Reading Your Insurance Estimate: Xactimate, O&P, and Matching

The insurer’s estimate is usually the first number you see on a claim, and it often looks final. It is not. An estimate is a list of assumptions about what work is needed, how much of it, and what it costs in your area. Every one of those assumptions can be checked. This guide explains how most estimates are built, how to compare two estimates line by line, and three issues that cause many disputes: overhead and profit, matching, and building code upgrades.

How Xactimate estimates are built

Most property insurers, and many restoration contractors, write estimates in Xactimate, software made by Verisk. An Xactimate estimate is built from line items. Each line names a task, such as “remove drywall” or “paint walls, two coats,” a quantity, a unit, and a unit price that combines labor, materials, and equipment.

The prices come from Verisk’s price lists:

• They are tied to a market area. Verisk says it updates price lists every month for more than 460 market areas in the U.S. and Canada. Price lists are area-specific and include things like local sales tax rates.
• They change monthly. Hourly labor rates are updated monthly. Verisk says not every individual line item is re-surveyed every month in every market; material and equipment prices are updated when its research shows a change.
• They are a starting point. Verisk states that there is no guarantee a published price fits every situation, and that its pricing gives the parties a foundation to decide whether a price should be accepted or adjusted.

That last point matters. If a line item’s price does not reflect what local contractors actually charge for your job, for example because of access problems, small quantities, or a post-disaster labor shortage, the price can be adjusted with support.

Check the price list first

Every Xactimate estimate shows the price list it used, usually as a code with the area and the month and year. Before comparing anything else, confirm:

• The price list matches your location.
• The month is close to when the work will actually be done, not months earlier.
• Both estimates use the same price list. If they do not, many differences will be pricing, not scope.

Comparing the estimates line by line

Put the insurer’s estimate and your contractor’s estimate side by side, room by room. For each room, check:

• Measurements. Are the room dimensions, wall heights, and square footage the same?
• Line items. Is each task in one estimate also in the other?
• Quantities. Same number of square feet, linear feet, or units?
• Remove and replace. Is the item being removed and replaced, or only one?
• Quality grade. Is the replacement material the same grade as what you had?

Make a simple list of every difference. Then ask the adjuster to explain each one in writing, or ask your contractor to explain why each of their items is needed. In California, when an insurer settles based on its own estimate, it must give you a copy, and if you get a higher estimate from a qualified contractor, the insurer must pay the difference, name a contractor who will do the work for its price, or reasonably adjust your contractor’s estimate and explain how (10 CCR § 2695.9(d)). See California fair claims settlement regulations.

Items commonly missing or disputed

These are frequent sources of difference between estimates. Whether each one is owed depends on your loss and policy:

• Content manipulation (moving furniture out and back).
• Protection of floors and surfaces during work.
• Removing and resetting items like baseboards, outlets, door casings, and toilets.
• Detach and reset of cabinets or appliances to reach damaged areas.
• Primer and sealer coats before paint.
• Painting a whole wall or room rather than a patch.
• Debris removal, dumpsters, and haul-off.
• Permits.
• Labor minimums for small tasks done by a separate trade.
• Final cleaning.
• Mitigation work like water extraction, drying equipment, and antimicrobial application. See IICRC S500 explained.

Overhead and profit

General contractors charge for overhead (the cost of running the business, supervision, insurance, office, vehicles) and profit. On estimates this is often shown as “O&P” and commonly figured as 10% overhead plus 10% profit, or about 20% on top of the job. That “10 and 10” figure is an industry convention, not a legal requirement. Some contractors argue it understates their actual costs.

The real question is usually whether a general contractor is reasonably needed to coordinate the repair. Adjusters have long used a rule of thumb that O&P is owed when around three or more trades are involved. United Policyholders notes that the origin of that rule is unknown and that it does not appear to have binding authority in most states. The better question is practical: would a reasonable owner need someone to schedule, coordinate, and supervise the trades on this job?

Points to know:

• It is not just about the number of trades. Complexity, sequencing, permits, and safety can all make a general contractor necessary.
• Timing varies by state and policy. Some policies say general contractor charges are not included in an actual cash value payment until they are incurred. Courts in different states have reached different results on whether O&P belongs in the initial actual cash value payment. See ACV vs. replacement cost.
• Ask for the reason in writing. If O&P was left off, ask the adjuster to explain why a general contractor would not be needed for your specific repair.

Matching

When part of a surface is damaged, such as a section of siding, flooring, or cabinets, the replacement material often will not match what remains. Whether the insurer pays to replace undamaged material so everything matches is one of the most common estimate disputes.

California has a specific regulation. When a loss requires replacing items and the replacements do not match in quality, color, or size, the insurer must replace all items in the damaged area so they conform to a reasonably uniform appearance (10 CCR § 2695.9(a)(2)). The same regulation says consequential physical damage caused while making the repair is included in the loss.

Other states vary. Some have matching regulations or court decisions, some do not, and some policies include a matching limitation endorsement. Check your state’s rules and your policy. Document the mismatch with photos in good light, product names or samples, and, if a product is discontinued, a supplier’s written statement.

Code upgrades: ordinance or law coverage

When a building is repaired, the local building department may require that new work meet current code, even if the original construction did not. That can mean new electrical, insulation, structural, or other work.

Most homeowners policies do not pay for code upgrades under the regular dwelling coverage. Instead, many include a separate Ordinance or Law coverage with its own limit. According to the Independent Insurance Agents & Brokers of America, unendorsed ISO homeowners forms such as the HO-3 include ordinance or law coverage equal to 10% of the dwelling limit, and an endorsement can raise it. United Policyholders notes that some policies exclude code upgrades entirely. Check your declarations page.

To support a code upgrade item:

• Get the requirement in writing from the building department, or a contractor’s statement citing the code section.
• Ask your contractor to list code upgrade costs as separate line items.
• Track how much of your Ordinance or Law limit has been used.

Where to go from here

You do not need to be an estimator to spot many problems. Check the price list, compare line by line, and ask for written explanations of each difference. Keep everything in writing. If the gap stays large, a licensed public adjuster, the appraisal clause in your policy, your state Department of Insurance, or an attorney licensed in your state may help. See how the appraisal clause works and public adjuster vs. attorney vs. appraiser.