By: Ron Haynes
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SHOULD YOU TRUST XACTIMATE?
Xactimate is estimating software typically used by the insurance company which estimates the cost for repairs and reconstruction. Many times, the adjuster from the insurance company will come view your loss, take pictures, sketch a floor plan or make drawings, and then go back and plug the information into the software and forward you an estimate showing what the insurance company thinks the loss is worth. According to the Xactimate website, Xactimate is used in one out of every two property claims in the United States and Canada and more than 80 percent of insurance repair contractors use this system and pricing data.
The issue for property owners is can you trust the Xactimate estimate you received. If you know more about the company’s background and how the software works, your answer may be no. Xactimate is owned by Verisk which is a part of ISO which stands for Insurance Services Office. This company began in 1971 and was designed to provide support to insurance companies for property and casualty claims. ISO provides advisory services and information to many insurance companies and they develop and publish policy language typically used by most insurance companies. As one of their functions, they provide the estimation software known as Xactimate which is an insurance company tailored product.
In 1989, Xactware attempted to develop what they thought was a unique and scientific approach to determining building cost pricing for the insurance repair market. This is determined by conducting market surveys on both time and material with industry suppliers, contractors and services across the United States. Notice that the surveys are only conducted with industry (insurance company) suppliers, contractors and services. They claim to use an algorithm that analyzes around 20,000 market surveys of random selected contractors. It appears that these surveys come from Xactimate users and the algorithm eliminates what are known as outliers, which would be the prices that would be considered too high by the algorithm so they are kicked out of the pricing determination. This algorithm was not developed by professionals with construction experience but instead was developed by people with experience in economics and statistical analysis. Once the price is determined, Xactimate publishes pricing which reflected in price lists based on zip code and they claim to do this on a monthly basis.
Even the company acknowledges that the pricing in Xactimate may not be accurate and that the pricing should be reviewed to determine if it should be accepted or adjusted. Xactimate has published a brochure on its pricing research methodology in which this brochure states as follows:
As Xactware’s published cost information is a reported market price based on recently acquired submissions, there is no way to be certain that any published price will be appropriate for a specific contractor, repair, or structure. Having cost information that is based on recently submitted prices, however, is an extremely valuable tool in creating appropriate repair estimates, providing a basis from which the estimator can then decide whether the price should be accepted or adjusted….
According to Xactware help, as a user, you can view and modify the unit price as well as the line item price in the settings section of the program. Further, depending on if the adjuster is using the cloud-based version or the actual software, there may be an issue as to whether the software and information are up to date. It appears that on a mobile platform or desktop, the user must download the updated price list. How jobs are classified can also affect pricing. For example, on a roofing job, Xactimate will default to DMO pricing (which stands for demolition). Demolition traditionally requires the utilization of a separate crew which generally consists of non-specialized laborers or day laborers which is a much cheaper price. However, roofing companies do not use two separate crews but instead used skilled labor. When the removal cost is changed to RFG for roofing, the price increases significantly because of the price for skilled labor.
At least one lawsuits was filed against insurance companies for using Xactimate software. In 2007, a lawsuit was filed in the United States District Court for the Eastern District of Louisiana regarding Hurricane Katrina and the methodology employed by State Farm in adjusting a loss. See Kathleen Schafer, Et Al v. State Farm Fire and Casualty Co, Et Al, case number 2:06-cv-08262-LMA-ALC (2007). The homeowner in the case alleged that State Farm required their adjusters to use Xactimate, State Farm received its own pricing below market value and that State Farm was engaged in a scheme with other insurance companies to obtain below-market pricing. They sought a class action against State Farm and Xactware as well. Ultimately it appears the case was dismissed, however, it shows that others are questioning the legitimacy of the Xactimate pricing.
Given that a company that solely services the insurance industry has created an estimation software to be used by the insurance company which gets its pricing from only those who work for insurance companies, if data is not entered correctly it seriously affects pricing, pricing can be changed within the program and Xactware itself admits in its own brochure that you cannot accurately estimate the price because of other factors, I would seriously question the accuracy of any Xactimate price I received. It is always best that you obtain your own estimate for your loss from someone who is familiar with local pricing and can accurately estimate the loss. This naturally would be a general contractor or a public insurance adjuster. Public adjusters are generally familiar with Xactimate and can write their estimates with the correct pricing using that program or format the estimate in such a way that the insurance company can compare apples to apples. If you use a general contractor, it would be preferable that you choose one to give you an estimate that has familiarity with insurance companies and how they like their estimates so that they can provide one that can be understood by the insurance company. This will allow you to be the most successful in the claim process and allow you to obtain what is fair and reasonable to properly repair your property.
Don’t just settle for what the adjuster offers you using Xactimate. Make sure the estimate is accurate and equates to what an actual contractor would charge to do the job. If the insurance company still refuses to pay the fair and reasonable price to repair your property, contact Christopher Ligori & Associates for a free claim’s review.