SELLER BEWARE: The Contract That Hands Your Business to the Adjuster

Originally published by Andrew G. McCabe on LinkedIn. Read the original on LinkedIn →

A contingency agreement standard to insurance restoration quietly transfers pricing authority, scope control, and payment rights from the contractor to the carrier. Most contractors sign it before they understand what it says.

This is not a hypothetical. A contractor client sent me their current customer agreement this week. The price line read: Insurance proceeds (revenue + supplements). That is not a price. It has no number and no floor.

A zero-dollar contract is a null contract. There is no consideration, no defined obligation, and no basis for enforcement. You signed a piece of paper, not a binding agreement.

The specific language at issue is worth reading in full:

“This Agreement is contingent upon insurance company price and approval. This does not obligate the Customer or Company in any way unless it is approved by Customer’s insurance company and accepted by Company. In situations where supplements for additional work are necessary outside of the original scope of work, Company will seek approval from insurance company and payment from owner. Customer’s out of pocket expense not to exceed deductible, plus any upgrades.”

Four sentences. Each one transfers authority the contractor should hold to a party with no duty to use it fairly.

The adjuster’s number becomes your number. Not because the law requires it. Because you agreed to it in writing.

The Carrier Is Now Setting Your Price

Ed Cross, restoration attorney and author of The Book on the Assignment of Benefits, has stated plainly that the insurance industry is legally required to adapt to what the restoration industry charges. It is not the other way around. Carriers must have an objectively reasonable justification for any denial or they face liability for bad faith.

That legal protection disappears the moment a contractor signs a contingency agreement accepting “insurance company price” as the contract amount. The right that the law otherwise protects is voluntarily surrendered in writing. The adjuster’s number becomes the project budget, not because any statute compels it, but because the contractor agreed to it before a single day of work began.

Cross has documented the downstream effect: when restorers allow insurers to make significant changes to prices and scopes, policyholders risk receiving something less than what the contractor’s professional judgment would call a full restoration to pre-loss condition. That consequence lands on the insured as directly as it lands on the contractor.

The Restoration Industry Association’s peer-reviewed Advocacy Position Statements address this directly. The RIA’s published position is that third parties, including carriers and their adjusters, cannot unilaterally dictate restoration procedures, scope, price, or billing. Absent a direct contractual relationship with the carrier, a restoration contractor has no legal obligation to an insurer, its adjuster, or any third-party consultant. A contingency contract built around carrier approval replaces that independence with voluntary submission.

The Supplement Clause Is a Trap

Read the supplement language again: “Company will seek approval from insurance company and payment from owner.”

For any work outside the original scope, the contractor agreed to seek carrier pre-approval before proceeding, then separately pursue the homeowner for payment. The carrier owes no duty of cooperation here. No timely response. No fair review. Granting them a veto over supplement scope gives them the power to kill additional work with no contractual consequence to themselves.

The next sentence contradicts the preceding one. The homeowner’s out-of-pocket is capped at the deductible plus upgrades. Those two provisions cannot coexist. If the carrier denies a supplement and the contractor turns to the homeowner, this document simultaneously says payment can and cannot be collected from them. Contract ambiguity resolves against the drafter in a dispute. The drafter is the contractor.

Ed Cross, in developing the RIA’s Pricing Position Statement on cost-of-doing-business denials, explained that valid adjustments to contractor invoices can only stand when they follow a system grounded in the written terms of the insurance policy itself. An adjuster who simply “doesn’t pay for that” has not made a lawful adjustment. But when your own contract required their approval to proceed, the leverage to challenge that denial is gone before the dispute begins.

No Direct Right to the Money

Without an Assignment of Benefits or an Assignment of Insurance Rights, the contractor has no independent legal standing to recover insurance proceeds. The carrier issues payment to the insured. The insured controls the funds. If they delay, go dark, or dispute the invoice, there is no direct legal path to the money intended to pay for the work.

Ed Cross puts it directly in his collections framework: “Securing payment for restoration work starts before the customer signs a contract.” The contract is where rights are either established or surrendered. A contingency agreement with no AOB and no defined price surrenders them completely.

The Insured Gets Hurt Too

This extends past the contractor’s bottom line. When a contractor agrees to work within whatever the carrier approves, the insured loses their most important advocate in the claims process. The carrier’s number becomes the project budget. If the adjuster underpays the scope, the restoration stops wherever the estimate stopped, regardless of what the property actually needs.

The insured paid premiums for full indemnification. What they receive is a repair calibrated to the adjuster’s line items, not the actual scope of the loss.

Cross has written that these dynamics force restorers to cut corners, encouraging unsafe and unprofitable projects that are not sustainable for carriers, property values, or the businesses doing the work. That is not coincidence. It is a structure. And a contingency contract built around carrier approval is how that structure gets agreed to in writing, before the first truck pulls up to the job.

What a Real Contract Does

A properly structured restoration contract names the contractor as the party who determines scope. The price must be defined, or at minimum subject to a mechanism controlled by the contractor and the insured rather than the carrier. An Assignment of Benefits or Assignment of Insurance Rights belongs in that document, giving the contractor direct legal standing to pursue payment independent of the insured’s cooperation.

The supplement process needs to be defined without requiring carrier pre-approval to proceed. Upgrade costs need to be separated from covered work with language that does not contradict itself. These are not obscure legal refinements. They are the basic structural requirements of a contract that actually protects the party doing the work.

The RIA and attorneys like Ed Cross have built entire bodies of work around giving restoration contractors exactly these tools. Those resources exist and are accessible. Using them is not complicated. But it starts with understanding what a bad contract actually costs, and the one quoted above costs the contractor everything before the job begins.

Your contract is either working for you or working for the carrier. There is no middle ground.

Andy McCabe is the founder of Claims Delegates and a licensed public adjuster (NPN 6228736). He has more than 25 years of restoration industry experience working alongside contractors to document their full scope of loss and advocate for what is owed under the policy. Claims Delegates provides Xactimate estimating and claim consulting services for restoration contractors nationwide.

If you would like us to work up a compliant contract that protects you and your client, head over to YourContractSucks.com.

Assignment of Benefits: Why When You Sign Matters More Than You Think

Originally published by Andrew G. McCabe on LinkedIn. Read the original on LinkedIn →

If you are a restoration contractor who performs insurance work, you need to understand the Assignment of Benefits. Not just what it is, but how and when to use it. This article is the first in a series where I will break down the AoB (also called an AoR, or Assignment of Insurance Rights) and show you how to use it as a powerful collections tool in your business.

What Is an AoB?

When a homeowner has a covered loss, they have rights under their insurance policy. The right to collect payment. The right to dispute the carrier’s estimate. In some states, the right to sue the carrier for breach of contract or bad faith. Those rights belong to the homeowner, not to you. You are a stranger to the insurance contract.

An AoB changes that. It is a legal document where the homeowner transfers their insurance claim rights to you, the contractor, for the portion of the claim that covers your work. Once you hold a valid AoB, you are no longer on the outside looking in. You step into the homeowner’s shoes. The carrier now has to deal with you directly.

Think of it like the doctor’s office. When you check in, you sign a form that lets the doctor collect payment straight from your health insurance. Nobody thinks that is weird or adversarial. It is just how it works. An AoB does the same thing for restoration contractors.

The Timing Problem Nobody Talks About

Most contractors who use an AoB get it signed at the very beginning of the project, right alongside the work authorization and contract. That makes sense on the surface. Get all your paperwork signed up front, get to work.

But a contractor I work with in Washington and Idaho learned something that should change how you think about this.

This contractor uses Assignments as a core part of their collections process. When a carrier refuses to pay an invoice, they file suit for breach of contract. It is not a threat. It is their business model. And it works.

In a recent case, however, the carrier pushed back on the AoB itself. Their argument was creative, and it almost worked. They said: “The homeowner signed this Assignment before any work was performed. At the time of signing, there was no completed work. There was no invoice. There were no ‘benefits’ in existence to assign. You cannot transfer ownership of something that does not exist yet.”

Let that sink in.

The carrier was not arguing that Assignments are illegal. They were not arguing that the homeowner did not consent. They were arguing that the Assignment was empty. That at the moment the pen hit the paper, there was nothing real to transfer. No work had been done. No money was owed. No benefits existed. You cannot hand someone a box and call it a gift if there is nothing in the box.

The Fix

When the AoB is signed after the work is performed, that argument falls apart completely. The work is done. The documentation exists. The invoice has been generated. The homeowner has a concrete, existing right to payment for services that were actually rendered. That is what gets assigned. There is nothing empty about it, and the carrier loses their angle of attack.

What This Means for Your Process

This does not mean you ignore the AoB until the end of the job. Your process on Day One stays the same. You get the contract signed. You get the Insurance Information Release signed. You notify the carrier. You stay visible and involved throughout the claim.

The only thing that changes is when the Assignment itself gets signed. My recommendation is to present the AoB to the homeowner at the same time you deliver the invoice. The work is done. The amount is documented. The benefits being assigned are real. While you are at it, get a Certificate of Satisfaction signed at the same time. This accomplishes two things at once: the homeowner confirms they are satisfied with the completed work, and they execute the Assignment that transfers their insurance rights to you for that work. On a multi-phase project, do this at the completion of each phase.

It is a small change in procedure. But if you are using Assignments to collect and you ever end up in front of a judge, this one adjustment removes a line of attack that carriers are already using.

In the next article in this series, I will dig deeper into how AoRs work, what rights they actually transfer, and why Ed Cross stopped calling them “Assignments of Benefits” altogether.

Join Andy LIVE on May 24th: RestorationSpringTraining.com

The Price of Obedience: How “Standard” Rates Bankrupt Good Contractors

Originally published by Andrew G. McCabe on LinkedIn. Read the original on LinkedIn →

Imagine this: a pipe bursts, flooding your home. In the midst of chaos, a restoration contractor arrives, a beacon of calm and competence. They get to work, navigating the complexities of water extraction, drying, and rebuilding. You breathe a sigh of relief, trusting that the insurance policy you’ve dutifully paid for will do its job and make you whole.

But behind the scenes, a battle is brewing. It’s a fight waged not just over the cost of lumber and labor, but over the fundamental business principles that allow that competent contractor to exist in the first place. A quiet crisis, rooted in outdated math and flawed assumptions, is threatening the entire property claims ecosystem. It erodes the promise of your policy from the inside out, and it all starts with a simple, dangerously misleading formula: “10 and 10.”

The Most Expensive Mistake: Confusing Markup and Margin

Before we can dissect the industry-specific issues, we have to start with the single most critical concept in pricing: the difference between Markup and Gross Margin. Confusing the two is the most common and costly mistake a contractor can make, yet it forms the basis of the insurance world’s flawed pricing model.

Markup is the percentage you add to your costs to arrive at a selling price. It’s a cost-up calculation. (Cost + Markup = Price)

Gross Margin is the percentage of the final selling price that is left over after costs, representing the funds available to cover overhead and produce a net profit. It’s a price-down calculation. ( (Price – Cost) / Price = Margin)

They are not interchangeable. A 25% markup does not yield a 25% margin.

If your business requires a 25% gross margin to cover overhead and achieve a modest net profit, simply marking up your job costs by 25% is a recipe for failure. On a $100,000 job, this basic math error would leave you with a 20% margin, costing you over $8,000 in gross profit needed to run your business. To achieve a 25% gross margin, you would have needed a markup of 33.3%. This fundamental misunderstanding is the fertile ground in which the property insurance world’s most damaging myth has taken root.

The “10&10” Fallacy: A Recipe for Failure

For decades, a common practice in insurance claims has been to allow contractors 10% for overhead and 10% for profit on top of their direct costs. This “10 & 10” model, which is a simple markup approach, is presented as a standard, reasonable allowance.

It is anything but.

The Restoration Industry Association’s (RIA) latest Cost of Doing Business survey paints a starkly different picture. The data reveals that the average overhead for a restoration contractor is not 10%, but closer to 36%.

Let that sink in. The standard 10% overhead allowance doesn’t even cover one-third of a typical contractor’s real-world indirect costs. By the time a contractor covers their actual overhead—things like administrative salaries, liability and workers’ comp insurance, vehicle payments and fuel, warehouse rent, utilities, software licenses, and ongoing training and certifications—the entire 10% profit has been completely vaporized, and they are deep in the red.

The result is a business model that is fundamentally broken. The RIA reports that more than half of all restoration companies are scraping by on a net profit margin of less than 10%, with a shocking 8% operating at a loss. This isn’t just a margin issue for a few struggling businesses; it’s a systemic sustainability crisis. Good, honest companies are being forced to choose between closing their doors, refusing to work on insurance claims, or cutting corners in ways that ultimately harm the policyholder.

What Is O&P, Really? Its Compensation for Risk.

The terms “Overhead” and “Profit” have been used for so long and in such a reductive way that they’ve lost their real meaning. Let’s redefine them based on the reality of the restoration industry.

Overhead is the cost of readiness. It’s the immense, ongoing investment a contractor makes to have a staffed office, insured vehicles, specialized drying equipment, and highly trained crews ready to deploy at 2 AM on a Sunday. It’s the cost of being able to answer that emergency call and immediately stabilize a property, preventing further damage. It’s not a luxury; it is the essential infrastructure that makes professional restoration possible.

Profit is the compensation for assuming risk. Unlike a typical retail transaction, a restoration contractor takes on enormous and varied risks that are virtually unique to the industry:

• Financial Risk: This is the single greatest threat. Contractors effectively act as an interest-free bank for multi-billion dollar insurance carriers, financing the entire cost of a repair for months while waiting for payment. The average accounts receivable in the industry is over 65 days. This isn’t just an inconvenience; it’s a significant cost of capital that is completely uncompensated.
• Project Risk: Restoration is not new construction. Every project involves countless unknowns hidden behind walls or beneath floors. Contractors must manage unforeseen conditions, volatile material costs, labor shortages, and the potential for subcontractor defaults, all while working in a damaged and often hazardous environment.
• Safety & Liability Risk: Restorers manage sites containing microbial growth, asbestos, lead, and other hazards. This requires strict adherence to safety protocols, specialized certifications (like from the IICRC), and significant liability insurance to protect both their workers and the property occupants.

When an insurer arbitrarily denies or reduces O&P, they are not just trimming fat. They are refusing to compensate the contractor for being a stable, ready, and risk-assuming business—the very qualities a policyholder desperately needs after a loss.

The Misuse of Estimating Tools

This flawed pricing model is often enforced through the willful misuse of estimating software like Xactimate. Adjusters frequently claim they can only pay “what Xactimate says,” treating the software’s price list as a non-negotiable cap on what a repair should cost.

This is in direct contradiction to the software provider’s own guidance. Xactware’s End User License Agreement (EULA) explicitly states that its price data is a “baseline or place to begin creation of an estimate,” and that users are responsible for ensuring the final estimate reflects actual market conditions and costs.

Furthermore, these platforms are unit-price estimating tools, not time-and-materials (T&M) accounting systems. A single line item for “drywall replacement” is a complex composite of dozens of material, equipment, and labor assumptions, bundled into an efficient unit price. Demanding a contractor produce timecards and material receipts to justify that unit price is a disingenuous tactic designed to dismantle their pricing structure and deny their right to earn a margin. It’s like asking a restaurant to provide its raw food receipts to justify the menu price of a steak dinner, ignoring the chef’s expertise, the kitchen’s overhead, and all other business costs. As I’ve told clients before, my response to “we need to see your costs” is a simple, resounding “no.” Our price is for the scope of work, not an audit of our internal financials.

Your Numbers, Your Markup: A Contractor’s Guide to Profitable Pricing

Rejecting the “10 & 10” myth is the first step. The second is replacing it with a data-driven number that is specific to your business. Pricing based on what a competitor charges or what an adjuster offers is a guess; pricing based on your own financials is a strategy. Here is the step-by-step process every contractor should undertake annually.

Step 1: Calculate Your Total Annual Overhead

This is the total cost to keep your doors open for a year, regardless of how many jobs you do. Pull up your last 12 months of Profit & Loss statements and be brutally honest. Include everything that isn’t a direct job cost (labor, materials, subs):

• Salaries: Your own market-rate salary, plus all office/administrative staff.
• Office/Shop: Rent, utilities, internet, phone bills, property taxes.
• Vehicles & Equipment: Payments, fuel, insurance, maintenance, repairs, depreciation.
• Professional Services: Accounting fees, legal advice, coaching, association dues.
• Marketing & Sales: Website hosting, advertising costs, business cards, sales commissions.
• Insurance: General liability, workers’ compensation, builder’s risk policies.
• Miscellaneous: Small tool purchases, bank fees, software subscriptions, training costs, bad debt from unpaid invoices. Let’s say your total annual overhead comes to $180,000.

Step 2: Determine Your Annual Direct Costs (Cost of Goods Sold)

Next, look at your P&L again and total up all the direct costs you incurred to produce your work over the same 12 months. This is your Cost of Goods Sold (COGS)—the total cost of labor, materials, and subcontractors. For this example, let’s assume your total direct costs for the year were $700,000.

Step 3: Set a Target Net Profit

Profit is not a leftover. It is a planned, essential component of your pricing that funds growth, provides a cushion for risk, and rewards you for your efforts. A healthy net profit target for a remodeling contractor is typically between 8% and 15%. Let’s choose 10% for our example.

Step 4: Calculate Your Required Gross Margin

Now, we combine these numbers to find the Gross Margin you need to achieve. This is the percentage of every sales dollar that must be left over after direct costs to cover both overhead and net profit.

• Calculate total revenue: $700,000 (Direct Costs) + $180,000 (Overhead) + ($70,000 Net Profit, which is 10% of Direct Costs) = $950,000
• Calculate total gross profit needed: $180,000 (Overhead) + $70,000 (Net Profit) = $250,000
• Calculate required gross margin: $250,000 (Gross Profit) / $950,000 (Total Revenue) = 26.3%

Your business needs to achieve a 26.3% Gross Margin to be sustainable.

Step 5: Convert Your Margin to Your Markup

This is the final step. You don’t apply a 26.3% markup. You use your required margin to calculate the correct markup that will yield that margin.

The formula is: Markup = (1 / (1 – Margin)) – 1

For our example: Markup = (1 / (1 – 0.263)) – 1 = (1 / 0.737) – 1 = 1.357 – 1 = 0.357

Your required markup is 35.7%.

This is your number. It’s not a guess, it’s not a myth. It is the mathematical reality of what it takes to run your specific business profitably. When you apply a 35.7% markup to your job costs, you will achieve the 26.3% gross margin needed to cover your $180,000 in overhead and generate your $70,000 net profit.

The Path Forward: A Sustainable Ecosystem

The only way to fix this quiet crisis is to build a new model based on financial reality and mutual respect.

Price for Margin, Not Markup: Contractors must intimately know their numbers. This means calculating their specific annual overhead and profit requirements to determine a target Gross Profit Margin (typically 35-40% for a healthy remodeler) and then applying the correct mathematical markup to achieve it. This ensures business stability and the ability to deliver on promises without cutting corners.

Recognize Risk: Insurers must acknowledge that O&P is not a luxury but a necessary and earned component of a bid. It is the only mechanism that compensates contractors for the immense financial and operational risks they assume. A healthy contractor network is a direct benefit to insurers, reducing their own downstream risks of failed repairs, litigation, and dissatisfied customers.

Use Tools Correctly: All parties must treat estimating platforms as the powerful guidelines they are, not as immutable law. The only “right” price is the one that reflects the specific job circumstances and the realities of the local market, agreed upon between the property owner and their chosen contractor. This fosters efficiency and reduces the needless friction that delays a policyholder’s recovery.

A contractor’s profit margin isn’t padding; it’s the buffer that prevents the collapse of their business. Squeezing it to zero doesn’t save money in the long run. It drives good, ethical contractors out of the industry, leaving only those willing or forced to cut corners. This leads to botched repairs, increased disputes, longer claim cycles, and ultimately, a catastrophic failure to uphold the promise made to the policyholder.

Fair profits for restorers are the foundation that supports the entire claims process. If that foundation crumbles, the whole house falls down. For the sake of homeowners and the integrity of the insurance promise, it’s time to rebuild it on solid ground.

#Restoration #Construction #InsuranceClaims #Contractor #Overhead #Profit #Xactimate #Business #Finance #RiskManagement

On October 30th, 2025, I will show you how to apply this True Market Index methodology to the Xactware pricing database. Head over to XactSecrets.com

About the Author: Andrew G. McCabe is a restoration industry veteran, consultant, and founder of Claims Delegates. Since 1999, he’s helped contractors take back control of their pricing, profits, and process using tools like Xactimate and his True Market Index (TMI) system. Andrew is also the creator of Deep Xactimate Secrets and Control the Narrative, courses designed to teach contractors how to build defensible estimates, improve cash flow, and stand up to carrier-driven pricing myths.

He’s a former adjuster turned advocate, a proud Restoration Rebel, and a relentless voice for fairness and transparency in the property claims world. Learn more at claimsdelegates.com or connect with Andrew on LinkedIn to join the conversation.

Why Contractors Help With Insurance Claims – The Real Story

Originally published by Andrew G. McCabe on LinkedIn. Read the original on LinkedIn →

Insurance attorney Steven Badger recently attacked contractor advocate Mathew Mulholland on social media. Badger called Mulholland a “schill for contractors” and said contractors shouldn’t help homeowners with insurance claims. According to Badger, contractors should swing hammers and stay out of claims handling.

This attack shows the real divide in property insurance. Insurance lawyers like Badger live in fantasy land. They think claims get handled fairly, homeowners navigate the process easily, and contractors are unnecessary troublemakers.

I’ve been in restoration for twenty-four years. That’s not how it works.

The Real World

Most homeowners panic when disaster hits. The pipe bursts at 2 AM. The tree crashes through the roof. They call us first, not their insurance company. They ask the same questions every time: “Will insurance pay for this? How do I file a claim? Will I get enough money to fix everything?”

We see insurance estimates that miss half the work needed. We watch adjusters rush through inspections and lowball repairs. The average homeowners claim pays about $16,000. Most homeowners have never dealt with insurance claims before. They’re overwhelmed and out of their league.

Insurance companies know this. They count on it.

The Advocacy Gap

Here’s the problem: small claims don’t justify hiring help. Public adjusters charge 10-30% of the settlement. Attorneys cost even more. A $10,000 claim might net a public adjuster $1,000 – many won’t take jobs that small. Homeowners won’t pay a third of their settlement unless they’re desperate.

This leaves a huge gap. Most property damage claims are small – a few thousand to maybe twenty thousand dollars. No professional advocate will touch these cases. The homeowner faces the insurance company alone.

That’s where we come in. Not because we want to fight insurance companies, but because someone has to help these people.

What We Actually Do

By the time the adjuster shows up, we’ve already torn out wet drywall and patched the roof. We know what work needs doing. When the insurance estimate comes back missing critical items or using unrealistic prices, the homeowner asks us: “Is this enough to fix everything?”

If we stay silent, the homeowner gets stuck. They can fight the insurance company alone (and lose) or accept a payout that won’t cover real repair costs. Neither option works.

We document hidden damage adjusters miss. We explain why repairs cost what they do. We translate construction reality into insurance language. We flag coverage issues the homeowner doesn’t know to ask about.

Most importantly, we support people through the worst days of their lives. That’s not advocacy – that’s customer service.

The Xactimate Myth

Insurance companies treat Xactimate pricing software like gospel. Here’s what they don’t tell you: Xactimate’s own documentation says their prices are “guidelines” and “nothing more than a guideline.” The software warns that actual prices vary based on company size, overhead, and service level.

Verisk, who owns Xactimate, explicitly tells users not to “prohibit deviations from Price Data where contractor requirements, market conditions, demand or any other factor warrants different pricing.”

Translation: if a job legitimately costs more than the database average, pay more. But insurance companies use Xactimate as a ceiling, not a starting point. They demand we work for software prices even when our actual costs are higher.

That’s not how business works. We have employees to pay, materials to buy, and businesses to run. Overhead and profit aren’t dirty words – they keep us in business so we can help the next family.

Why The System Stays Broken

The restoration industry includes over 115,000 businesses. Most are small, local companies doing less than $5 million annually. We compete hard with each other.

But this isn’t a free market. Insurance companies control pricing through software guidelines, preferred vendor programs, and administrator rules. They artificially suppress pricing through administrative power, not fair competition.

Meanwhile, research shows 74% of homeowners are underinsured. One in thirteen homeowners has no insurance at all. Even insured families often carry limits below their actual rebuild costs.

When disaster strikes, these people discover the hard truth about their coverage. Their contractor becomes their only ally in getting a fair settlement.

The Bottom Line

Insurance companies advertise peace of mind. They promise to be “like a good neighbor” and put you “in good hands.” But when claims happen, homeowners lean on us more than their insurance company.

That tells you everything you need to know.

Attorneys like Badger can attack us on social media all they want. Out here in the real world, we’re the ones with muddy boots and wet hands, fixing people’s homes and lives. We don’t interpret policy coverage – that’s not our job. But we do make sure the work gets done right and the bills get paid fairly.

Homeowners expect more than just repairs. They expect guidance. They hire experts because they lack expertise themselves. Telling us to “stay in our lane” means providing worse service to people who desperately need help.

The Real Fantasy

The fantasy isn’t contractors running wild inflating claims. The fantasy is thinking homeowners can handle insurance companies alone. Most can’t. Most shouldn’t have to.

Rather than attack contractor involvement, the industry should focus on training and standards. Well-trained contractors who understand insurance protocols make the process smoother, not harder.

The homeowner’s best interest should guide everyone. When that happens, contractors and adjusters don’t have to be enemies. There’s always tension – we represent different sides of the transaction – but it can be productive tension that ensures fair outcomes.

The alternative is homeowners navigating claims alone. Experience proves that leads to underpayment and dissatisfaction. Ignoring the need for help doesn’t make it disappear. It just shifts the burden onto families already dealing with disaster.

I’ve seen too many homeowners get shortchanged because they had nobody in their corner. Insurance companies have teams of lawyers, adjusters, and accountants. Homeowners have restoration contractors like us.

That’s not fantasy. That’s reality. And it’s time the industry admitted it.

What Really Matters

In twenty-four years of restoration, I’ve learned one thing: actions matter more than words. Insurance companies can promise whatever they want in their commercials. What matters is what happens when someone’s house floods or burns.

We’re the ones who show up. We’re the ones who explain the process. We’re the ones who fight for fair payment so the work gets done right. We’re the ones who help families rebuild their lives.

Steven Badger and his insurance company clients don’t like that? Too bad. Homeowners need help, and we’re going to provide it. That’s not being a “schill” – that’s doing our job.

The promise of insurance is simple: when disaster strikes, you’ll be made whole. Sometimes that promise gets kept by claims adjusters who go above and beyond. Sometimes it takes public adjusters or attorneys on big losses.

But most of the time, it’s the restoration contractor in work boots fighting to get the job done right. We’re not living in fantasy land. We’re standing in flooded basements and fire-damaged kitchens, dealing with reality.

It’s time the insurance industry joined us there.

The Economic Impact of Underpaid Claims

Originally published by Andrew G. McCabe on LinkedIn. Read the original on LinkedIn →

Insurance claim settlements after natural disasters are not just about individual recovery—they are about community survival. The way claims are handled determines whether neighborhoods rebuild or empty out, whether families return or relocate, and whether local economies recover or languish. The relationship between insurance coverage, claims payments, and community recovery presents important implications for disaster resilience and social equity.

The Local Multiplier Effect of Insurance Claim Payouts

When insurance companies pay out claims after disasters, these funds do more than just repair individual properties—they inject vital capital into local economies. Insurance companies distribute millions of dollars into local economies through claims checks, supporting small businesses and communities. This creates what economists call a “Local Multiplier Effect,” where money recirculates through the local economy, generating additional economic activity.

The Local Multiplier Effect describes how spending in a community creates ripple effects as dollars move through the local economy. When dollars are spent at locally owned businesses, they recirculate 2-4 times more than money spent at non-local companies. According to research by Civic Economics, on average, 52.9% of each purchase at local independent businesses is recirculated locally. This multiplier effect can be particularly important following disasters when communities need rapid economic revitalization.

Research examining natural disasters that trigger federal aid found that in the longer run (8 years after a disaster), affected areas saw increases in personal income per capita, suggesting that recovery efforts—including insurance payouts—can fuel economic recovery. The study notes that “longer-run boost increases with damages, suggestive of an important role for insurance and government aid—which are highly correlated with damages—in fueling recovery.”

The Crisis of Underinsurance

Despite the critical role insurance plays in recovery, a concerning pattern of widespread underinsurance threatens many homeowners’ ability to fully rebuild after disasters. A 2025 study analyzing data from the Marshall Fire in Colorado found that 74% of homeowners were underinsured, with 36% classified as “severely underinsured,” meaning their coverage limits were less than 75% of their home’s actual replacement cost.

To put this in practical terms, if a home costs $1 million to rebuild but the owner is 25% underinsured, they would need to come up with $250,000 out of pocket to fully rebuild—a financial burden most households cannot bear. This underinsurance crisis extends nationwide, with a Consumer Federation of America analysis finding that 1 in 13 homeowners is completely uninsured, leaving “at least $1.6 trillion in unprotected market” value.

Interestingly, research suggests that underinsurance isn’t primarily due to homeowners neglecting to update policies or rising rebuilding costs. Instead, insurance companies play a key role, with coverage varying widely between insurers even for similar properties. When consumers focus primarily on premiums rather than coverage limits when selecting policies, insurers have incentives to offer less comprehensive coverage at lower prices.

Population Displacement and Community Transformation

When claims are insufficient to rebuild, the consequences ripple through entire communities. Hurricane Katrina, which struck New Orleans in August 2005, provides a stark case study of this phenomenon. The storm displaced more than a million people in the Gulf Coast region, with up to 600,000 households still displaced a month later. New Orleans’ population fell dramatically from 484,674 before Katrina to an estimated 230,172 by July 2006—a decrease of over half the city’s population.

While many residents eventually returned—by July 2015, the population had recovered to 386,617, about 80% of pre-Katrina levels—the demographic composition of the city changed significantly. Before Katrina, Black residents constituted 66% of New Orleans’ population, but this dropped to 59% post-disaster. Of the 175,000 Black residents who left the city after the storm, only 100,000 returned.

Research examining return migration to New Orleans found that Black residents returned at a much slower pace than white residents. By fall 2006, almost half of displaced residents had returned, growing to almost two-thirds by fall 2007. However, this return was not evenly distributed across racial groups. The differential return rates were largely explained by housing damage—Black residents tended to live in areas that experienced greater flooding and thus more severe housing damage, which delayed their return.

The Role of Insurance and Aid in Rebuilding Communities

The rebuilding process after Hurricane Katrina illustrates both the importance and the limitations of disaster recovery programs. After hurricanes Katrina and Rita, more than 130,000 Louisiana residents received over $9 billion through Louisiana’s “Road Home” program. However, the program faced criticism for its treatment of Black residents, with the Greater New Orleans Fair Housing Action Center filing a lawsuit against HUD claiming that the methodology for estimating grant amounts was biased.

In the vacuum left by displaced residents who couldn’t afford to return, a wave of new residents moved in, often starting businesses and driving up rent and other expenses, making the city less affordable for the Black and Brown residents who had been displaced. This pattern—where insufficient insurance or aid leads to demographic shifts and gentrification—has been repeated in other disaster-affected areas.

Economic Implications of Property Insurance Coverage

The property insurance market itself faces significant challenges. The sector is under pressure from poor financial performance due to unexpectedly high inflation and a shift of exposures to higher-risk regions. These challenges translate into rising premiums or reduced coverage for homeowners, potentially exacerbating the underinsurance problem.

The cascading effects of insurance issues extend beyond individual homeowners to impact local and state budgets. Unaffordable home insurance drives down local property values and increases vacancy rates. Since property taxes account for nearly three-quarters of local tax collections and are a significant revenue source for financing education, police and fire departments, parks, and other services, this creates a potential downward spiral for affected communities.

The Path Forward: Ensuring Fair and Complete Claims Payments

The evidence suggests that fair, complete, and prompt payment of insurance claims is indeed critical for community recovery after disasters. When insurance payouts are insufficient, the consequences extend beyond individual homeowners to reshape entire neighborhoods and communities.

Greater insurance coverage of hurricane and tornado damages could lead to greater insurance payouts that help finance recovery efforts. However, achieving this requires addressing the systemic issues that contribute to underinsurance. This might include more transparent insurance comparison tools that help consumers understand the true replacement cost of their homes and make more informed decisions about coverage limits rather than focusing exclusively on premiums.

Additionally, ensuring that disaster aid programs are administered equitably is vital to preventing the displacement of long-term residents and preserving community cohesion. The settlement reached in 2011 regarding the Road Home program provided about 1,300 homeowners in four parishes $62 million in additional compensation, acknowledging some of the inequities in the original program.

Conclusion

The relationship between insurance claims, local economic recovery, and community preservation after disasters is complex but vital to understand. When claims are paid promptly and fully, they not only help individual homeowners rebuild but also inject capital into local economies, creating multiplier effects that support broader community recovery. Conversely, when claims are insufficient—whether due to underinsurance, delayed payments, or inequitable distribution of aid—the consequences can include permanent displacement, demographic shifts, and the loss of longstanding community ties.

As climate-related disasters increase in frequency and severity, ensuring that insurance markets function effectively and equitably will become even more critical to preserving communities and helping them bounce back from devastating events. This requires attention not just from insurance companies but also from policymakers, regulators, and consumers themselves, who must advocate for systems that protect both individual homeowners and the communities they comprise.

Andrew G. McCabe, Founder & Chief Estimator, Claims Delegates. Certified Xactimate Pricing Consultant | Licensed Public Adjuster | Claims Expert Witness. Bend, Oregon | [email protected] | www.claimsdelegates.com

With over 20 years in the property restoration industry, Andrew specializes in insurance claim resolution, contractor advocacy, and Xactimate estimating. Through Claims Delegates, he helps restoration professionals write better estimates, get paid faster, and stand firm in their value.

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