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Manmut
USA
26 Posts |
 Posted - 02/17/2003 : 14:21:46
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I think we need to look at why we pay O&P on a claim, and that is to compensate the General Contractor for extra costs incurred by administrating the repairs through subcontractors. With this administration, the insured receives the benefit of the experience, knowledge, and expertise of the general contractor. Experience, knowledge, and expertise that most insureds lack. The G.C. is responsible for (and compensated for) making sure that not only is the work done, but it is done properly. The G.C., if they have signed a Hold Harmless agreement with the subs, could be the only party liable for damages if something is not correctly repaired. G.C.s carry extra liability insurance for this possibility, which means extra expense for them. They also have the overhead that comes with administrating the repairs. Finally, they are entitled to a fair amount of profit for administrating the repairs.
Insureds do not have increased liability payments even though they may well have an increased liability exposure due to the presence of workmen on their property. The subcontractors who are doing the repairs under the supervision of the insured (rather than a G.C.) may sue the insured and consequently the insurance company if there is a problem on the job.
Since insureds are prohibited by law from profiting from insurance, in my opinion there is no point in debating whether they are entitled to profit.
The ultimate question is not 'Are insureds entitled to P&O if they act as a G.C.?' since the answer is generally no. The question is "Are insureds entitled to be paid for expenses incurred during the resolution of a claim?" The answer to that is yes.
Is putting 10 and 10 on top of the full estimate a fair way to recompense them for those expenses? I don't think so.
What about those insureds who have lightning claims? Should we just pay 10 and 10 on the total lightning loss because they incurred the expenses of: driving the electronics to the tech shop, calling the tech weekly to check the status of repairs, and fetching the electronics back home after repairs? Should we pay 10 and 10 to insureds for expenses incurred when they replace personal property items after a loss?
Suppose, for a moment, that we pay the policy limits of $25,000 for a personal property loss. Are you prepared to pay $5000 to the insured for expenses incurred because they have to shop at Penney's, Best Buy, and Toy R Us to replaced damaged PP? Of course not. You pay them the reasonable expenses incurred, e.g. gas, phone charges.
I agree that we have to look at each claim separately, however, I also think that there is a reasonable measure of what you pay to an insured.
Patrick Laws
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Patrick W. Laws |
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CCarr
Canada
1200 Posts |
Posted - 02/17/2003 : 15:06:23
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That is a good and logical post Pat, and of course I agree that the issue of 'profit' being added to the costs of a claim paid as cash to an insured, does not warrant debate. Just to be clear, my reference to 'profit' was - as measured by an insured - is the difference in allowed 'shop labor' rates versus the insured's fair labor rate for his efforts; if he undertakes the project himself.
Now, if insurers are to buy into the concept of allowing some form of overhead to an insured, for their own managing and administering of their repair project, the carriers will want to embrace it only if they can create some form of 'best practice' approach to it. Carriers have manuals full of 'best practices'. It can not be left solely to a case by case call by an adjuster; carriers would want to be able to subscribe to some form of relatively clear guidelines. What would a fair guideline for overhead on an insured own repair project be, in the hands of an adjuster?
Is it a 1% allowance on personal property claims?
Is it a 5% allowance on exterior structural items?
Is it a 7% allowance on interior structural items?
If the day comes that insurers give serious consideration towards allowances to insureds for overhead, they will want to be able to package it in a neat 'best practice' guideline. |
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Cheryl Joyce
USA
45 Posts |
Posted - 02/20/2003 : 20:54:43
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O & P is already packaged, it is called insurance premium.
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Vicki
2 Posts |
Posted - 02/21/2003 : 00:11:59
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I have another perspective on the O & P issue.
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Vicki
2 Posts |
Posted - 02/21/2003 : 00:22:02
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Oops, darned touch pad---
I was a restoration contractor for 20 years before adjusting. There were times a "customer"/insured wanted to act as his own GC or at least perform some portions of the repairs himself. This usually created additional work or time for me. Because of the "customers" inexperience, he'd hold up the job, not be able to haul his own materials, not fully coordinate other sub, ending up with overlaps or gaps in trades, etc. etc. I quickly learned to add an additional "premium" to my estimate if the "customer" was to be actively involved in the repair process. So, if the insured is paid the line item price from an adjusters estimating package ONLY --- is he paid the actual cost? |
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KileAnderson
USA
875 Posts |
Posted - 02/21/2003 : 00:26:37
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| He is paid what the actual cost should be if a profesional were to do the job. If it would take a profesional painter a full day to do the paint job and the insured does it himself and due to inexperience takes three days and has to do it over because he did it wrong the first time the insurance company isn't going to pay for 16 additional hours of labor and more materials. That's on the insured. |
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Paying GC Overhead and Profit (O&P)
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