I agree with Roy Cupps, and ask the same question, what happened to the "agreed cost"? I also had my heavy property adjusting experience in the 1980's.
I think the Xactimate quote is a cop out:
Per Xactimate says Hromas--"(What a computerized estimating system does is to try to make that an EDUCATED GUESS by analyzing as many factors as possible that are involved in those costs. That is why I often refer to the document I prepare as a "GUESSTIMATE".)"
What happened to the AGREED COST?
The guesstimate approach is connected with the loose reliance on "supplements". Supplements are the way to make everything feel good when somebody wants more money. I think a supplement is only for an item that was missed or was truly mis-valued, as in the contractor/insured or the adjuster was misinformed and would not have entered into the agreed cost if he had been informed.
This does not mean that the contractor/insured comes back with register receipts, or worse, proof of "incurred costs" by way of a contract, showing that he bought something not on the agreed cost or paid more for certain items on the agreed cost and is now submitting a "supplement". Or that it is claimed that it took more time to do certain work than agreed to. What about all the items that went the other way? You will never hear about them.
The agreed cost is a give and take negotiation process. The contractor/insured can’t have it both ways–negotiate concessions from the adjuster in exchange for the contractor/insured’s agreement, and then modify the agreement with "supplements".
The supplement approach seems to boil down to a cost-plus agreement–as in, bring me your receipts/other documentation and I will pay on them, but first I’ll make an "estimate" of what those receipts are going to total and front you that money (or the ACV part of the money).
Speaking of ACV/RC, there will be proof of incurred costs to document the RC payment. The agreed cost is the only control on that, especially if the proof of incurred costs is merely the insured’s contract with the contractor–another reason of course for a real agreed cost.
Now I begin to see why I have heard folks talking about estimates as guesses–that is the no-agreed-cost school of adjusting. I responded at that time with what I personally thought about that approach when it came up–not realizing at the time that this was a trend speaking.
If you are in the estimating software business, it is in at least your short-term interest to buy into this trend, since you are only responsible for providing a tool to reach a "guess"–not a real challenge, which would among other things relieve the software developer of the need for time consuming market research to nail down costs.
Treating the adjuster scope and price as a "guesstimate" is a bad idea. It devalues the adjuster’s expertise, and basically tosses the process of negotiation. Certainty (with some small room for truly justified supplements) is replaced by the anything-goes guess and supplement approach.
What happened to the expertise of the contractor, by the way? He plays a double game, I suppose, in this new trend–pretending to not know prices, and then coming back documentation in hand (with who knows how much hidden markup), having "discovered" the price. This is bogus of course.
In reality, we know that the contractor is usually MORE expert than the adjuster (since he lives by his wits by knowing the prices of things). The adjuster’s answer to the contractor’s greater expertise is his estimating handbook (read software program). I will sometimes use both, actually. If an issue comes up around a particular cost item, rather that bore down into the intricacies of the software database, it can be easier to refer to a paper reference like the National Construction Estimator.
By the way, the comment that all the insured wants is to get the job done and get his life back together is not always the case. I think we all know, and certainly my experience has been, that once the insured begins to grasp that he is in control of the process as in the last word on what work is done and how much is paid to the contractor(s), he may become quite involved in the process. He sees large sums of money passing his way, and begins to see that he can legitimately siphon off money for work he does himself, or doesn’t do at all, or works outside deals with the contractor or other workmen, with the insured as the general contractor.
This aspect of things is just one more reason to impose some reasonable control over the process of spending the money.
How does the carrier ever take a position on how much it legitimately owes if supplements are routinely accepted? Imagine, you inspect a fence loss, apply what you know is the going rate according to current industry references, pay the insured, and then along comes a letter from the insured (coached by contractor/PA/agent) saying "Oh, so sorry, the contractor couldn’t do it for that price, here is his (lump sum!) invoice," which happens to be double the adjuster’s carefully documented scope and price.
This raises more issues regarding overpayment of claims than I’m ready to deal with at this time–I will only mention in passing that I recall the issue coming up in the context of a violation of state-regulated insurance premiums. If a carrier overpays a claim, that can be treated as an illegal premium rebate.
I will close this post on a recollection of the take of a claims manager on this general subject–though from a different standpoint involving a coverage denial. I had been in correspondence with an agent who had taken a wrong coverage position, thinking he would be a hero to this large account. I denied the claim, and the agent made quite a ruckus.
From a business standpoint, the agent was trying to make it embarrassing for the carrier, but to his credit, the claims manager maintained the autonomy of the claims department and supported the denial.
The manager’s comment to me was, complaint or not, the alternative was "HANDING THE CHECKBOOK TO THE INSURED." I think that says it all.