Can you represent your own property insurance claim without a public adjuster (PA)?
As a former office manager for a public adjusting firm I can tell you the short answer is yes. This how-to article is an outline for doing the work yourself.
In a separate article, I’ve covered what public adjusters do. For this post I’ll assume you’ve made it to a point in your insurance claim where you’ve already been introduced to the role a public adjuster can play. Their job is to process the claim on your behalf, estimate and negotiate the damages, then collect the settlement. You’re wondering can you just do the work yourself and avoid the public adjuster fees. Perhaps you’ve already started planning what to do with extra insurance money but you’re not sure how to deal with the insurance company and their staff or independent adjuster.
I will walk you through the claims process here at a high level step by step. The details of each step are going to vary depending on the type of claim. A wind driven rain claim or roof hail damage has different ins and outs than an electrical fire or pipe burst. I’m not going to get into that level of detail in this article, but feel free to reach out if you have questions or need help finding a public adjuster at manny@notwaitingtolive.com.
Step 1: Acquire the full home insurance policy including endorsements
Before filing any claim, homeowners should first acquire a copy of their full policy. Most of the time when I asked a client for their full policy they said, “Oh yeah, yeah I have that. I’ll email it.” Only to send over a few pages.
Most homeowners have never seen their complete insurance policy, which typically ranges from 30-60+ pages.
Each policy has four (4) parts:
- Declarations Page – This is what most people think is their full insurance policy. The Dec Page lists who is insured, the insurable interest, policy limits, and deductibles.
- Insuring Agreement – This summarizes what is covered. An agreement will take one of two forms: named peril – where only the perils named specifically are covered, or all-risk – where all risks are covered except those that are specifically excluded.
- Conditions – These statements limit the insurer’s obligations by setting terms and deadlines. Common policy conditions include a deadline to submit a proof of loss and a deadline to complete repairs in order to receive recoverable depreciation.
- Exclusions – Typical homeowner insurance exclusions that require separate policies include floods, forest fires, and earthquakes.
Insurance companies will hem and haw before releasing the policy in full, but they are obligated to send a copy when requested. Typically, at first they’ll only send the declarations page. They know this complete document has all the information required to win and lose a claim. The less visible, the better.
Endorsements are used to modify standard forms and must also be included.
An example of the most common form of homeowners insurance, the Homeowners 3 – Special Form is linked here. Most homeowner policies will be similar to this sample provided by the Insurance Information Institute.
Step 2: Validate coverage
There are potentially four (4) units that are covered in an insurance claim:
- Building – which is the structure itself
- Contents – which are the possessions inside the building
- Additional Living Expenses (ALE) – the cost of alternative living arrangements
- Business Interruption (BI) – lost income such as rent for fair use of the property
Your first real task as a DIY adjuster is to describe what happened for yourself. Then organize what was affected into one of these four (4) units. Read your full policy to see which of these units are covered by what happened.
The policy language may seem intimidating at first, but you don’t need to be a lawyer to make sense of coverage. The fundamental conclusion you need to determine in the insuring agreement is whether you have a named peril or all-risk policy. Covered perils are either called out by name specifically or all perils are covered except those that are excluded by name.
Coverage decisions are not always clean cut. Take a refrigerator leak for example. We once worked with a client that experienced tens of thousands of dollars water damage from a flooded basement. The rubber hose that supplied water to their fridge had burst while the family was gone on an extended trip out of the country.
Most people feel in their gut that this would be a covered loss. However, the policy language is worded in such a way to deny this claim because of the length of time the water was running. Water damage needs to be sudden and immediate. To fight coverage decision on a claim like this required legal action.
Worst case scenario trust your insurance company to tell you what is covered. They usually make coverage decisions within a few weeks of the peril. But this is not always the case as more complicated coverage decisions may take months.
The job of the public adjuster is to represent the best possible coverage outcome. If you can’t confidently determine which of these units are covered on your own, if you simply don’t trust what the carrier is saying is covered, or if the carrier is taking months to make coverage decisions, you’re not in a good position to represent yourself and should consider help from a PA.
Step 3: Estimate property damage
The majority of a public adjusters value is loaded into the estimating portion of a claim. For this reason many public adjusters subcontract the estimating work to more experienced specialists. If you can find these people to accurately estimate your damage you can potentially save a lot of money.
Let’s talk about estimating each of the units separately. And let me remind you to check your policy for the proof of loss deadline which is your obligation to report estimated losses. If you miss this deadline you could potentially lose out on a significant portion of your claim. Most policies require a proof of loss is submitted within 60 days, but often times they are willing to extend the deadline.
Building
An overwhelming majority of insurance carriers use the program Xactimate to estimate building damage. This estimating software can be downloaded with a free trial or monthly subscription, which is enough time to estimate your own claim.
When I was first exposed to Xactimate I found the program intuitive, but I am civil engineer with previous construction estimating experience. The program pulls in material, labor, overhead, and profit costs for specific locations that are generally accepted by the insurance industry. This is a key point to bring up because insurance companies reach agreements on estimates based on verifiable reasoning. It’s not enough to agree on what’s damaged, you also have to agree on the replacement cost. Using a program like Xactimate will get you halfway there by agreeing on price. But agreeing on what specifically is damaged isn’t as easy.
When most people incur damage to their home, they don’t think granularly enough to estimate the damage for the purpose of an insurance claim. For example, a dining room doesn’t just have hardwood floors. The floors are stained and finished, beneath them is underlayment. There might have also been a vapor barrier. Around the perimeter of the floor might have been hardwood quarter round and baseboards that were sealed and painted.
A bathroom might have tile. But don’t forget the grout sealer and cement backer board.
Were the walls plaster or drywall? There is a significant cost difference between those replacement values.
Does the thermostat or ceiling fan need to be detached and reset in order to make repairs? What about the radiator or HVAC vent?
The insurance company has a responsibility to indemnify the policy holder for their loss. If you’re representing yourself this means you need to prepare two estimates for the damage:
- Replacement Cost Value (RCV)
- Actual Cash Value (ACV)
Replacement Cost Value is the total cost to return what was damaged to its condition before the covered peril. Do not miss the nuance in this obligation. To return something to its condition before a covered peril is more expensive than to simply replace a small portion that was damaged.
Yes, a contractor can replace a cabinet door that became warped after a pipe burst and flooded the kitchen. That’s what the insurance company will say needs to happen. But let’s say the cabinets are all stained wood and 40 years old. The replacement cabinet door won’t match the rest of the cabinets. In many states, all the cabinets must now be replaced to indemnify the insured. And that larger project is not cheap. But the insurance company will not go out of their way to point this out to an insured.
Actual Cash Value is the agreed upon value that that any particular item, installation, or building material has at the time of the covered peril. ACV = RCV – Depreciation.
Insurance companies rely on programs like Xactimate or their own organizational policies and experience to set depreciation. For the most part you can trust their assumptions for depreciation. For partial repairs to features like a wall, floor, or ceiling, depreciation might be 0% of the RCV. For complete replacements, depreciation might be 20-50% of RCV or more.
Depreciation is set aside and withheld by the insurance company until repairs are complete. The amount set aside that can be received by the insured is known as Recoverable Depreciation.
This is the moment when the insured realizes their claim can go down one of two paths. They can forgo the repairs and keep the money for the Actual Cash Value of the claim, or they can make the necessary repairs and receive the remaining Recoverable Depreciation to earn the total Replacement Cost Value.
To get to this point though a DIY adjuster needs to estimate the damage. This is perhaps the biggest hurdle in representing yourself to the insurance company. But the hurdle is not insurmountable. An average person can get over it with help.
To develop a replacement cost estimate that is detailed and logical enough to win, you’ll have to take a crash course in construction estimating. Most people were not planning on having their lives flipped upside down by an insurance claim. They simply do not have enough time to search for every home renovation lesson they can find on YouTube, and then find the material and labor costs on homewyse.com.
But what a DIYer can do in an attempt to cut out a public adjuster out is bring in a contractor to estimate the damage. Unfortunately most contractors play fast and loose with their estimates and prepare descriptions that are too vague to talk details with insurance companies staff adjuster.
A construction estimate is best negotiated when its in an Xactimate type format (which you’re not going to get from most contractors). The next best option is to receive a detailed enough estimate is to promise the estimating contractor will get the repair job. If you don’t want to stick your neck out there by committing to one contractor early on, your last option is to collect three less detailed rougher estimates of the damage.
The challenge with contractor estimates is they have to be focused on simply replacing what was damaged by the covered peril. The insurance company doesn’t entertain the fact that you want to take this opportunity to upgrade you bathroom or living room as well. And they’re not going to sort through the details of what is necessary and what is optional. These oversights and tangents complicate the matter at hand.
Ultimately though money can be saved by cutting out the public adjuster, if done right.
Replacement cost estimates from contractors are all well and good, but what if you don’t want to make the repairs?
You can take the Actual Cash Value of the settlement, but until you get your own estimate, you can only take the insurance companies “word for it”. You’ll be in a tough spot trying to get a contractor to prepare an estimate if there’s not even the potential they’ll get the work. In situations like this you’d have to bite the bullet and pay out of pocket for their detailed estimate in the hopes that it will be significantly less than what a public adjuster would charge. But more times than not this could save the insured a lot of money if they were willing to represent themselves on everything else.
If your public adjuster is charging 10% for a $200,000 claim, that’s $20,000. You could probably find a qualified contractor willing to provide a replacement cost estimate with enough detail for the insurance company to accept for $2,000 or less.
Although technically in most states only a licensed public adjuster is allowed to represent an insureds claim, many insurance companies are willing to overlook this rule and work directly with a contractor or builder you’ve hired early in the claims process. If you find yourself in a situation where the insurance company is not willing to speak directly with your contractor, the staff adjuster can simply work directly with you as you communicate and pass along the results of the estimates you received.
Contents
As I described above regarding estimating building damage, a DIY adjuster is likely going to want to rely on an outsiders to estimate their contents damage. However, unlike the building portion estimating contents damage is a task much better suited for the average person to do entirely themselves without special software.
The replacement cost value for almost any item in your house can be found on the Internet. The list of items can prepared on a simple excel file line by line (with one unique item per line). Simply list the item’s replacement cost value (RCV) in a column next to the description. In the next column list the depreciation which is typically 20-50% of RCV (but if you simply put 30% for every item and waited for the insurance companies response you’d turn out fine).
This is tedious work but an average home often has $30,000 or more just in contents and possessions like electronics, clothing, and furniture. A public adjuster taking 10% of this task is usually $3,000 or more. And depending on your motivation and availability this may be worth your time.
Keep in mind estimating the contents damage in severe water, fire, and wind claims may put you in a potentially dangerous environment, exposing you to mold, smoke, or chemical contaminants that might otherwise require biohazard cleanup. Many times entering a damaged structure is simply unsafe without the appropriate personal protective equipment (PPE).
One contents estimating option a DIYer might consider is simply contracting a public adjuster for the contents only and rely on themselves for the bigger building portion of the claim which has much more money at stake for potentially significantly less work.
Additional Living Expenses
Many times a covered insurance claim renders a property uninhabitable until repairs are made. When the policy holder occupies the property they are usually entitled to alternative living arrangements comparable to their pre-loss condition.
Starting from the time of the loss, keep track of all receipts for expenses you can attribute to the peril. This includes out of the ordinary meal expenses, storage expenses, moving expenses, hotel stays, laundry costs, fuel and mileage increases. The list of costs you incur right away adds up quick. Seek written authorization from the insurance company for special expenses that you think may not be covered.
Typically the limit for ALE is ~30% of property coverage A limit. In your policy you will see the specific limit. This is your budget to maintain as close to as normal living arrangements as you can until your claim is fully resolved and the property is either repaired or replaced. This can take from 6 months to a year.
Your insurance company is usually on top of ALE and will offer to match you up with a third party that can place you in a rental until ALE is completed.
What most homeowners don’t realize is they have a vote in where they’re placed, which can even include a rental property they own. They have a say in the location and the amenities. They’re not fixed to a specific set monthly budget. Insurance companies are flexible here, but they will push back on unreasonable requests. A solid living arrangement argument can swing ALE payments by several hundred dollars a month or more which over the course of a year adds up to thousands of dollars in opportunity to cash in on use it or lose it ALE payments.
Business Interruption
If you have a tenant that is displaced by the covered peril you are entitled to reimbursement for the fair rental value. This is based on proof of a lease or affidavit from the tenant of the amount they are paying each month.
Simply collect your records and supply them to the staff adjuster. This is a straight forward reimbursement if well documented.
Step 4: Negotiate the insurance settlement
Your ability to negotiate with the insurance company is in direct proportion to your ability to walk away. In the case of an insurance claim, your ability to walk away and not accept their offer is almost entirely dependent on your evidence of what is covered with policy language and the cost estimates to return to pre-loss condition.
This is for the most part a black and white business. If you lay out facts, they’re almost impossible to argue. When a public adjuster negotiates with the insurance company the result is almost entirely a function of fact based reasoning. Public adjusters are able to negotiate more effectively with the insurance company than the average policyholder simply because they’re better at finding more facts (which increase cost).
Don’t worry too much if you don’t have a single relationship in the insurance industry. If your building, contents, ALE, and business interruption facts are solid, you instantly become a good negotiator. Having these in order will make you better than most .
The secret here is all in the preparation and your willingness to walk away. Give it a try. Worst case scenario your claim is delayed and you’ll have to accept what they were willing to offer anyway.
Step 5: Collect the settlement
Covered property claims are usually not paid out in one check. Insurance companies can issue an advance they feel is appropriate in times of immediate need for things like housing and clothing. The ACV check comes first which is usually a 50-80% of the RCV. The ACV check won’t arrive until after estimates have been agreed upon by all parties. Policyholders can use this money to start making repairs or secure a mortgage for a new property.
In most policies, the insured has 1 to 2 years to claim the remaining Recoverable Depreciation. Recoverable Depreciation is separated by units, so if you don’t plan on making building repairs you can still claim recoverable depreciation for replacing personal possessions.
For the building portion the insurer will ask for the contractor who completed the work to send a signed affidavit before releasing funds. This is a simple statement, a sentence or two on a page that you can create in Microsoft Word with a signature that contractor xyz has completed the repairs for claim number 123.
The insurance companies don’t pay too much attention to the scope of actual repairs once they’ve agreed to a settlement. If they ask for more than just a signed affidavit, some photos of completed work is all they look at to verify the entire job was completed. They don’t look closely at the line by line repairs to the property.
For the contents portion recoverable depreciation the staff adjuster for the insurance company will review each item line by line. Let’s say you lost a $2,000 gas generator in a tornado. If you and the insurance carrier agree the RCV is $2,000 and the ACV is $1,000. You will receive a $1,000 check up front (as part of a larger contents ACV check) regardless of whether or not you actually replace the generator. Then if you do decide to replace the generator you can be reimbursed up to an additional $1,000 ($2,000 RCV – $1,000 ACV = $1,000 recoverable depreciation). If you purchase a generator that is $1,750 and submit your receipt you will receive $750. If you purchase a generator that is $2,250 you will receive $1,000. The recoverable deprecation is capped for each item without roll over. Any items you don’t replace will not be reimbursed.
Summary
(The main takeaways from how to represent your own property insurance claim without a public adjuster)
- Request a copy of your full policy from the carrier. Most policyholders only have the Declarations Page. Pay close attention to proof of loss and recoverable depreciation deadlines.
- If you can’t confidently determine which of the insurance units are covered on your own, if you simply don’t trust what the carrier is saying is covered, or if the carrier is taking months to make coverage decisions, you’re not in a good position to represent yourself and should consider help from a PA.
- The majority of a public adjusters value is loaded into the estimating portion of a claim. For this reason many public adjusters subcontract the estimating work to more experienced specialists. If you can find these people to accurately estimate your damage without a public adjuster you can potentially save a lot of money compared to the fee a PA charges.
- Public adjusters are able to negotiate more effectively with the insurance company than the average policyholder simply because they’re better at finding more facts (which increase cost). If your building, contents, ALE, and business interruption facts are solid, you instantly become a good negotiator.