tells me her car won’t start and asks to look under the hood, I’m probably going to do what 90% of other guys do: put on my best “I understand what I’m looking at” face, poke around, tug on a hose or two, and tell her the truth: “Sorry ma’am, looks like you have a blown thermoregulating grommet coupling. Better take it to the mechanic”. Mansplaining, am I right fellas?
Insurance claims are pretty much the same beast- most people have a general idea of how they work, but pretty quickly find that in the event of an actual claim, their knowledge breaks down about as quickly as the neighbor ladies’ car after I yanked on her hose.
It shouldn’t be as complicated as it is, but the fact of the matter is that it is largely a broken system, because of one thing and one thing only: GREED.
Contractors and PA’s want to make as much money as possible from working the claim. Many have been busted for fraudulently creating or reporting damage, which makes insurance carriers/adjusters and homeowners rightfully cautious and suspicious by default.
Many homeowners have also tried to profit off of claims by getting their contractor to submit higher priced invoices than what they are paying, or getting their deductible paid for (disclaimer: it’s ILLEGAL!), which has forced insurance companies to ramp up their level of scrutiny and get tighter with payouts.
And then there’s the greed of the insurance companies, which, contrary to every ad and jingle you hear about how sweet and neighborly they are, is still a major factor. They are a for profit entity, and so their goal is always to reduce the amounts they pay out to the lowest humanly possible.
All of this greed has combined to make the insurance claim process (in most cases) a nightmare to navigate. So, assuming you’re an honest homeowner who has had some storm damage to their property, and you are working with an honest contractor, what should you expect from the process?
I’ll tackle this question in two parts: first, how it SHOULD (and sometimes does) work, and second, how it COULD (and oftentimes does) work.
How an Insurance Claim SHOULD Work
This is pretty common sense, but in the event of a loss (be it hail, tree damage, wind damage, tornado, etc), the first thing that needs to happen is to have a qualified and trusted contractor inspect the damage, document it, and mitigate any further damage (emergency tarps, boarding, anything necessary to prevent more damage from occurring).
Contracting is pretty much the Wild West in terms of qualifications, certifications, and any kind of external oversight: anyone can get a contractors’ license, anyone can claim to be a “storm damage expert”, so MANY unqualified (and often unethical) people do. Vetting a contractor is a whole different blog post, but in short you should check:
Are they licensed and insured?
Do they have any specific third party training/certification in storm damage?
Do they check out with the BBB?
Do they have and make readily available recent references?
Do they offer solid warranties?
Do they have solid reviews? And not just a bunch of 5 star reviews with almost no text or story: real reviews will more often than not be at least a paragraph long and tell a specific story.
Is their online presence credible and professional? In this day and age, if someone doesn’t take the time to offer as much information as possible in a sharp presentation on their website, social media, etc, why would you trust that they take that kind of pride in the actual work they do on your home? Never trust lazy.
Stage 2- Coordination
Once inspection is complete, your contractor should share their findings with both yourself and the insurance carrier, and set a time for the insurance to send their own representative to assess the damage. You might be asked at this point to sign a contingency agreement.
BONUS MATERIAL: Contingency Agreements
Should I sign a CA? This is a document that ties you to the inspector as your “preferred contractor”, and becomes a binding contract to complete the work with them should the damage be approved by your insurance. And the answer to “should I sign it” is: it depends.
If you have done your research and are confident that this is the contractor that you want to use, then by all means, yes: it is a standard document in the industry which makes sense for the contractor to require. It is incredibly frustrating to spend the time, energy, and money to produce a thorough inspection report, ensure that the full scope of work is approved by the insurance carrier, make sure the amounts agreed to are fair market value, and then have the homeowner suddenly decide to use someone else for the work, since a contractor only makes money if they actually do the work.
If your Spidey sense is tingling with the contractor, something feels off, they are pushy, don’t present a thorough and understandable report, correctly set expectations, be unresponsive, or anything at all that just doesn’t sit well with your gut, then go back to the drawing board until you find one that you feel you can trust. Contracts are only scary when you can’t trust the person who wrote it.
You should always have your contractor present when the insurance rep inspects the property: trust, but verify. Don’t assume the carrier is just going to give you a raw deal, but don’t assume it couldn’t happen either. A good storm inspector will typically find things that are damaged that never even occurred to you: for instance, in a hail storm you might only be worried about your roof, but not realize that your gutters, siding, window wraps, and garage door might also have sustained damage that is legally covered under your policy, and you want to make sure everything gets pointed out to the adjuster (who doesn’t have any real built in motivation to find those things!).
Your contractor and the insurance rep should be able to agree on the scope of damage, and then both will work up their estimates for replacement using like/kind/quality of pre-storm materials. If there are small differences, they should be able to communicate and resolve them easily before any work actually begins. In this ideal scenario, you should not be on the hook for anything out of pocket aside from your deductible, unless you decide to splash out for some upgrades that wouldn’t be covered by your policy.
Stage 3- Resolution
Now that all parties are in agreement as to the scope and cost of the job, the contractor completes the work, submits all of his photos and documentation to the insurance carrier, and your claim is paid in full. Everyone is happy, right? If only it were always that simple. Let’s take the other road down the rabbit hole and see where it gets frustrating and confusing.
How an Insurance Claim COULD Work
You’ve seen the Dr Jekyll of the insurance claims, now let me introduce you to Mr Hyde. This scenario is assuming an honest contractor working with an honest homeowner: obviously things could go equally bad if the contractor is dishonest.
Stage 1- Inspection
Your contractor performs his inspection, delivers his results, and you call your insurance agent or the claims line. The agent then immediately tries to throw your contractor under the bus and inserts doubt into the whole situation. This happened to a homeowner I was helping just last week. As soon as he heard what was going on, he said:
“So I never heard about a hail storm. Are you sure?” Yes of course, we have it on video, and all the NOAA weather reports confirming. “I’ve never heard of your contractor. I hope he’s not from out of town?” We’re local, about 45 minutes away. “Well, I would prefer you work with someone local, have you looked at our in network contractors?”.
What that agent also won't tell you is that they get rated by the carriers for the ratio of claims paid out, and their business is jeopardized if it is too high.
You get the idea. Long story short, the customer was so rattled, he decided he no longer needed my services. This is legally what is called “tortious interference”, where they cast doubt on someone’s character/competence without cause, and it happens ALL THE TIME.
BONUS MATERIAL: In Network Contractors/Managed Repair Programs (MRP’s)
Building on the marketing campaign that they are your buddy and have only your best interests in mind, many insurance carriers will do their best to steer you toward an MRP. So, what are they, and should you use them?
An MRP is a network of contractors who have an agreement with the insurance carrier, and you should know that it is NOT an agreement that serves the homeowner. The agreement really has nothing to do with making sure you get quality workmanship, in fact they are very quick to point out “once you have chosen your contractor, that’s no longer our responsibility, don’t call us if there’s a warranty issue.” The agreement is about who will do the work for cheap, accept the first estimate (which is 99% of the time at least 25% below market value), and say nothing negative about the carrier.
I have had multiple carriers offer to include us in their MRP, and I even tried it out one time. When I got the estimate (which I contractually had to accept as is), we literally would have LOST money to do the repair. Which leads to the next logical question: how does ANYONE do this and make a profit? The only possible explanation is cutting corners on labor, material, or profit, and you probably already guessed which one of the 3 they are NOT cutting.
As a homeowner myself, I would never want my contractor trying to decide what he has to cut out in order to survive, because it’s MY house he’s working on!
You are legally entitled to choose your own contractor, and asking “should I pick my own” is like asking “should I go to the community health clinic, or the specialist, if my insurance covers both?”. PICK YOUR OWN.
As a HAAG Certified storm inspector (the same certification that adjusters and 3rd party professional inspectors carry), one would imagine that every adjuster would at least want to look at the report I provide. The last adjuster I offered it to literally told me, “Yeah I’d only want that if I needed kindling. That’s worthless.” Not every adjuster is belligerent and unnecessarily adversarial, but it’s a trend that is growing like a cancer.
Stage 2- Coordination
Once you get to the actual on-site meeting with the adjuster (or 3rd party inspector), things often get worse, although this definitely depends on the insurance company: some of which are fantastic, helpful, and respectful, while others that are household names are nightmares to deal with EVERY SINGLE TIME. I know many contractors that cringe as soon as a homeowner tells them the name of a certain well-known insurance carrier, and literally walk away and say “Sorry, you’re on your own there.”
BONUS MATERIAL: 3RD PARTY INSPECTORS
You file the claim, speak to a desk adjuster, and the day of the inspection a guy with a blue or green shirt shows up, and his nametag has another company on it. What gives? Again, you have to start with motivation: why would they send this person instead of their own representative? The answer is multi-faceted.
Firstly, it saves them money versus having to keep the correct amount of well-trained and certified staff adjusters. Many of these large carriers who are the most tight-fisted also have a retention problem: they have absolutely HEMORRHAGED experienced field adjusters in recent years, because the ones with a conscience and a shred of character refuse to work with them, or for the under-market salaries they offer (they don’t just screw over the homeowner!).
Secondly, it gives them plausible deniability. They can say when they inevitably deny the claim, “Sorry Mr/Mrs Homeowner, but this was a neutral 3rd party who made the call, not us.” What’s the problem with that statement? Well, they’re not neutral, for starters. They are paid by the carrier, and have to keep them reasonably happy, or they will go to their competitors. And how do you keep them happy? Let them keep more of their (YOUR) money!
Also, they DIDN’T make the call: they are not allowed to practice adjusting without a license, which they do not have. That would be a violation of UPPA laws, and they know it. I have heard from many of these 3rd party inspectors (some of whom are fantastic people, and friends of mine) that some of the bigger companies have changed their policies recently to where the inspector can only actually act like a glorified drone taking photos only: no opinion even allowed with their report, so they can still hide behind their paper shield while denying, but not having the uncomfortable conflict with the inspector when the desk adjuster (who is NOT certified and has likely never stepped on a roof in his life) contradicts him and says it’s not storm damage.
I had the unfortunate experience of working briefly for one of these inspection companies, and the straw that broke the camel’s back for me was, while in a company-wide Zoom meeting, the CEO spoke about the new “whale contract” with a massive insurance company, and said (and I quote verbatim): “Guys, when you’re on a _____ ____ claim, you should be shocked out of your mind to EVER find hail damage. It… is…not…there!” Again, there are some great inspectors working for these companies, but as a whole, they are a plague in the industry, and only help the worst actors among the insurance carriers to persistently defraud their policyholders on a mass scale.
Keep in mind when this inspector shows up, he is paid a flat rate per inspection, so what is his motivation? Unless you get lucky enough to get one with some personal pride and character, most are motivated to get it done in under a half hour, and move on to the next one. And take a wild guess how this inspection gets done fastest? You guessed it: DON’T FIND DAMAGE.
Back to coordination…
It should be a pretty straightforward process for the honest/competent contractor and the adjuster to agree on the scope of damage, but that’s increasingly rare. Legally speaking, if there is a gray area, and something has to come down to a judgment call (which happens regularly, because no matter how trained you are, sometimes it is impossible to tell beyond a shadow of a doubt if a specific mark is from a storm or something else), the benefit of the doubt GOES TO THE HOMEOWNER.
I started out in this business in 2008 as an untrained kid who knew nothing about what he was doing: in many ways I was exactly the guy I warn people about. I was well-intentioned, but ignorant. Since I had no one in my company willing to train me, the best resource I had was experienced field adjusters: I LOVED those guys. They would shake their heads, mutter something under their breath, but then SHOW me: “This is not hail, and here’s why it’s thermal cracking/blisters/lichen etc”. And if it was impossible to tell for sure, they all said the same thing: “Hey, it’s not MY money, and I’m supposed to take care of the homeowner if I’m not sure. They paid their premiums, let’s do the right thing.”
That kind of character, knowledge, humility, and wisdom is in short, short supply these days with the new generation of adjusters. They will fight tooth and nail to avoid at all costs paying out a claim, and usually with an unbelievable level of arrogance and condescension. It’s a symptom of a breakdown in our culture at large, but it’s allowing carriers to get away with highway robbery at a scale you wouldn’t believe.
The new norm (at least with 4-5 of the biggest carriers) is to expect to have to push for multiple adjuster meetings before they do the right thing, and many times this is where a PA has to get involved if they just refuse to budge. It’s all a numbers game to them though: they know of 100 claims they initially deny, maybe 50 will give up, believe them when they disparage the contractor, and lean on their “nice guy” marketing campaign. Maybe another 25 of the contractors will give up, since their time is limited, and they know dealing with that particular carrier is more hassle than it’s worth, and at the end of the day, they’ve saved paying out on 75 claims.
And what if the insured is upset and changes carriers? No problem, since there’s always more people willing to “bundle and save an average of $600 a month when you switch!”.
If you think that’s rough, just wait until you get to the coordination phase of the dollar value of the claim, once everyone finally agrees on scope. Their main trick is to suck the contractor into a bog of arguing over the line items in the software they use to estimate (usually Xactimate, but more are switching to software like Symbility and Core Logic to try to save even more money on the claim).
The poor contractor (and trust me, I used to be one of them!) will waste countless hours trying to get the adjuster on the phone, only to find out that the claim has been switched to another adjuster, or he’s on vacation for 2 months, and when he finally does get someone, they won’t even pay out items that they FULLY KNOW are building code or manufacturer requirements without the contractor tracking down the local county officials and begging them to write a letter stating that they actually enforce the code. Who cares if it’s enforced or not, it’s the CODE!
On one claim I am working on as we speak, the adjuster wrote me today to explain why he was refusing to pay a large line item that he didn't he bother to argue wasn't correct, or industry standard. I shared with him other claims with his same carrier where it was added (same storm, same neighborhood!), to which he only replied: "All of our claims are inspected by auditors who in turn rank our performance and how we adjust. Other adjusters may be willing to take the risk and get bad scores on these audits, I am sorry but I'm not one of those". Pure COWARDICE with no thought given to doing the right thing for the homeowner.
Again, the tactic is to delay, deny, and defend until the contractor or homeowner just runs out of energy.
If your carrier is one of these, understand this: the only way to coordinate a quality repair is to play some hardball: let them know that they are not going to divide you or turn you against your contractor, that you understand that they owe for your ACTUAL COSTS INCURRED, not their devalued and ludicrous estimate. And if they don’t like that, they can invoke appraisal, which takes the decision out of their hands, and a neutral 3rd party umpire will decide what is fair. When this happens, I’ve always seen it work out better for the homeowner. And what if the contractor IS wrong in his estimate? That’ll come out too.
Stage 3- Resolution
If you’ve somehow made it out of that desert and made it to the Promised Land of New Roof, congratulations, but you might not be done quite yet. Most policies pay out the total amount (RCV, replacement cost value) in multiple payments: the ACV first (actual cost value), then any supplemental differences approved, and finally the depreciated amount that was subtracted from the first payment, plus any additional supplement for damage that was not able to be identified prior to install.
And when, do you ask, will they pay that out? If you’re actually able to predict that, take your skills on the road to Vegas. One of my clients has had a claim open since 2018, the work is completed, certificate of completion filed, and has yet to receive a penny of his claim. Just because they agree to pay doesn’t mean that it will happen without a lot more pain and aggravation.
Just remember your insurance carrier could well be the Amber Heard to your Johnny Depp: they’ll leave a mess in your bed, and pay you whenever they think it’s convenient.
Well, that was a longer post than anyone wanted. If you’re still here, I hope some of that insider information is helpful to you. It is a broken system, but with the right contractor in your corner (and if necessary, a PA or lawyer), you CAN get a fair resolution to your insurance claim, even if you have one of the worst carriers.
Again, the first example of best case scenario DOES still happen.
But you should do as much research into insurance carriers as you do contractors or anyone else who touches your house. A low rate is worthless if they won’t honor their word.
If you find yourself in need of some advice or help in navigating the ever murkier waters of a storm damage claim, I hope you’ll reach out and let us help you: our only goal is not to be greedy and keep contributing to a broken system, but to do all we can to make sure our clients get back to their lives as normal with a great roof over their heads after a storm disrupts that peace and quiet.