Why Insurance Companies Undervalue Property Damage Claims — and How Homeowners Can Fight Back

By Jasmine Daya, Geraci LLP – Property Damage Law Division

INTRODUCTION

You pay insurance premiums for years — sometimes decades — expecting that when disaster strikes, your insurer will be there to help you rebuild. But for many homeowners, the reality is far different: the insurance company responds with a shockingly low offer, delays the claim, attributes damage to “wear and tear,” or ignores entire categories of loss.

At Geraci LLP’s Property Damage Law division, we see this constantly.And it’s not an accident.It’s a strategy.

Insurance carriers are sophisticated corporations with teams of adjusters, accountants, legal advisors, and internal policies designed to minimize payouts. Their financial success depends on it. While homeowners assume insurers are working to help them recover, insurers are actually trained to protect their own bottom line.

This article breaks down the top reasons insurance companies undervalue claims — and the legal strategies you can use to fight back and recover what you’re owed.

1. THE BUSINESS MODEL: INSURERS PROFIT BY PAYING LESS

Insurance companies operate on a simple formula:

Premiums In – Claims Out = Profit

The less they pay, the more they keep.This means the system is designed to:

• Delay payments

• Reduce authorized repairs

• Underprice materials and labor

• Offer settlements far below the true cost

Most homeowners don’t realize their insurer’s financial interests are directly opposed to their own.

2. LOWBALLING THE INITIAL OFFER IS STANDARD INDUSTRY PRACTICE

Insurance companies often make a first offer that is significantly below the actual value of the claim.

Why?

Because they know:

• Many homeowners never challenge the estimate.

• Too many people accept the first offer out of stress or financial urgency.

• The insurer can always increase the offer if pressed — but rarely does so voluntarily.

It is extremely common for the first offer to be 30–70% lower than the real cost of repairs.

The insurer’s goal:Make the offer seem reasonable enough that homeowners accept it without question.

3. SOFTWARE-DRIVEN ESTIMATES FAVOR THE INSURER

Most insurance companies use estimating software like Xactimate.This system contains preset prices for labor, materials, and repairs — but these prices:

• Are often outdated

• Do not reflect real local contractor rates

• Ignore market fluctuations

• Do not include custom finishes or upgrades

• May exclude code-required changes

Example:

The software may allocate $2.50 per square foot for drywall installation — but local contractors may charge $4–$5 due to labor shortages or increased material costs.

Multiply these discrepancies across the entire project, and you get undervalued claims worth thousands or tens of thousands of dollars less than what it will actually cost to restore your home.

4. INSURERS MISCLASSIFY DAMAGE TO AVOID PAYING FULL VALUE

Another common tactic is miscategorizing the type of loss.

Examples:

Storm damage labeled as “maintenance issue”Insurers may blame roof leaks on “wear and tear” rather than wind damage.

Water damage called gradual seepageThis allows them to avoid covering sudden pipe bursts or appliance failures.

Smoke damage minimized as cosmetic sootWhen in reality, smoke penetrates insulation, fabrics, and HVAC systems.

Why this happens:

If the insurer mislabels the cause of the damage, they can:

• Deny the claim

• Reduce coverage

• Apply higher deductibles

• Exclude entire categories of loss

A property damage lawyer can challenge incorrect loss classifications immediately.

5. HIDDEN DAMAGE IS OFTEN IGNORED

Insurance adjusters are trained to inspect only visible damage.They are not required to search for hidden issues.

That means they often overlook:

• Subfloor moisture

• Mold behind walls

• Electrical damage

• HVAC contamination

• Insulation saturation

• Structural compromise

Why insurers ignore hidden damage:

Because once it’s documented, they have to pay for it.Instead, they approve surface-level repairs, a shortcut that saves them thousands but leaves homeowners with long-term problems.

What should be done:

A full evaluation requires:

• Moisture mapping

• Thermal imaging

• Independent contractor inspections

• Air quality testing

• Structural assessments

When Geraci LLP represents homeowners, we insist on all these.

6. DEPRECIATION IS OFTEN MANIPULATED

Most policies allow insurers to apply depreciation to items based on age and condition.

But insurers frequently:

• Inflate depreciation percentages

• Use incorrect lifespan tables

• Apply depreciation where it doesn’t belong

• Reduce value for items that were in good condition

The real problem:

Homeowners rarely challenge depreciation because they don’t understand how it’s calculated.

Example:

A 10-year-old roof may be depreciated at 50%.But if the lifespan is 30 years, depreciation should be far lower.

An attorney can request the depreciation worksheet, find errors, and dispute incorrect valuations.

7. INSURERS PRESSURE HOMEOWNERS TO USE “PREFERRED CONTRACTORS”

Insurers often steer policyholders toward contractors in their preferred network.These contractors rely on insurer referrals, so they may:

• Use cheaper materials

• Minimize scope of work

• Avoid challenging adjuster estimates

• Agree to insurer-friendly pricing

While some network contractors are reputable, many are not independent.

The danger:

Using a preferred contractor can permanently cap your claim at a lower value.

Homeowners must know:

You have the right to choose your own contractor.Insurers cannot force you to use theirs.

8. DELAY TACTICS PRESSURE HOMEOWNERS TO ACCEPT LESS

Insurance companies often delay the claims process because:

• Homeowners become desperate

• Repairs cannot wait

• Temporary housing costs increase

• Families feel displaced and stressed

• Bills pile up

• People become more willing to settle for less

Common delay tactics include:

• Reassigning adjusters

• Repeating requests for documents

• Scheduling multiple inspections

• Ignoring emails

• Claiming workload is too high

Legal reality:

Unreasonable delays may constitute bad faith and can entitle homeowners to additional compensation.

9. INSURERS KNOW MOST POLICYHOLDERS DON’T KNOW THEIR RIGHTS

Insurance policies are full of technical language, exclusions, and endorsements.Most homeowners don’t know:

• What coverage they really have

• Which repairs must be covered

• What replacements cost

• Their rights regarding contractors

• How disputes are resolved

• How depreciation should work

• How ALE (Additional Living Expenses) is calculated

Insurers rely on this knowledge gap.

When homeowners do not know their rights:

• They accept low offers

• They fail to request proper testing

• They don’t challenge incorrect classifications

• They don’t get independent estimates

• They miss appeal deadlines

Knowledge is power — and insurers avoid sharing it.

10. HOMEOWNERS OFTEN DON’T APPEAL AND INSURERS KNOW IT

Insurers intentionally underpay claims because they know:

• Only a small percentage of homeowners challenge offers

• Even fewer file formal appeals

• Many give up due to frustration

• Most do not hire attorneys until the denial becomes final

This allows insurers to save millions every year.

But here’s the truth:

Appeals are often successful, especially with legal representation.

11. WHEN UNDERVALUATION BECOMES BAD FAITH

Under some circumstances, lowballing a claim is more than unfair, it is illegal.

Bad faith indicators include:

• Misrepresenting policy terms

• Ignoring evidence of damage

• Failing to conduct proper investigation

• Not providing a reasonable explanation for low offers

• Ignoring documentation you provided

• Unjustified delays

• Denying coverage without basis

• Inadequate or biased inspections

Bad faith can entitle homeowners to:

• Additional compensation

• Attorney’s fees

• Penalties

• Interest

• Consequential damages

12. HOW HOMEOWNERS CAN FIGHT BACK

Here are the most effective strategies to counter undervaluation:

1. Get independent contractor estimates

Real-world pricing almost always exceeds insurer software estimates.

2. Request all documentation from the insurer

Including:

• Depreciation worksheets

• Adjuster notes

• Photos

• Inspection reports

• Coverage explanations

3. Dispute incorrect scopes of work

If cleanup, demolition, or reconstruction is incomplete, challenge it.

4. Demand specialized testing

Especially for:

• Mold

• Moisture

• Structural integrity

• Electrical systems

• HVAC contamination

5. Keep a communication log

Every email, call, delay, and request matters.

6. Prioritize written communication

This creates a paper trail.

7. Consult a property damage attorney early

Legal involvement often triples the insurer’s attention — and the likelihood of a fair settlement.

13. HOW GERACI LLP CAN HELP

Our Property Damage Law division represents homeowners across the United States facing:

• Lowball offers

• Underpaid claims

• Partial denials

• Full denials

• Bad faith conduct

• Delays

• Disputes regarding scope of repairs

• ALE reimbursement conflicts

• Contractor estimates disputes

We handle:

• Fire and smoke damage

• Water damage

• Storm damage

• Mold claims

• Structural damage

• Commercial and residential losses

We fight aggressively to ensure insurers meet their legal obligations.

CONCLUSION

Insurance companies undervalue claims because their business model encourages it. But homeowners are not powerless. With the right documentation, independent evaluations, and legal support, you can challenge unfair settlements and recover the full value of your loss.

At Geraci LLP, we advocate fiercely for policyholders — not insurers. If you believe your claim has been undervalued, you do not need to accept it. You can fight back, and we can help.