The following is an insurance claim question we answered for a policyholder through the United Policyholders Ask an Expert Forum.
Q. Does the insurance company pay Overhead & Profit to the insured in Florida for reconstruction of property damage? What percentage is allowed?
A. On the surface this is a simple straight forward question but not always a simple answer. Let me explain. For as long as I have been in the adjusting business (44 years), the overhead and profit debate has continued ad nauseam. For many years one national insurance company refused to add O&P to a claim settlement unless a general contractor was hired to do the scope of work as dictated by their insurance adjuster. Not surprisingly, a lot of controversy followed and at least for this company they gave up the fight and routinely started adding 10% profit and 10% overhead to most settlements. As an aside, if you apply 10% profit to the price of the scope and then add 10% overhead to that number you actually get 21% of the price of the scope of the estimate.
Going back to your question about Florida; most insurance carriers are applying 10% profit and 10% overhead to estimates. Some however are making a distinction that if at least three trades are not needed in a repair process there will be no overhead included and if you do the work yourself they will not include profit.
This is for the most part simply a unilateral and arbitrary position taken by some carriers to try and reduce their loss ratios. The real story on profit and overhead is that most contractors who work for insurance companies routinely get beat-up on their price operating on profit margins in the range of 35% to 45%. So how do contractors do it? Well, they mark-up each line entry to cover this type of margin. This is no secret, but for some reason the myth lives on that 10 & 10 is the market rate when in fact it is just a simple easy way to account for a cost that everyone agrees must be there. After all, a contractor has to earn a profit on each job and they certainly must account for their overhead.
If you are looking to get 10&10 make sure you can justify three trades in the repair scope. As an example a plumber, an electrician and a carpenter are a few examples.