HOW INSURANCE CLAIMS WORK
When an insurance claim is filed on a property, the insurance company is paying fair market value to bring that property back to pre-storm conditions. The property owner for their part, agreed to pay the pre-determined deductible. When the work is done by a contractor for less than the insurance pays, then one of two things will happen: you will either save the insurance company money, or you and your contractor will be committing insurance fraud. Let’s look at some examples of how this works.
In the example below, the value of this roof replacement is $10,000. The insurance company will depreciate your roof by it’s age and hold back that amount in what is called recoverable depreciation, until the job is finished. Once the contractor has finished the roof, they will then invoice the insurance company, letting them know it is finished, and they can then release that last check. The insurance company uses this a safeguard to ensure you get the work done. So the math on this claim would looks something like this:
[deductible example 1]
So in this example, the most you will receive from the insurance company on this claim is $9,000 even though the work is valued at $10,000. The remaining balance is the deductible, which is then owed to the contractor by the property owner. If the property owner asks contractors for estimates and an estimate the comes in lower at $8,000, then when the contractor goes to invoice the insurance company at the end of the job, the insurance company doesn’t say, “Good job, you found it cheaper. Now you get to keep $1,000 for being so thrifty.” Instead they will say, “Thanks for saving us money and the equation will now look like this:
[deductible example 2]
You can see that as long as all parties are being honest, getting a lower bid does not benefit anyone except the insurance company. In fact, it usually backfires against the property owner, as many roofers will cut corners and use seconds and surplus materials to still remain profitable. In some cases however, roofers will tell the property owner that they will waive their deductible.
When the “deductible is waived” what it really means is that the contractor will still invoice the insurance company for the full $10,000, even though they are only charging $8,000. This is insurance fraud, is illegal and both parties can be prosecuted and are subject to fines. It also means that the contractor is still taking a $2,000 hit on the job which will result in corners being cut on workmanship and materials. The only thing keeping the rain from entering your premises and destroying your possessions and property is your roof. The last thing you want is a sub-par job that could just end up leaking a year or two down the road. Plus, if a contractor will be dishonest with the insurance company, what will keep them from being dishonest with you?
Below is an excerpt from the legal bill just in case you thought we were making it up.
Sec. 27.02. CERTAIN INSURANCE CLAIMS FOR EXCESSIVE CHARGES.
(a) A person who sells goods or services commits an offense if:
(1) the person advertises or promises to provide the good or service and to pay:
(A) all or part of any applicable insurance deductible; or
(B) a rebate in an amount equal to all or part of any applicable insurance deductible;
(2) the good or service is paid for by the consumer from proceeds of a property or casualty insurance policy; and
(3) the person knowingly charges an amount for the good or service that exceeds the usual and customary charge by the person for the good or service by an amount equal to or greater than all or part of the applicable insurance deductible paid by the person to an insurer on behalf of an insured or remitted to an insured by the person as a rebate.
(b) A person who is insured under a property or casualty insurance policy commits an offense if the person:
(1) submits a claim under the policy based on charges that are in violation of Subsection (a) of this section; or
(2) knowingly allows a claim in violation of Subsection
(a) of this section to be submitted, unless the person promptly notifies the insurer of the excessive charges.
(c) An offense under this section is a Class A misdemeanor.