A claim settlement begins with an estimate, and that estimate is assembled from a database rather than written from scratch. Understanding how it is built explains most disagreements about the number.
Scope comes before price
The adjuster first records scope: which rooms, which surfaces and which components are affected, and what has to be done to each of them.
Scope is documented with photographs, measurements and notes, and it is the part of the process a policyholder can most usefully influence.
Most disputes that look like arguments about price are actually arguments about scope, because an item never recorded is never priced.
A contractor's own walkthrough often identifies work the initial scope missed, which is why the two documents deserve a line-by-line comparison.
Prices come from a regional database
Estimating software carries unit costs for thousands of tasks, updated periodically and adjusted for the local market where the loss occurred.
Each line combines material, labour and equipment, and the software applies overhead where the job is complex enough to need a general contractor.
The adjuster is selecting line items rather than negotiating prices, which is why arguing about a unit rate rarely moves the total.
Depreciation is applied afterwards
Once the estimate is priced, depreciation is deducted from items with a limited service life, based on their age and condition.
The result is the actual cash value figure, and on a replacement cost policy the deducted amount is held back until the work is finished.
Whether depreciation may be applied to labour as well as materials is a recurring point of dispute and varies by jurisdiction.
Overhead and profit depend on complexity
Where a repair involves several trades, a general contractor is normally needed to coordinate them, and that coordination carries its own charge.
Estimates sometimes omit that charge on the basis that the work is simple, even where three or more trades are clearly involved.
The number of trades is a factual question that can be answered directly from the scope document.
Raising it early, with the scope in hand, is considerably more effective than raising it after the settlement has been issued.
The estimate is revised as work proceeds
Supplements are added when concealed damage appears once demolition begins, and they follow the same pricing process as the original estimate.
Contractors submit them with documentation, and the adjuster prices the additional scope rather than reopening the entire file.
A settlement is therefore a working figure until repairs are complete, not a final offer at the point it is first issued.