Restoration vs. New Construction: Exposing the Pricing Trap

In the world of property restoration, no two jobs are the same. Each project presents unique challenges, especially when restoring an older building, or servicing an outlying area. Recently, our team faced just such a case, and it highlighted a disturbing trend in insurance claims handling that ties directly into the "Delay, Deny, Defend" tactics we've been exploring in this series.

When our customer’s property suffered fire damage, the adjuster assigned to the claim utilized "new construction" pricing methods to estimate the cost of repairs. At first glance, this might seem reasonable—pricing is pricing, right? However, as industry experts and anyone familiar with restoration work will tell you, nothing could be further from the truth. Using new construction pricing in a restoration context is not only inappropriate but also leads to inaccurate estimates that ultimately harm policyholders and hinder contractors.

Restoration is Not New Construction

As outlined by the Restoration Industry Association’s position statement, restoration projects differ substantially from new construction. Restoration requires:

• Navigating around occupants' personal property in lived-in spaces.
• Adhering to unique safety protocols and regulatory constraints.
• Custom matching of materials to restore a property to its pre-loss condition.
• Handling unforeseen complications inherent in older structures.

These tasks demand labor efficiencies that differ greatly from the streamlined processes of new construction. In restoration, we’re not building from the ground up with blank slates and bulk-ordered materials. Instead, we’re painstakingly working to rebuild pieces of what was, often amid logistical challenges like remote locations and accessibility issues.

New construction pricing models, as explained in Xactware’s labor efficiencies white paper, assume ideal conditions: repetitive tasks performed by specialized crews and economies of scale. Restoration, on the other hand, involves significant inefficiencies, including drive time, setup, teardown, and problem-solving on-site. By ignoring these factors, the adjuster’s estimate significantly undervalued the true cost of repair.

The Danger of Arbitrary Pricing Models

This leads to the second key issue: the arbitrary nature of global price adjustments. Software like Xactimate includes options to toggle between new construction and restoration settings, but these features are only effective when used appropriately. Misapplication, whether through oversight or deliberate choice, can have serious consequences. The RIA’s position statement makes it clear that applying "new construction" settings universally disregards the unique needs of restoration projects, resulting in estimates that are both inaccurate and misleading.

More troubling is the fact that insurance policies require carriers to pay the "usual and customary" costs to restore a property. When adjusters inappropriately apply pricing reductions, they undermine this requirement, effectively denying the policyholder the benefits of their coverage.

Delay, Deny, Defend in Action

This case exemplifies the "Delay, Deny, Defend" approach we’ve been dissecting. By insisting on new construction pricing, the carrier delays resolution, forcing the policyholder to navigate a drawn-out negotiation process. Denying the appropriateness of restoration pricing further burdens the homeowner, who may be left with substandard repairs or out-of-pocket costs. And all the while, the carrier defends their position as "industry standard," relying on the complexity of pricing tools and procedures to justify their stance.

What Can Be Done?

Restoration professionals and policyholders alike must push back against such practices. Key steps include:

1. Education: Understand the differences between new construction and restoration pricing and why these distinctions matter. Familiarize yourself with resources like the RIA’s position statements and Xactware’s white papers.
2. Documentation: Provide clear, detailed documentation that outlines the specific inefficiencies and challenges of the restoration project.
3. Advocacy: Don’t accept arbitrary pricing. Contractors should assert their right to set prices based on actual costs, and policyholders should demand fair, reasonable compensation.
4. Communication: Engage in transparent, informed dialogue with adjusters and, if necessary, escalate disputes to ensure fair treatment.

Conclusion

In the restoration industry, we are called not only to rebuild properties but also to restore dignity and fairness to those affected by loss. Misuse of new construction pricing methodologies is a disservice to everyone involved. By educating ourselves, advocating for proper practices, and standing firm against "Delay, Deny, Defend" tactics, we can ensure that the restoration process upholds the standards of integrity and care that our customers deserve.

Have you encountered similar challenges in restoration work? Share your experiences below and let’s continue this critical conversation.