To the uninitiated,
insurance companies seem to have bottomless pockets and
limitless work for willing contractors. The reality is a bit
different. While insurance restoration can be a lucrative
source of steady income, it's competitive and tough to break
into, and the builder or remodeler who jumps into it blind can
get into trouble fast. If you're interested in this business,
you need remodeling and estimating skills, along with the
resources to handle messy cleanups and respond to calls on
short notice. You also need the temperament to stay calm in a
crisis, and to deal tactfully with homeowners who are often
anything but calm.
JLC wanted to get some advice for contractors thinking of
branching out into insurance work, so we spoke with Kevin
Dietmeyer, partner at Minute Men Construction, a Phoenix firm
that does about $200,000 per month in insurance work, most of
it residential fire, smoke, and water damage. Before joining
Minute Men, Dietmeyer spent three years as an insurance
adjuster, so he's seen the business from both sides.
JLC: How does a builder or
remodeler go about getting insurance restoration
Dietmeyer: The homeowners submit a claim to the
insurance company, which sends an adjuster out to inspect the
damage. The adjuster will give the homeowners the option of
calling their own contractor, but since most people don't know
contractors, the adjuster will often recommend two or three
companies. You want to get on the adjuster's list of
recommended companies, which can be tough at the beginning. As
an adjuster, I used to get a lot of brochures and literature
from contractors looking for insurance work, but I rarely read
One way to break into the business is through plumbers. When
there's a claim for water damage, the plumber is usually the
first trade to get called. Plumbers will sometimes recommend a
restoration contractor, but in the Phoenix area, where I work,
referrals are so sought after, plumbers often charge
contractors for them.
If you do get a referral, the insurance company will want you
to complete an application documenting your years in business
(most companies have a minimum, which varies by company),
liability insurance, and credit. You may also be asked for a
performance bond, which covers things above and beyond personal
liability, such as workmanship or timely completion of a
JLC: When bidding for work, has
your experience as an adjuster given you an advantage over
builders who don't have such a background?
Dietmeyer: No. I went to work for an established
company that was already getting steady referrals without an
adjustment background. I do know former adjusters whose
background helped them get their first jobs, but as an adjuster
I worked with plenty of contractors who had no adjustment
experience. Ultimately, it was the quality of their work and
the way they did business that determined whether I would
recommend them again.
Having said that, my experience does help me deal with
adjusters, because I'm able to see things from their
perspective and give them a heads-up if something happens on
the job that might cause a problem for them.
JLC: How much competition is
there for insurance work as compared with standard restoration,
and how profitable is it?
Dietmeyer: The fee per job might be less than you are
used to. When I was an adjuster, the estimates I got from
experienced restoration companies were typically 30 to 50
percent lower than the estimates I got from remodelers trying
to break into insurance work.
Despite these lower fees, the competition for this type of
work is fierce. Restoration contractors make money on volume
and efficiency. Most do the same type of work over and over
— 90 percent of what we do is repairing water damage
— so they make a good profit by learning to get in and
out of a job quickly. And a good contractor can look forward to
enough referrals to keep busy all the time.
JLC: What special tools and
technical skills does a contractor need for this type of
Dietmeyer: You need special skills and tools to
properly dry out and clean a water-damaged building. I have a
$600 probe that I can run across the surface of a wall to see
how much water is in the drywall. I have other probes that
insert into the wall to measure water in the framing.
Once you know where the moisture is, it's a matter of removing
the water-damaged materials and properly using the appropriate
drying equipment. My company dries out buildings, but a lot of
contractors sub that work out to a company that specializes in
that part of the business, like ServiceMaster.
The Institute of Inspection, Cleaning, and Restoration
Certification [www.iicrc.org] offers continuing education
classes in most areas throughout the year. Topics range from
carpet cleaning to the art of drying.
After the building is cleaned and dried out, the work is
pretty much standard remodeling.
JLC: Are insurance adjusters
hesitant to deal with small or single-person
Dietmeyer: There should be no problem as long as the
small company has the proper licenses and insurance. The
problem with small companies is that they tend to get
overextended. It's better to say that you are too busy to take
a job than to take it and have an angry customer calling the
adjuster asking why you haven't painted the living room. If
that happens, you say goodbye to any future referrals.
JLC: How does estimating
insurance work differ from estimating a standard
Dietmeyer: Aside from drying out, there's no real
difference. You might charge a per-square-foot fee for
replacing drywall or refinishing a floor, a linear-foot charge
for installing trim, and so on.
A good estimating program helps. Room dimensions are entered
by line item or through a sketch option. Once that is done, you
select the scope of work and items for each room to arrive at a
line-item bid that provides concise material and labor
JLC: What estimating software do
Dietmeyer: Three popular packages are Xactimate
[Xactware, 800/424-9228, www.xactware.com.], IntegriClaim
Estimator [Marshall & Swift/Boeckh, 888/337-9665,
www.msbinfo.com], and Simsol for Contractors [Simsol,
800/447-4676, www.simsol.com]. Find out what program the
adjusters are using in your area.
Most of our local carriers work with Xactimate, so that's what
we use. My company paid less than $1,000 for the program
several years ago, plus several hundred dollars to attend a
basic three-day training class. The number of users determines
the monthly cost to use the program, which in our case is about
JLC: How hard was it to learn the
Dietmeyer: No harder than any other estimating
software. Once you learn the basics, you can create complete,
detailed estimates very quickly. However, it takes a good 50
estimates to become really fast and to learn all the program's
JLC: How do you know the
software's cost estimates are accurate for your local
Dietmeyer: These programs rely on regional cost data,
which gets updated several times a year to follow price trends,
but you can also adjust the costs yourself. We had to manually
update the price of plywood when they started rebuilding in
Iraq and costs suddenly went higher than Xactimate's database
indicated. When we did the next regular download of new prices,
they were right on.
JLC: Is there any way a
contractor can check his numbers to see if they are in line
with what the adjuster is willing to pay?
Dietmeyer:: The best thing to do is to submit your
estimate, then call the adjuster to talk about it. Once you've
done a few jobs with the same company, you learn what they
expect to pay for various line items.
Some adjusters will actually provide you with a printout of
their line-item prices to use as a guide. When I was an
adjuster, for example, I usually settled a claim by writing my
own estimate and having the contractors on my list work
directly from it. If market conditions force you to charge a
higher price than the adjuster is used to paying, you need to
discuss the higher price up-front, and provide a specific,
"Homeowners tend to forget
that the purpose of insurance is to put things back as
they were, not to add that kitchen island they've
JLC: Do all claims require
Dietmeyer: Not always. If a contractor is fair and
provides accurate estimates to the adjuster, more than one
estimate is not needed on most claims. Most adjusters keep a
list of trusted flooring and cabinet companies, roofers,
plumbers, and others who they not only refer business to, but
trust to answer questions when a lesser-known company is on the
job. When the relationship between contractor and adjuster is
based on trustworthy information, guess who benefits?
JLC: When creating a bid, how do
you decide whether to repair or to replace a particular
Dietmeyer: Repair or replace options apply to things
like flooring, cabinets, and wall coverings.
Say you have four feet of water-damaged lower kitchen
cabinets. If it will cost less to rebuild the boxes with the
original faces than to replace the cabinets, then that is what
needs to be done. If, on the other hand, it would cost more to
rebuild the boxes than to buy new cabinets, you should put that
on your bid, but you should provide the adjuster with
documentation for your decision.
JLC: What if you run into
unforeseen damages after starting work?
Dietmeyer: That's one reason why it's a good idea to
include a detailed scope of work with your bid. If you run into
damage outside that scope, you need to estimate the costs for
repairing it, then get these costs to the adjuster. In some
cases, small supplements are approved over the telephone.
JLC: What if you forget to put
something on the estimate?
Dietmeyer: In most cases, if you notify the adjuster,
there shouldn't be a problem, especially if you have a good
relationship with your adjuster and have built a reputation as
an honest company.
However, in some cases you may be told that the agreed price
is the agreed price, so be careful with your estimates.
JLC: Do adjusters try to pay as
little as possible for a claim, or are they generally
Dietmeyer: It varies, not just by company, but by the
particular manager in charge of the local office.
The insurance company I worked for was willing to pay whatever
the policy owed, but some companies are tighter. There is one
insurer that we won't do business with because they lowball
Also, inexperienced adjusters will become afraid or skeptical
when they see bigger numbers and might try to pay less than the
job is worth.
When I got into the restoration business, it was a real
eye-opener to see that a job I thought should take eight hours
really required 20.
JLC: It obviously costs a
contractor more in overhead to do small jobs. Do adjusters take
this into account?
Dietmeyer: My former company often paid a minimum for
small jobs that was higher than what it would cost if priced
out by the square foot. We did this to compensate for the
higher overhead costs and added hassle for the
Insurance work requires a good piece of
estimating software. Dietmeyer's company uses Xactimate because
it's what most of his local adjusters use. The software relies
on a database of labor and materials prices, which gets updated
several times a year. Dietmeyer is able to print out a detailed
scope of work and pricing for each item, which he asks the
homeowner and adjuster to sign before he begins
JLC: What is the typical payment
Dietmeyer: The first payment is usually the actual cash
value of the job, which is replacement cost less a depreciation
You may be asked to start work before getting the first
payment. If this happens, be sure you have an agreed scope and
pricing with the adjuster and homeowner before starting
JLC: Does the insurance company
pay the contractor directly?
Dietmeyer: Some companies will pay you directly with
authorization from the insured homeowner if you're on their
vendor list. Most companies send the check to the insured,
often with only their name on it. The insured is supposed to
pay you, but you might guess what sometimes happens — a
vacation, a car, or some other toy. With experience, you learn
to anticipate this type of thing.
My advice is to listen carefully when homeowners talk about
finances. If they keep talking about how they're behind on
their house payments, that's a red flag.
JLC: Are homeowners generally
hard to deal with?
Dietmeyer: Not always, but some can be. Homeowners tend
to have a difficult time understanding that you will be paid
only for work directly related to the covered loss. They also
tend to forget that the purpose of insurance is to put things
back as they were, not to add that kitchen island they've
To make sure they understand this, it's always best to take
the time to meet with the homeowners and go through the
approved estimate room by room, or even line item by line item.
If the insured wants you to inflate the claim, refer them back
to the adjuster. If they tell you someone else will agree with
them, walk away.
Even a homeowner who seems to understand this can cause
problems after work starts. Your crew may be asked to paint an
extra room, move a doorway, build a pantry, or whatever else is
on the insured's wish list. Or the insured may expect you to
give them a marble countertop to replace their smoke-damaged
JLC: How hard will a homeowner
push for these kinds of extras?
Dietmeyer: The average person will take one shot and
stop when it doesn't work. Then there's the occasional
For instance, we were recently referred to a job where the old
kitchen cabinets had gotten wet when the upstairs bath leaked.
There was no damage, so we moved them out of the way and mopped
up water. They dried out. The problem was that the homeowners
desperately wanted new kitchen cabinets. They called us several
times to tell us that they had spoken with the adjuster, and
that the adjuster had authorized replacement cabinets. We
called the adjuster and were told that wasn't true. If we had
discarded the old cabinets, then found out the insurance
company hadn't authorized it, we would have been liable.
We've actually had cases in which customers refused to pay us
the final amount owed to us unless we did some extra work for
them. Some will get real threatening and say there's mold in
cabinets and threaten to sue you. My advice in these situations
is not to take the bait. The customer who holds the last
payment hostage will usually hold back payment no matter how
much free work you do.
JLC: How do you protect yourself
Dietmeyer: All you can do is communicate. Talk to the
adjuster before you do any work. And make sure to keep the
homeowner in the loop. Be very clear about what the estimate
does and does not include, and have the homeowners sign off on
In our contract, for example, the homeowners have to agree to
endorse any insurance check to our company, and to authorize us
to sign any insurance checks made out to them.
The most important thing you can do to protect yourself is be
fair and honest with everyone. An adjuster who has confidence
in your integrity based on past experience will be much more
willing to consider any special situations or needed
supplements, and will be more willing to back you up when
there's a dispute with the homeowner.
Finally, realize that sometimes the best thing you can do is
walk away from a job before it starts. Don't be so anxious to
be busy that you're willing to take anything.