Inaccurate claim pricing can lead to delayed payments, costly disputes, and project setbacks. But with the right approach, contractors can avoid these common pitfalls and protect their bottom line. This piece caters to construction industry professionals—particularly contractors and financial managers, who want to improve their approach to claim pricing and minimize costly errors in insurance claim submissions, saving valuable time, money, and effort.  

Let’s explore what drives claim pricing mistakes—and how to avoid them.

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Why Claim Pricing Goes Wrong

Several key factors commonly inflate or inaccurately price claims. A vague scope of work, for instance, often leads to estimating errors. When contracts or project scopes lack accuracy, the tendency to over or underestimate costs increases. Here’s another big one: inadequate documentation. Without detailed records of project changes and delays, substantiating claims becomes challenging, exposing contractors to disputes.

Using the wrong pricing methodology can also lead to inflated or understated costs. For example, adopting a “one-size-fits-all” method without evaluating specific circumstances can skew your claim. Similarly, failing to assess liability can distort pricing by overlooking who is responsible for issues such as delays or damages.

Each of these missteps affects not only the claim amount but also the likelihood of insurer approval. So, how can you sidestep these common pitfalls? Let’s break it down.

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The Building Blocks of a Successful Claim

At the core of accurate claim pricing lies three foundational components: liability, damages, and causation. These components directly influence how claims are priced and whether they will stand up to scrutiny.

• Liability establishes who is responsible for the issue, such as a delay or damage. Without clear liability, claims often face challenges from insurers.

• Damages quantify the monetary impact, which includes both direct and indirect costs related to the incident.

• Causation is essential to prove a link between the event and the incurred costs. Without this, even well-documented claims risk rejection.

Understanding these fundamentals helps you price claims accurately and build a strong case that’s more likely to win approval.

Common Reasons contractors file claims

Claims are typically submitted due to:

• Project delays from third-party interference if they’re caused by uncontrollable factors, like vendor issues or regulatory changes.

• Unforeseen site conditions, such as hazardous materials or unexpected ground conditions, may be a reason for a claim if they weren’t identified in initial site assessments.

• Disruptions caused by unanticipated events like adverse weather or logistical failures.

Each of these factors affects both the timeline and the financial resources needed to complete the project.

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How insurers evaluate claims

To increase your claim’s success rate, understand how insurers evaluate submissions. They look closely at the nature and scope of the claim, checking whether the event is contractually justified. Insurers also scrutinize documentation and assess the pricing methodology used.  

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Quick tip: The more transparent and well-documented your claim, the better its chances of approval.

Claim pricing methodologies explained

There are several methods contractors use to price claims, each with its own criteria:

1. Total Cost Method

a) This method calculates the difference between the actual project cost and the original bid.

b) Pitfall: It assumes all cost overruns are due to the claimable event without isolating other potential causes. ‍

c) Example: A contractor estimates the project to cost $2 million, but ends up spending $2.5 million. They submit a claim for the $500,000 difference, assuming all the extra costs are due to the delay.

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2. Modified Total Cost Method

a) Adjusts the Total Cost Method by excluding costs that are unrelated to the claimable event.

b) Pitfall: If adjustments aren’t thorough, some unrelated costs may still be included.

c) Example: In the previous scenario, the contractor adjusts the $500,000 to account for $100,000 in unrelated labor issues, reducing the claim to $400,000.

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3. Productivity Analysis

a) Compares actual productivity rates with estimated rates to quantify disruption costs.

b) Pitfall: Miscalculating productivity changes can lead to disputes over inflated claims.

c) Example: A team expected to lay 500 feet of pipe per day is reduced to 300 feet due to third-party interference. The cost difference is claimed based on labor and equipment inefficiencies.

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4. Specific Identification of Cost

a) Involves tracking and itemizing all costs related to the claimable event.

b) Pitfall: Time-consuming and requires rigorous tracking, but it’s often the most accurate method.

c) Example: A contractor identifies $150,000 in additional costs due to a scope change, backed by detailed invoices, labor hours, and material usage logs.

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Other Critical Claim Pricing Considerations

Beyond pricing methods, several factors influence claim validity. Insurers evaluate the reasonableness of the claim, assessing whether the costs are fair based on the event. Productivity analyses, such as the “measured mile” approach, compare tasks’ performance during unaffected and affected periods. This method provides an objective basis for claim pricing and strengthens the contractor’s case.

Avoiding Pitfalls: Key Takeaways

To avoid claim pricing pitfalls, contractors should:

• Maintain detailed documentation: Keep comprehensive records of costs, project changes, and delays.

• Select the right pricing methodology: Tailor the pricing method to the claim type and ensure it is backed by data.

• Use accurate productivity analysis: Conduct regular assessments using tools like the measured mile approach.

• Collaborate with insurers early: Engage with insurers to ensure claims are reasonable and justifiable.

Claim pricing decides your business's financial health

Effective claim management isn’t just about avoiding losses—it builds your financial resilience and reputation. By staying transparent, accurate, and proactive, contractors can protect profit margins while strengthening relationships with insurers. Prioritizing these practices empowers contractors to turn claims into manageable, controlled events, rather than costly disruptions.

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