Understanding Overhead and Profit in Roofing Insurance Claims
When dealing with project involving roofing insurance claims, contractors must consider every aspect of the job to ensure accurate scopes of work. One of the most important yet often misunderstood components is overhead and profit (O&P). In this blog, we’ll explore what O&P means, when it should be included, common misconceptions, and how it can significantly affect your roofing business's profitability.
What is Overhead and Profit (O&P)?
Overhead and profit refers to the general expenses a contractor incurs in running their business (overhead) and the additional markup to cover the company’s profits (profit). Overhead costs can include office expenses, utilities, insurance, and salaries. Profit ensures a contractor makes money beyond simply covering their costs, and helps fund reinvestment and business growth.
Why is Overhead and Profit (O&P) Important?
For roofing contractors, including O&P in roof insurance supplements is essential. It ensures you are compensated for every aspect of the job, not just labor and materials. See below for a real example.
This is a screenshot of how O&P can appear on the supplement, from one of our recent jobs. Note that percentages vary by location.
Common Misconceptions About Overhead and Profit
There are several misconceptions about overhead and profit (O&P) that can cause contractors to miss out on crucial compensation. Let’s clear up these misunderstandings:
Misconception 1: O&P Is Optional
Some believe O&P is optional, but leaving it out can undercut your business's true costs and profit potential. O&P covers essential business expenses like office management and oversight, which are critical for any job, especially complex ones.
Misconception 2: O&P Is Only for Large Jobs
O&P isn't just for large or multi-million dollar claims. Even moderate-sized projects involving multiple trades qualify for O&P. Don’t assume smaller jobs aren’t eligible.
Misconception 3: O&P is Always Denied by the Insurance Adjuster
Insurance adjusters may push back on O&P to lower claim payouts, but that doesn’t mean you have to agree. Proper documentation and professional persistence can help ensure O&P is included in your claim, even if initially questioned.
When and How to Include Overhead and Profit in Roofing Insurance Claims
Not all insurance claims automatically qualify for O&P, but knowing when and how to include it can make a big difference.
When can O&P be claimed?
O&P is typically applied when a project meets certain criteria:
Multiple trades involvement: Projects requiring the coordination of multiple trades, such as roofing, siding, gutters, and interior work are strong candidates for O&P.
Large or complex repairs: Full roof replacements or repairs that demand significant oversight and coordination often qualify.
General contractor role: If you’re acting as the general contractor and managing multiple aspects of the job, you should include O&P in your estimate.
How do I include O&P on my estimate?
Here’s how to include O&P on your estimate or supplement request:
Determine if the job qualifies based on the criteria above.
Calculate O&P accurately: O&P is typically 10% for overhead and 10% for profit, though regional differences may apply.
Document thoroughly: Make sure your estimate clearly breaks down the O&P costs and includes all supporting documentation to justify the need for it.
How Insurance Companies View Overhead and Profit
While insurance companies recognize the necessity of O&P in many cases, they often apply strict criteria to determine eligibility. Here’s what you need to know about how insurers view O&P:
Cost control: Insurance companies may push back on O&P to lower claim costs, especially for less complex jobs.
Misapplication of criteria: Some adjusters may incorrectly apply eligibility criteria, especially in cases where multiple trades or oversight are involved.
Insufficient documentation: Failing to properly document the need for O&P may lead to denial or reduction in compensation.
To ensure you receive O&P, provide clear documentation, reference industry standards, and maintain professional persistence.
How O&P Affects Your Profit Margins
Including overhead and profit in your roofing estimates is crucial for maintaining healthy profit margins. Without O&P, you might find yourself covering only basic costs, with little to no profit, which can jeopardize your business’s financial health over time.
When accurately included, O&P ensures you’re fairly compensated for the time, oversight, and resources necessary to complete a roofing job. It also allows you to reinvest in your business for future growth.
Conclusion
Understanding how and when to include overhead and profit in your roof insurance supplement is key to maximizing your financial success as a roofing contractor. By following best practices, debunking common misconceptions, and providing thorough documentation, you can ensure you’re fully compensated for every aspect of the job.
Get Started with OneScope
Learn more about how our supplementing services can make a difference for your business.
The OneScope team has tons of experience successfully supplementing claims with O&P added. Contact us to discuss how we can help improve your supplementing success!
