About the Claims Process
Important Facts to Know About the Claims Process
In recent years, the insurance industry has dramatically overhauled the property claims process to make it more efficient and less confusing for policy holders. Ironically, these changes have had the exact opposite effect for some, as many policy holders still believe they need to turn in “at least three estimates” to their insurance carrier. This is no longer true but can cause unhelpful confusion as subpar contractors don’t understand the process and provide estimates where they are not helpful or needed.
Property claims are very similar to medical claims with one (confusing) distinction: insurance companies pay medical providers directly while they initially send policy holders for property claims. Because medical providers are directly paid, the questions for medical claims are more simple. Patients want to know if their procedure or medication is covered, will this provider take care of me, and what will I have to pay “out of pocket”? The “out of pocket” is usually your policy deductible plus a potential split for some medical procedures but the amount is what it is.
Because property claims start with a check written to the policy holder, many policy holders feel they need to get estimates as it may appear that the insurance company is now “out of the picture” in terms of money. Nothing could be further from the truth. They are still very much in the picture. The initial monies given to the policy holder are just one layer of a multi layered, and contingent, “use it or lose it” budget. A budget that may shrink (to the carriers benefit) as soon as multiple estimates are turned in. Your potential “out of pocket” should never go above your deductible and estimates will not legally change this.
So how am I supposed to vet contractors if I don't get estimates?
Answer: By their professionalism, knowledge, and experience. Isn’t that how you would select a medical provider? You wouldn’t select your medical provider based on an estimate for a covered procedure, would you? You want to be comfortable with them and feel like they understand you and how to help you. Why would you select a contractor based on estimates when your insurance carrier is paying here as well? Your property is important enough for a quality provider right? Let the insurance company handle the estimating.
Why don’t insurance carriers pay contractors directly?!?
I will not speak for insurance carriers but do believe it can be simply explained. Medical providers are required to be licensed and are heavily regulated. Because of this dynamic, insurance carriers are able to have a direct relationship with medical providers and therefore can pay them directly. General Contractors are not licensed in Texas and therefore can come and go overnight. In some cases, staying 1 or more steps ahead of the law. It would be impossible to keep up with every contractor and avoid paying fraudulent claims considering all these factors. They have enough trouble with fraud working with providers that are licensed and regulated.
There is another very big reason your insurance carrier no longer asks you for estimates. In the old process, the Adjuster would agree to replacements and say: “Get three estimates and turn them in to us.” Why would this create issues for insurance carriers? Answer: As soon as they identify one of the three estimates, they are responsible for the work of that contractor. If you have an issue with that contractor, you could say to your insurance carrier: “You told me to use this contractor. What are YOU going to do to fix the issue?”. Here’s their dilemma, they received no training for this risk or exposure. They want the policy holder to be responsible for subpar contractor problems. The way they remove themselves from responsibility is by initially giving you the money.
It is because of these dynamics that it is risky and unnecessary to start at a “bidding” process as you can not unjustly raise your insurance payout, or profit from it, but you can arbitrarily, and unnecessarily, lower it. (Something that most insurance companies will not proactively advise you about.) By turning in estimates, you risk lowering the claims scope which may lower the quality of the replacements. Since they didn’t formally ask/require estimates, they want true professionalism. Remember, there is no license needed to be a General Contractor in TX. There isn’t a license to get if you wanted one.
So how does the process work and how do I make sure I have a quality provider?
Here are the facts:
Fact 1:
Your insurance carrier will provide you with an “estimate” for covered replacements and will not require you to do the same. Their “estimate” is typically generated by a computer program specifically designed for this purpose. This “estimate” is essentially a “use it or lose it” budget (not a guaranteed payout) based on their understanding of the replacements. A good General Contractor will be able to determine if their report is accurate and make any necessary adjustments.
Common questions regarding this fact:
I should still get estimates right? Won’t this give me Important Information?
There is no need for this and it won’t tell you if you are dealing with a professional quality contractor. Anyone can put together an estimate. Think of it this way: Would an insurance company give you a padded budget “just to make sure”? No, they would not. If you find a contractor willing to perform replacements for a reduced amount, shouldn’t you be concerned that they may take short cuts or that they may not even fully know what they are doing? Remember: there is no licensing in Texas. Anyone can be a “roofer”.
But can’t I profit by getting a lower estimate?
No, remember this: your insurance carrier has advised you on what your potential “budget” is, not what you are guaranteed. Many people try to pocket some cash by filing false insurance claims and break the law in the process. This is not a good career choice. If you get an estimate lower than the carriers budget, and you use that estimate, you legally have to pass that savings on to your carrier. Not doing so may constitute insurance fraud and a possible felony or felonies.
Fact 2:
You can legally get help with your deductible and, in some (rare) cases, have money left over. There is a legal way to approach policy deductibles. It isn’t by pretending the deductible isn’t there. You can legally cover a policy deductible by electing to use funds for unnecessary replacements. In most hail claims, the main dwelling roof is the only replacements that has to be done. Replacements to gutters, fence, windows, etc. are optional and the funds allocated for them can be applied to the roof which can legally cover your deductible and then some, in some cases.
Common questions regarding this fact:
Isn’t that insurance fraud?
No, not doing a replacement is not fraud unless you tell the insurance company that it was done. The Actual Cash Value of those replacements can legally be applied to other replacements such as the roof which legally lowers your deductible or “out of pocket”.
So then can’t I pocket the money for unnecessary replacements?
Yes, you can, as long as you pay your deductible in its entirety. (Unless of course you would like to commit insurance fraud) You still have to replace the roof (if it was totaled) and have to pay someone to do the work. Once the work is completed, the insurance company has to be notified via a contractor’s invoice or your receipts. If these documents are not accurate… you guessed it… fraud.
Fact 3:
If you pay subpar contractors cash prices, you have to send the receipts to your carrier. If the receipts are less than the agreed scope then the insurance company keeps the difference. You can’t just tell them the work is done. When your roof is replaced, it will not be insured until you prove it with legal documentation. A quality contractor will handle this for you. If you can not provide sufficient documentation that the roof was replaced, future claims on the roof and the contents of your property can and will be declined if the peril is related to your roof.
Common questions regarding this fact:
Can’t I create an invoice and send it to them if I paid cash to the contractor?
Not by itself. You must provide paid receipts with the contractors letterhead if you paid them cash. If “receipts” are found to be incorrect it is fraud.
Why is this significant now? Hasn’t this been going on all along?
Yes, but now many carriers are starting to audit claims by asking for proof of the amount you paid a contractor. This amount has to match the invoice.
Fact 4:
You get what you pay for. Your insurance carrier wants the replacements to your property to be completed by competent professionals which is the basis for the “use it or lose it” budget. A “new” roof is not like a “new” car. A new roof is manually installed by human hands and you are responsible for their work in the eyes of the insurance company. Subpar contractors disappear when their subpar work is exposed. You don’t want a “lemon” roof to cost you more money and headaches down the line.
Common questions regarding this fact:
If subpar replacements lead to leaks and other damage to my property, can’t I just file another claim on those damages?
You can file a claim on anything, it’s up to the carrier if they pay it or not. Your carrier will also inspect the original replacement to determine whether or not they were done correctly. If they determine replacements were not done correctly, they don’t have to pay the claim. You will be responsible for the subsequent damages.
But can’t I profit by getting a lower estimate?
No, remember this: your insurance carrier has advised you on what your potential “budget” is, not what you are guaranteed. Many people try to pocket some cash by filing false insurance claims and break the law in the process. This is not a good career choice. If you get an estimate lower than the carriers budget, and you use that estimate, you legally have to pass that savings on to your carrier. Not doing so may constitute insurance fraud and a possible felony or felonies.
Fact 5:
You get what you pay for. Your insurance carrier wants the replacements to your property to be completed by competent professionals which is the basis for the “use it or lose it” budget. A “new” roof is not like a “new” car. A new roof is manually installed by human hands and you are responsible for their work in the eyes of the insurance company. Subpar contractors disappear when their subpar work is exposed. You don’t want a “lemon” roof to cost you more money and headaches down the line.
Common questions regarding this fact:
If subpar replacements lead to leaks and other damage to my property, can’t I just file another claim on those damages?
You can file a claim on anything, it’s up to the carrier if they pay it or not. Your carrier will also inspect the original replacement to determine whether or not they were done correctly. If they determine replacements were not done correctly, they don’t have to pay the claim. You will be responsible for the subsequent damages.
But can’t I profit by getting a lower estimate?
No, remember this: your insurance carrier has advised you on what your potential “budget” is, not what you are guaranteed. Many people try to pocket some cash by filing false insurance claims and break the law in the process. This is not a good career choice. If you get an estimate lower than the carriers budget, and you use that estimate, you legally have to pass that savings on to your carrier. Not doing so may constitute insurance fraud and a possible felony or felonies.