Why Squeezing Restorers Threatens Everyone
There is a quiet epidemic brewing in the property claims industry: restoration contractors are finding it nearly impossible to earn a sustainable profit under current insurance claim practices. This isn’t just a handful of struggling businesses – it’s a widespread profitability crisis with hard data to back it up. The Restoration Industry Association’s latest Cost of Doing Business survey reveals that the average net profit margin for restoration firms is only about 14%, and more than half of companies scrape by at under 10%. Worse, 8% are actually operating at a loss. In an industry where contractors must invest in skilled labor, training, equipment, and compliance, such razor-thin margins are not just difficult – they’re unsustainable. As the RIA’s president bluntly put it, “This isn’t a margin issue. It’s a sustainability crisis.”
Why are profits so low? A major factor is the outdated pricing assumptions baked into many insurance estimates. It’s common for insurers (and their estimating software) to allocate a flat “10 and 10” – 10% for overhead, 10% for profit – on property damage jobs. But the 10&10 model is woefully inadequate, and was never designed for real world applications. Industry data show that average overhead expenses run around 36% of project costs – far above the token 10% many carriers still benchmark. In other words, by the time a contractor covers ~36% overhead, that default 10% profit vanishes into the ether. On average, restoration companies only keep that ~14% net after all costs, and many see single-digit or negative returns. No business – especially one on the front lines of disaster recovery – can survive for long on such slim margins. This is the hidden crisis in the claims process: by making full, fair payment so difficult, the system is quietly bleeding its restorers dry.
When Profit Vanishes, So Do the Professionals
If restoration contractors cannot earn a reasonable profit, the consequences will ripple across the entire property insurance ecosystem. Quality restoration professionals will exit the industry – and many already are. Some are pivoting to other sectors (like general remodeling or commercial construction) where they can charge actual market rates. Others are refusing insurance jobs that won’t cover their costs. As one industry analysis noted, when insurers chronically undervalue projects, contractors face a grim choice: “either (a) cut corners to meet the budget (which is problematic), (b) refuse jobs where the insurance won’t cover their costs, or (c) work with homeowners to challenge insurers.” None of those outcomes is healthy. The best, most conscientious firms won’t stay in a game where doing first-class work means taking a loss. That leaves only the desperate or inexperienced willing to work for rock-bottom compensation. Imagine a future where the only contractors available for insurance repairs are the lowest bidders – outfits forced to cut quality to survive, or fly-by-night operators who underbid today and go bankrupt tomorrow. It’s not a far-fetched scenario; it’s already unfolding quietly in local markets as reputable restorers bow out. This churn is sometimes dismissed as normal business turnover, but given the pervasiveness of thin margins across the industry, it’s clearly a systemic issue rather than individual underperformance. You can’t chalk up 50% of companies under 10% profit (and many failures) to mere poor management – something fundamental is off balance.
The danger is that public trust in the property insurance process erodes. Policyholders don’t care about pricing methodologies or margin math; they just want their homes and businesses fully restored after a loss. But if their insurer’s practices drive away top-tier contractors, the quality and timeliness of repairs will suffer. We’re already seeing warning signs. In one case, a family’s home rebuild was delayed 8 months and still left them owing out-of-pocket costs because the insurer insisted on an unrealistically low estimate. “Such scenarios undermine the purpose of insurance,” observers noted, creating financial strain and eroding customers’ confidence. If policyholders repeatedly experience slow, subpar restorations or contractor disputes due to underpayment, the very value proposition of property insurance degrades. After all, what good is insurance if it doesn’t reliably deliver a proper repair in a time of need?
The Cost of “Cheap” Claims: Risk to Insurers and Insureds Alike
It may be tempting for insurers to view contractor profit as a logical place to squeeze costs – a dollar saved on a claim is a dollar to the bottom line, right? But penny-pinching on claims is ultimately pound- foolish. By driving experienced contractors out and incentivizing only the lowest bidders, carriers risk a host of downstream problems: botched repairs that lead to secondary damage, customer dissatisfaction and loss of trust, longer claim lifecycles, and even increased litigation. A poorly repaired water loss today could become a mold claim tomorrow. An insurer might “save” money by settling cheap, only to face a costlier supplemental claim or lawsuit when the fix fails.
Moreover, when good contractors can’t afford to take insurance work, claims stall. It’s already hard enough to find qualified labor in restoration; the talent pool shrinks further if the work isn’t profitable. That means delays for policyholders waiting to get back in their homes or reopen their businesses. Additional living expenses and business interruption costs mount – costs often ultimately borne by the insurer. In short, a race to the bottom on price undermines the very promise of insurance: to make the insured whole after a loss. Carriers also open themselves to regulatory and reputational risk. If enough policyholders end up with bad outcomes, regulators may step in, or insurers may find their customer retention plummeting. A property claim isn’t truly “settled” until repairs are done right. By ensuring restorers can do quality work for fair compensation, insurers are actually protecting their own long term interests.
Warnings from Industry Leaders: This Isn’t How It’s Supposed to Work
It’s important to note that restoration contractors are not asking for a blank check – they are asking for fairness and adherence to the actual policy promise. In fact, multiple voices within the industry –including the makers of estimating software and the Restoration Industry Association – have been raising red flags. Consider these authoritative statements:
- Contractors set the price, not software. The RIA’s position papers emphatically remind stakeholders that estimating databases do not dictate “the right price” for a restoration job. Estimating software companies themselves openly acknowledge this. One leading price database provider stated that “prices charged by contractors and suppliers vary based on a company’s size (overhead) and/or perceived quality of work and level of service.” In other words, a small low-cost outfit and a larger high-service firm won’t have the same pricing – and that’s expected. Another software whitepaper flatly noted that published price lists are “always nothing more than a guideline” for estimates. Standardized prices are merely a reference point, a baseline – not a mandate. They lag behind actual market costs and cannot foresee the unique factors of each loss. Simply put, the only “right” price is the one that reflects the specific job circumstances, agreed upon by a willing buyer and seller in an open market.
- Even Xactware says: adjust prices to reality. Xactimate, the most common estimating platform, is often mischaracterized as a “cap” on pricing. But Xactware’s own license agreement and methodology say the opposite. Xactware instructs users not to rigidly stick to its price data when real conditions warrant higher costs. In fact, the **standard Xactware EULA explicitly requires that users “not…prohibit or preclude deviations from the [published] Price Data where contractor requirements, market conditions, demand or any other factor” justifies a different price. Every licensee (insurers included) agrees that they are responsible for ensuring estimates reflect actual costs for labor, materials, and equipment, even if that means pricing higher than the software default. Xactware’s guidance is clear: if a project or market calls for a line item to cost more, you’re supposed to change it. The tool is meant to follow the market, not set it. Therefore, when an adjuster insists “we can only pay what Xactimate says,” they are misusing the tool – even the software maker would agree that blind adherence to the price list is improper.
- “Cost of doing business” is a real cost. A pernicious practice has been insurers arbitrarily disallowing certain expenses as “the cost of doing business.” For example, refusing to pay for supervision, project management time, or administrative labor because “that’s just your overhead.” The RIA forcefully denounces this tactic. In a peer-reviewed position statement, the RIA declares: “‘The cost of doing business’ is not a legitimate basis to deny payment” for necessary restoration work. All costs that result from a covered loss should be paid, unless specifically excluded in the policy. Telling a contractor that their job site set-up, hauling debris, equipment wear-and-tear, or other indirect costs won’t be paid is flatly inappropriate. Those expenses are real and ultimately must be built into the price of the job; if insurers refuse to reimburse them, they are essentially forcing contractors to work for free for those portions of the job scope. No business can survive by routinely eating these “overhead” costs, and the RIA warns carriers that doing so “may subject them to liability and claims for damages”.
- Overhead & profit: 10% is not sacrosanct. The traditional practice of allowing 10% for overhead and 10% for profit (often only on larger jobs or when multiple trades are involved) is deeply out of step with reality. As we saw, typical overhead is 30–40% now, and even a 10% profit margin is barely healthy. The industry guidance is that each contractor’s overhead and profit needs are unique, and estimates should be tailored accordingly. The RIA explicitly states “‘overhead and profit’ should not be confused with actual general overhead or the net profit a company requires in order to remain viable.” In most price databases, the unit prices for construction tasks do not include an allocation for the contractor’s general overhead or the true profit needed to keep the doors open. It’s up to the contractor to add that on. Every contractor must determine their own appropriate markup based on their costs, company size, and target profit – and it is not the insurer’s role to impose an artificial limit. In short, the days of 10&10 being “enough” are gone if insurers continue to cling to those numbers, they will continue to underfund projects and jeopardize contractors’ viability.
- “Show us your costs” – a red flag. Increasingly, insurers or their consultants demand that contractors justify every penny of their invoice by producing receipts, timesheets, and subcontractor bills. This might sound reasonable (“we only pay what you spent”), but in practice it’s often a tactic to whittle down payments to the bare bones, ignoring the contractor’s right to earn a margin. Restoration experts push back strongly on this. A contractor’s price is based on the job’s value and scope – not simply their internal costs. One experienced estimator, when asked by an insurer to open up his books, responded bluntly: “Regarding giving the insurance company ANY information about how you arrived at your pricing, my answer is simply ‘no.’” Construction is not done on a cost-plus-charity basis for insurers. Moreover, trying to dissect a unit-price estimate into raw costs is a fool’s errand. As that estimator explained, if you start “to peel apart Xactimate line items and attempt to explain them as separate pieces, reality starts to break down quickly.” Nearly every line item in the price database is a built-up composite – it includes labor, materials, equipment, and implicit overhead and profit all bundled together. For example, a drywall removal/replacement line might contain eight different material components and multiple labor trades in one unit price. There is no simple way to isolate “your exact cost” from such a line; the pricing assumes a margin and overhead within it. The bottom line: contractors are entitled to charge for the value of the work completed, and insurers have no contractual basis to demand internal cost records in most cases. Pushing this narrative further erodes trust – it implies every contractor is price-gouging unless proven otherwise, when in fact the data shows most are barely getting by.
A Call to Leadership: Preserve the Value Chain by Restoring Balance
The evidence is overwhelming that the current property claims paradigm is imbalanced. Restoration contractors – the very people who fulfill the promise that an insurance policy makes to the homeowner – are being systemically undercut. This is not only unjust for the contractors; it’s dangerous for insurers and policyholders alike. Insurers and industry leaders must recognize that a healthy, profit-sustainable restoration sector is in everyone’s interest.
For insurers, it’s time to look beyond the next quarterly report and consider the long term. You cannot maintain a high-quality vendor network by paying fees that barely cover vendors’ costs. If good contractors continually lose money on insurance work, they will exit – and the pool of competent vendors will shrink, driving up claim problems. Remember, restoration contractors carry enormous risk and responsibility on a claim. They must rapidly mobilize crews, often in emergency conditions, guarantee their repairs, and handle complex hazardous situations. They deserve a fair profit for shouldering these risks, especially when we see that other players in the insurance ecosystem (carriers, brokers, even independent adjuster firms) enjoy far higher profit margins. Trying to offload normal business costs onto contractors under the guise of “that’s your overhead” is short-sighted. Every dollar “saved” by such tactics could be costing far more in inefficiency, rework, and dissatisfied customers down the line.
For industry regulators and executives, the current trend should be a wake-up call. The property insurance industry prides itself on being a pillar of economic stability, a mechanism to rebuild and recover after disasters. But that pillar is weakened if the skilled tradespeople needed to actually rebuild homes cannot survive financially. We risk creating an environment where insurance claims are settled on paper, but not in reality – where checks might be cut, but no qualified contractor is willing to do the work for that amount. Such an outcome benefits no one. It would lead to increased claims disputes, unhappy policyholders, and a tarnished industry reputation. Already, there is buzz of “bad faith” lawsuits and class actions in some states, targeting insurers’ practices of underestimating losses via software gimmicks. Courts and regulators have generally given insurers leeway in how they estimate (since the contract only mandates paying the amount of loss, not a method). But that doesn’t mean insurers should abuse that leeway. If carriers cling to practices that consistently yield inadequate repair funds, they invite a backlash – whether through litigation, legislation, or market forces as frustrated customers seek alternatives.
For contractors and restorers, the message is to continue to unite and speak up – which many are doing through organizations like RIA. By collecting and sharing financial data, the industry is arming itself with facts to counter the “you’re charging too much” narrative. The RIA’s 2024 report and the movement behind it are providing “data to kill the 10&10 myth” and “financial proof to educate insurers and partners”. This is critical. When restorers push back with hard numbers and industry standards, it becomes clear that what they seek is not extra-padding of estimates, but basic business sustainability. As one witty slogan from the report goes, “We don’t pad estimates – we cushion collapse.” In other words, any buffer or margin in an estimate today is often there just to prevent a collapse of the contractor’s business under the weight of unforeseen costs and chronic underpayment. There is very little “fat” left to trim; we’re cutting into muscle and bone.
Rebalance Now or Bear the Consequences
The property claims industry stands at a crossroads. Down one path, insurers continue to grind on restoration margins, contractors keep dropping out or cutting quality, and the entire value chain decays – to the detriment of insurers, insureds, and the reputation of insurance as a whole. Down the other path, insurers and contractors reset the relationship: claims practices based on fair market pricing, respect for contractors’ legitimate costs, and collaboration instead of combat. This is not about charity; it’s about ensuring the promises sold in every insurance policy can actually be delivered by capable professionals who are fairly compensated for their expertise.
Insurance executives and adjusters: ask yourselves what you want the landscape to look like in five or ten years. Do you envision a thriving network of qualified restoration firms ready to assist your customers – or a fragmented, hollowed-out shell of an industry where you scramble to find anyone competent willing to take on a complex loss for the cut-rate allowances? The choice is being made today, claim by claim, invoice by invoice.
Policyholders and risk managers should also recognize their stake in this issue. Demand that your insurance partners value quality and long-term outcomes, not just short-term savings. A cheap claim settlement that leaves your property improperly restored is no victory at all. Insist on professionals who do the job right – and understand that those professionals must charge sustainable rates.
At its core, this is a plea for common sense and fairness: Restoration contractors must be allowed a sustainable profit, or we all lose. The true value of insurance is realized only when skilled, ethical contractors can afford to do their best work to make policyholders whole again. If we continue to make that nearly impossible, the entire property claims ecosystem will suffer a slow collapse. It’s time for insurers and industry leaders to take this threat seriously. Fair profits for restorers are not a luxury or a handout – they are the foundation that supports the promises made to every policyholder. Remove that foundation, and the whole house falls down. Let’s not wait to learn that lesson the hard way. The alarm bells are ringing; it’s time to fix the system before the quiet crisis becomes a loud catastrophe.
Sources
Restoration Industry Association (RIA) position statements and Cost of Doing Business survey
Xactware Pricing Methodology White Paper and EULA
Xactimate is Never on Trial analysis and industry case studies
Claims Delegates expert commentary “We Need to See Your Costs”
Related restoration industry publications.
Andy McCabe
Andy McCabe is a licensed claims adjuster and founder of Claims Delegates, specializing in property damage restoration and insurance claims. With over 20 years of experience, Andy has responded to numerous catastrophic events, gaining deep insight into the challenges restorers face. He’s also the leader of the Restoration Rebels, a community dedicated to empowering contractors through education and fair practices. Known for his expertise in Xactimate estimating and public speaking, Andy advocates for better business strategies and transparency in the restoration industry.
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