Restoration Squid Game: Carriers, Contractors, and Consumers


A recent phenomenon expanded its reach from Hollywood into American pop culture via Netflix. If you have not viewed the immensely popular series Squid Game, you likely have heard about it. Spoiler alert, the premise of the show is that people who are down and out are recruited for a series of simple games with a huge financial prize and a hidden consequence, the losers die. While entrepreneurship isn’t as dire, the survival of contracting businesses that engage in assisting customers with the insurance claims process often feel like they are stuck in a series of trials akin to the provocations within the show.

One element of this game that often thrusts well-intentioned construction professionals towards the graveyard of failed businesses, is the unnecessary Squid Games that insurance carriers play when they make up their own arbitrary rules for bidding and collecting funds for work performed. This article accompanies the upcoming episode 77 of The DYOJO Podcast where we will discuss some of these pricing games with restoration industry peers including Tony Yost (St. Paul, MN), David Dickerson (San Francisco, CA), Ben Justesen (Moses Lake, WA), and many others.

Squid Tactic – Pricelist Manipulation

If you were to survey restoration contractors, the opinions of common estimating software, Xactimate, would likely be split. While Xactimate helps to produce a line-by-line scope presentation, based upon standardized unit-cost pricing, that the adjuster and the contractor can expediently review, one tactic that some carriers use is a maneuver to utilize the new construction pricelist for restoration applications.

New construction sounds easy enough to define, right? It’s new. A plot of land, serving as a blank canvas for the contractor to build a new structure, from the ground up. While our goal is not to degenerate this effort, it is inherently more straightforward than removing existing (non-new) materials and structures for the purpose of then tying into that structure to repair, remodel, and/or repurpose the space. Blending old with new produces a host of unique challenges.

To be clear, the new construction price list is not arbitrary, but its use by some carriers meets the definition of, “Based on random choice or personal whim, rather than any reason or system.” You may, or may not, be surprised to hear that Xactware has been vague on the scenarios for which the new construction price list was intended to be used,

“Total (ground-up) reconstruction or in some cases portions of a large partial loss can be addressed by selecting the “New Construction” labor efficiency in the Estimate Parameters window. This efficiency utilizes the same costs for material and labor rates, but employs a higher productivity rate for labor and therefore a slightly lower labor cost in many trades.”

While it would be nice for Verisk to be more clear in what scenarios this is intended, to be fair, Xactware has been consistent in outlining its roles and that the software can be modified to reflect real-world conditions. Whether the price list is or is not new construction, is not up to Xactware, nor is it the decision of the carrier or the contractor just because one party says so.

Squid Tactic – Claims Delays

Even if the customer agrees that the scope and cost from the contractor are thorough and accurate, the delay in the claims settlement process between the customer and their insurance company can plant a seed of doubt. Unwittingly, an insured may pressure their chosen contractor to meet the pricing of the carrier just because they are tired of waiting for a resolution. Delaying a claim is a common tactic, as outlined in Rutger’s professor, Jay M. Feinman’s book, Delay, Deny, Defend.

It is important for an insured to understand that the insurance company owes what the policy provides, which is typically understood as restoring the structure to resemble its pre-loss condition with materials of like kind and quality, no more and no less. At The DYOJO, we call this The Standard. Contractors, carriers, and customers should be committed to investigating, documenting, and agreeing to the scope and cost of work based upon this standard.

While an estimating program called Xactimate is commonly used for standardized unit pricing, it is not the final say on real-world costs for materials, labor, or equipment. United Policyholders notes, “Computers don’t repair and build homes…licensed contractors do. Your insurance company owes you for what an experienced and reputable contractor would charge you to do the required work to put your home back to its pre-loss condition.”

Squid Tactic – Rebuttals by Customers

Some policyholders have taken note and have begun to counter these Squid Game tactics from well-known and highly profitable insurance companies. One class-action lawsuit from March of 2021 notes that State Farm’s use of the new construction pricing, “As a result of this scheme, State Farm has routinely generated estimates that it knows full well to be below the fair and reasonable cost for the reconstruction of the insured’s property.”

The policyholder should understand that Xactware states that its software is not intended to be the final say in any claims cost assessment as their,

“Published price list is not intended to account for or provide costs for every potential item. Xactimate therefore provides users the full capability to create and/ or modify any costs as needed to match the conditions of the specific job or their company.”

Perhaps as significant, when answering the question of how is the value of replacement and/or repairs is determined, State Farm states,

“The most appropriate way to estimate the replacement cost of your home is to hire a building contractor or other building reconstruction professional to produce a detailed replacement cost estimate.”

The customer files a claim, the carrier confirms coverage, and the contractor provides an estimate for repairs. Everyone in this restoration triangle should be committed to the standard that we outlined in this article. If no resolution can be made, and the insured believes they are being paid less than what their insurance policy should pay, they can pursue avenues such as appraisal, public adjusting, legal counsel, etc.

Squid Tactic – Rebuttals by Contractors

Contractors and customers feel the squeeze when the carrier plays Squid Games with the estimating and collection process of insurance claims restoration. Yet, contractors should not respond to arbitrary measures with their own “random choice or personal whim.” For example, the adjuster should not deny a claim just because they say so, and the contractor’s rebuttal for inclusion should not be rooted in the same unfounded haughtiness.

One resource that has been added to the toolbox of the insurance claims contractor is the Restoration Pricing Position Paper from the Advocacy and Government Affairs Committee (AGA). The position paper on New Construction is available to all members of the Restoration Industry Association (RIA) and addresses conditions such as,

“New construction price settings in certain pricing programs increase labor productivity which reduces prices in a way that may not be appropriate for restoration. Indirect tasks that must occur to accomplish direct repairs – known as “Supporting Events” – may need to be appropriately adjusted due to the extent of the damage in a restoration project.” 

The paper states the obvious, that new construction pricing in Xactimate should not be arbitrarily applied to restoration scenarios. Yet, more than this the document educates the reader on the underlying factors which lead to these manipulations and provides the contractor with some well-thought-out rebuttals. While there are no cheat codes that will eliminate the squid games, restorers will find it refreshing to know that resources are being created and advanced regain and maintain sustainable claims practices.

In the event that there is an impassable disagreement, what is the ethical contractor to do?

  • Universal: Contractors should use any request for clarification of scope from a carrier as an opportunity to increase their organizational knowledge in that area and expand their internal rebuttals library
  • Option 1: Dig your heels in and/or wait until every detail is sorted out; i.e. place the responsibility on the customer to get a resolution with their insurance company.
  • Option 2: Move forward and hope it all sorts itself out and/or agree to do the work for the lesser and attempt to supplement. Hope is not a sound business strategy.
  • Option 3: Proceed with the undisputed amounts while you sort out the disputed sums.
  • Option 4: Please contact the author and share creative solutions that your team has developed to work through these scenarios.
  • If no resolution can be made, and the insured believes they are being paid less than what their insurance policy should pay, they can pursue avenues such as appraisal, public adjusting, etc.
  • Contractors and insureds can read more on the class action lawsuit (Han vs. State Farm) mentioned in this article and some additional insights from the Law Offices of Edward Cross.
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Jon Isaacson

Jon Isaacson, The Intentional Restorer, is a general contractor based in Tacoma, Washington. He is the author of several moderately selling books and the host of the info-taining DYOJO Podcast. Content from The DYOJO aims to help contractors shorten their DANG learning curve.

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