A Guide to Insurance Damage Estimates: Xactimate, Replacement Costs, Actual Cash Value, and Depreciation

As a Louisiana hurricane insurance claim lawyer, I know as you receive your adjustments from your insurance company, you wonder “Where did they get these numbers?”

How Are The Insurance Estimates Calculated?

In many cases, the estimate will be done by a computer program called Xactimate (there are some others including Simsol, Powerclaim, and Integriclaim). The question is –

Does this computerized adjustment fairly and fully compensate you for your loss?

The short answer is probably not!

Now here is the long version:

The idea behind these programs is to cut down on the amount of time it takes to complete the adjustment by having, within the computer program, set prices for the most common damages. Another alleged benefit to the programs is that they are supposed to cut down on haggling by using supposedly well-researched figures to develop the pricing indexes used. Unfortunately, as in many things in life, the theory and real life don’t quite match up as designed.

Why is this?

One important reason is that the major program (Xactimate), and probably others, is owned by the insurance companies through an industry group called ISO. It is like the fox guarding the henhouse, “guaranteeing that no hens will be eaten,” and having another fox checking to make sure “no hens were eaten.” Yeah right!

Basically, each of the programs relies on a “pricelist” and standard construction practices. The programs produce a pricing database, which is actually a database of information of previously submitted settlement numbers for typical processes heavily dependent on “feedback” from insurance companies and from captive contractors who have agreements with those insurers to use the database as a “price list”. This methodology results in a self-fulfilling prophecy as insurers and their contracted companies feed back information to establish a “price list.”

Xactimate price lists are known to be below market value already – so if your adjuster is using Xactimate, chances are their estimate may be below the damages you actually incurred.

The estimate is also tied to the historical cost, so this price will be the average pre-storm price without material shortages and increased material transportation costs taken into account. There is also generally an increased cost of labor after a hurricane the size of Ida due to the need to pay for lodging and travel costs for the number of additional laborers needed.

Price lists in Xactimate also do not vary based on the local prices for the location of the claim.

And here is the kicker – Xactimate (and probably others) have specialized price lists for specific insurance companies, that is further below market value than the price lists it makes available to the general public (i.e., contractors and public adjusters).

On one catastrophe adjusting forum, an insurance company adjuster notes that for Category 1 storms, the Xactimate pricing should be increased at least 25% and for Category 4/5 storms, the increase should be 100%.

What is the difference between Actual Cash Value vs Replacement Cost?

There are generally two types of reimbursement values for insurance claims.

Replacement cost is the amount needed to replace the item in today’s market.

Actual cash value attempts to take into account the current value of the item. If you take a roof for example, an older roof is “worth less” than a new roof. The age and condition of the roof will determine the depreciation.

How is actual cash value calculated?

The actual cash value is the replacement cost of the item minus the calculated depreciation.

For example: If your roof is 15 years old with 30 year shingles and the replacement cost is $12K, then the insurance company could say that it is halfway through its life and depreciate by 50%. Giving you $6,000 for the actual cash value.

Unfortunately, there is no certain formula to calculate the depreciation of an item.

How much does sheetrock depreciate in a 20 year old home? How much is your 10 year old couch really worth? How much could you sell it for on Facebook marketplace? This is usually a large area of dispute for insurance policies that reimburse actual cash value.

The initial estimate from the desk adjuster will usually be for the actual cash value. The estimate will have all of the Xactimate replacement prices minus a depreciated amount. You should receive this undisputed amount from the insurance company to begin repairs.

If you have an insurance policy that pays replacement costs, the difference between the actual cost and the replacement cost will often only be paid out once an invoice is submitted proving that the repair took place or the item was replaced.

What if you disagree with the insurance adjuster’s estimate?

In addition to disputes about the replacement value and depreciation amounts, you also have to look closely at your estimate to make sure that the insurance estimate accurately reflects what was in your home.

Were your cabinets solid wood? Did you have 8-inch moulding?

Many insurance initial estimates will be for builder basic materials and may not account for any upgrades that you had in your home. If any discrepancies are found, then you should provide documentation to the adjuster. Documentation could include pictures of the item that show it accurately and original receipts if available.

Cashing or depositing the check for the initial undisputed amount of loss does not negate your ability to dispute the initial loss estimate and fight for more money.

At this point, it is still possible to find more damage as work progresses. If more damage is found, then a supplemental claim should be filed. Follow all of my original claim tips for documentation including taking lots and lots of pictures.

If you have received an estimate of damages from an adjuster that you feel is too low, you may be in for a fight. Many will be using adjusting programs that tie their hands to a predetermined payout ratio the insurance company wants to get.

If you are unable to negotiate a fair value for your claim with the adjuster or you feel they are acting in bad faith, you should then contact an experienced hurricane property damage attorney to help you get full and fair compensation for your loss.