How Xactimate Works: A Policyholder's Guide to Insurance Estimates

If you have received an estimate from your insurance company for property damage, it was almost certainly generated in a software program called Xactimate. This is the tool that the entire property insurance industry uses to put a dollar figure on your loss. The number on that estimate — the one the carrier says is "what your claim is worth" — came out of this software.

Most policyholders accept that number without understanding where it came from or how it was calculated. That is a mistake. Xactimate is a powerful and sophisticated tool, but the output depends entirely on who is using it and what choices they make while building the estimate. Two competent estimators can look at the same damage and produce numbers that are tens of thousands of dollars apart — all within the same software.

This article explains how Xactimate works in plain language. You do not need to become an expert in the software. But you do need to understand enough to know whether the estimate you received is reasonable — or whether your carrier is using the tool to short-change you.

We will cover how pricing is determined, what a line item actually contains, how labor settings affect costs, how overhead and profit works, what the raw data file reveals, and why insurance estimates are so frequently inadequate.

What Is Xactimate?

Xactimate is estimating software made by Verisk, a data analytics company that was formerly known as Xactware. It has been the dominant tool in the property insurance industry for over two decades. Virtually every insurance carrier in the United States uses Xactimate to write estimates. So do most independent adjusters, public adjusters, and a growing number of contractors.

The software generates repair estimates based on a massive database of pricing information organized by geographic area. It contains thousands of individual line items covering every construction trade you can think of — roofing, plumbing, electrical, drywall, painting, flooring, cabinetry, appliances, demolition, temporary protection, and hundreds more.

The pricing database is updated monthly by zip code to reflect local market conditions. In theory, this means the prices in Xactimate should approximate what it actually costs to hire someone to do the work in your area. In practice, there are significant gaps between what Xactimate says and what the work actually costs — especially after catastrophic events when demand surges.

Because both sides of a claim typically use the same software, Xactimate functions as a common language. The dispute is rarely about whether to use Xactimate. The dispute is about how it was used — what was included, what was excluded, and what settings were applied.

How Pricing Works

Xactimate's pricing is based on market surveys conducted in each geographic region. Verisk collects data from contractors, suppliers, and other sources to determine what labor and materials cost in a given area. These prices are then published by zip code and updated on a monthly cycle.

Each price list factors in local wage rates, material costs, and equipment expenses. A line item for hanging drywall in Los Angeles will have a different price than the same line item in rural Nebraska because the labor market and material supply chains are different.

The monthly update cycle is important to understand. Verisk publishes new prices once per month, but material costs and labor rates can change faster than that — especially after a disaster. When a wildfire destroys thousands of homes in a region, the sudden demand for labor and materials drives prices up immediately. It can take several months for the Xactimate price list to catch up to the new reality. During that lag period, every estimate generated with the outdated prices will be too low.

Each line item in an estimate has a quantity, a unit price (pulled from the database for that zip code), and a calculated total. The estimate is the sum of all line items. On top of that base total, overhead and profit may be added as a separate percentage — but it is not included in the unit prices themselves.

One detail worth noting: the carrier's adjuster can select which month's price list to apply. Most should use the price list effective at the time of loss or at the time repairs will be performed — whichever produces a fair result. But an adjuster who applies a price list from six months before the loss — or one from a different zip code — will produce a materially lower estimate without changing any line items. This is one of the invisible levers that can suppress a claim value.

Verisk also publishes what are called "state-specific" price lists for catastrophe events, which may carry different assumptions. After a large wildfire or hurricane, the published prices may still not reflect the actual cost of hiring a contractor in a market flooded with demand. Keep this in mind if your loss occurred during or immediately after a declared disaster.

What a Line Item Contains

Every line item in Xactimate is built from several components. Understanding these components helps you evaluate whether a specific line item is appropriate for your situation.

Each line item includes a description of the work being performed. For example: "Remove and replace drywall, 1/2 inch, hung, taped, floated, ready for paint." The description tells you exactly what scope of work that line item covers.

The unit of measurement varies by line item. Some are measured in square feet (SF), some in linear feet (LF), some per each (EA), some per square (SQ, which is 100 square feet for roofing), and some as lump sum (LS). Using the wrong unit of measurement or the wrong quantity is one of the most common errors in insurance estimates.

Within each unit price, there is a material cost component and a labor cost component. Some line items also include an equipment component — for example, line items involving scaffolding, lifts, or specialty tools. You can view this breakdown in the estimate detail, and it matters because disputes sometimes center on whether the material or the labor portion is accurate.

Here is the critical point: two estimates can address the same category of work but contain vastly different levels of detail. One estimator might use a single line item for "paint bedroom walls and ceiling" while another breaks that same work into separate line items for masking, primer coat, two finish coats, cutting in at trim, and ceiling paint. Both are using Xactimate. The difference in the total can be substantial.

Xactimate also distinguishes between "remove and replace" (R&R) line items and "remove only" or "install only" line items. An R&R line item covers the full process of tearing out the damaged material and installing new material in its place. If the adjuster uses only a "remove" line item without the corresponding "replace," or vice versa, the estimate will be incomplete. This may seem like an obvious error, but it is surprisingly common in hastily prepared estimates.

Another important distinction is between "minimum charge" line items and standard quantity-based pricing. When a small amount of work is needed — say, patching three square feet of drywall — the actual cost is higher per unit than the standard rate because a tradesperson still has to mobilize, set up, do the work, and clean up regardless of the tiny quantity. Xactimate has minimum-charge line items that account for this reality. Adjusters who apply standard per-unit pricing to very small quantities will produce an estimate that no contractor would accept.

The Sketch and Measurements

Xactimate includes a built-in sketching tool that allows the estimator to draw the floor plan of your home (or at least the affected rooms). The sketch drives the quantities in the estimate — wall lengths, ceiling areas, floor square footage. If the sketch is wrong, every area-based line item will be wrong.

Some adjusters use aerial measurement services (like EagleView or Hover) to generate roof and exterior measurements remotely. While these can be accurate, they are not infallible. Complex roof geometries, tree cover, and recent modifications to the structure can all introduce errors. If your estimate seems low, checking whether the measurements match reality is one of the first things to verify.

The sketch also defines which rooms are included in the estimate's scope. If the adjuster did not sketch a room, that room's damage is not in the estimate — even if it was clearly affected. Review the sketch pages of your estimate carefully to confirm all damaged areas are represented.

Labor Efficiency Settings

This is one of the most impactful settings in Xactimate, and most policyholders have never heard of it. Xactimate has two primary labor productivity settings: "New Construction" and "Restoration/Service/Remodel."

The New Construction setting assumes that work is being done in an open-field environment with maximum efficiency. Think of a new housing development where framers are working on bare studs with no existing finishes to protect, no furniture to move, full crew access, and no occupied household to work around.

The Restoration/Service/Remodel setting accounts for the realities of repair work in an existing structure. This includes working around existing finishes that must be protected, smaller crew sizes due to limited workspace, the need to move or cover furniture, restricted access to the work area, longer setup and cleanup times, debris removal from an occupied property, and the general inefficiency of tearing out damaged material before rebuilding.

The setting used can change the labor cost on an estimate by 20% to 40% or more. That is not a small difference. On a $100,000 repair estimate where labor represents half the cost, the wrong setting could mean $10,000 to $20,000 left off the table.

Most repair work on insurance claims should use the Restoration setting. The work is being done in an existing home with existing finishes, occupied or not. It is repair work, not new construction.

Despite this, some insurance carriers have been documented using the New Construction setting on repair estimates. Whether this is done out of ignorance or as a deliberate cost-saving measure, the result is the same: an estimate that does not reflect the actual cost of the work.

How Depreciation Works in Xactimate

If you have a replacement cost policy, your carrier will typically issue two payments: an initial payment at actual cash value (ACV), and a second payment for the recoverable depreciation once repairs are completed. The depreciation calculation happens inside Xactimate, and it is another area where carriers take liberties.

Xactimate allows the estimator to apply depreciation to materials, labor, or both. The correct approach depends on your state's law and the specific policy language. In California, labor depreciation has been a contested issue — labor does not "wear out" the way a roof shingle does, and courts have weighed in on whether it can be depreciated at all.

Within the estimate, depreciation is applied as a percentage to each line item or category based on the age and condition of the damaged component. A 15-year-old roof with a 30-year expected life might be depreciated at 50%. But the rate applied should reflect the actual condition of the item, not just its calendar age. A well-maintained roof that was functioning perfectly before the loss should not be depreciated the same as one that was already deteriorating.

The ESX file will show you exactly how depreciation was calculated — what percentages were applied to which line items, and whether labor was included in the depreciation. This is one of the most valuable pieces of information you can extract from that file.

Overhead and Profit

Overhead and profit — commonly referred to as O&P — is a percentage added on top of the base estimate to account for a general contractor's business costs and profit margin. The industry standard is 10% overhead plus 10% profit, which works out to approximately 21% on top of the direct costs (because profit is calculated on the total including overhead).

O&P is not included in Xactimate's unit prices. It must be added as a separate line on the estimate. This is an important distinction — the base prices in Xactimate represent the cost for a trade-specific subcontractor to perform work, not the all-in cost of having a general contractor manage a multi-trade repair project.

Three Categories of Overhead in Xactimate

Xactimate's own documentation recognizes three distinct types of overhead:

• General overhead:The contractor's ongoing business expenses — rent, office staff, licensing fees, insurance, advertising, vehicle costs. This is what the standard 10% overhead covers.
• Job-related overhead:Costs specific to a particular project that go beyond the trade labor itself — project management, portable restroom facilities, temporary power, dumpster rental, site security, and job coordination. These should be written as separate line items in the estimate, not absorbed into the general O&P percentage.
• Job-personnel overhead:The cost of employing the workers themselves — payroll taxes, workers' comp insurance, benefits, and similar expenses. This component is already built into the labor portion of each line item. It does not need to be added separately.

Insurance carriers commonly refuse to include O&P, arguing that it is "not warranted" or that the homeowner does not need a general contractor. Some carriers cite a "three-trade rule" — the notion that O&P is only appropriate when three or more distinct trades are required. This rule has no legal authority. It is an industry guideline that carriers have adopted because it provides a convenient basis for denial. The reality is that even two-trade repairs often require general contractor coordination.

For a deeper discussion of this topic, see our article on overhead and profit.

The ESX File — Your Right to the Raw Data

When an adjuster builds an estimate in Xactimate, the native file format is called an ESX file. This is the source file — not the PDF summary they send you. The ESX file contains far more information than the printed estimate, and it is information you are entitled to.

An ESX file contains metadata showing who prepared the estimate and when. It shows every modification that was made — including line items that were added and then removed, which can reveal items the adjuster initially included but later deleted. It shows what labor productivity setting was used, what price list was applied, and what depreciation calculations were performed.

This data has been recognized as significant enough that federal courts have ordered insurance companies to produce ESX files in litigation discovery. The metadata embedded in these files has exposed estimate manipulation that would never be visible from the PDF printout alone.

In California, you do not need to be in litigation to obtain this file. Under California Insurance Code Section 2071 and the Fair Claims Settlement Practices Regulations, your carrier is required to provide claim-related documents within 15 days of a written request. The ESX file is a claim-related document — it is the source data behind the estimate they used to determine your payment.

What can a professional learn from reviewing your ESX file? Quite a bit:

• Whether the correct price list (zip code and date) was used
• Whether labor efficiency is set to restoration or new construction
• Whether line items were added and then deleted before the estimate was finalized
• Whether depreciation was applied correctly or excessively
• Whether O&P was included or stripped out
• Whether the estimate was built from a template or customized to your actual loss
• What version of the software was used and whether it was current

For more on your rights to claim documents, see our article on the CDI Right to Claim Documents.

How to Request the ESX File

Your request should be in writing — email is fine. Be specific: ask for "the native Xactimate ESX file(s) for all estimates prepared in connection with claim number [your claim number]." Do not ask for "the estimate" because the carrier will send you the PDF and claim compliance. You need the ESX file specifically.

If the carrier pushes back — claiming the file is proprietary, or that they only provide PDFs — remind them that the ESX file is a document related to your claim and that California regulations require its production. The file is not proprietary to the carrier; it is a record of how they evaluated your loss.

Once you have the ESX file, you will need someone with Xactimate software to open and review it. A public adjuster, independent estimator, or knowledgeable contractor can do this. The file cannot be opened in a standard program like Word or Excel — it requires the Xactimate application itself.

Why Xactimate Estimates Are Often Too Low

Receiving an estimate generated in Xactimate does not mean the number is accurate or fair. There are structural reasons why insurance-prepared Xactimate estimates consistently understate the cost of repair.

The Monthly Update Lag

As discussed above, Xactimate updates its pricing monthly. After a disaster, actual costs rise immediately due to demand surges. The price list may not reflect reality for weeks or months. Every estimate written during that lag period uses outdated numbers.

Verisk's Own Disclaimer

Verisk's End User License Agreement — specifically Section 12.3 — contains a disclaimer stating that the pricing data is intended as a "baseline" and that the company does not guarantee the accuracy of its prices. In other words, even the publisher of the software acknowledges that the numbers are a starting point, not a definitive statement of cost.

Insufficient User Training

Xactimate offers certification levels for its users, ranging from basic familiarity to advanced proficiency. Only an estimated 1% to 2% of all Xactimate users hold Level 1 or Level 2 certification. The vast majority of insurance adjusters writing estimates have never demonstrated proficiency through the software's own certification program. This means the people writing your estimate may not fully understand the tool they are using.

Commonly Omitted Line Items

Insurance adjusters routinely omit legitimate line items from their estimates. These omissions are not always intentional — sometimes the adjuster simply does not know the line item exists or does not understand the construction process well enough to know it is needed. Common omissions include:

• Surface preparation before painting (sanding, cleaning, deglossing)
• Primer coats (listed separately from finish paint in Xactimate)
• Texture matching on walls and ceilings
• Protection of adjacent finished surfaces during construction
• Masking and taping before painting
• Furniture and contents manipulation (moving items to access work areas)
• Haul-off and disposal of debris beyond the initial dumpster
• Temporary facilities (portable restrooms, temporary power for large jobs)
• Final cleaning after construction is complete
• Permit fees and inspection costs
• Material delivery charges
• Minimum charge thresholds (small-quantity work costs more per unit)

Financial Incentives

It would be naive to ignore the obvious: the carrier's adjuster works for a company whose profitability improves when claims are paid at lower amounts. Some carriers track adjuster "severity" — the average claim payment per file. Adjusters who consistently write higher estimates may face scrutiny. This does not mean every adjuster is deliberately lowballing your claim, but the incentive structure is not aligned with writing the most thorough estimate possible.

Additionally, many insurance companies use desk adjusters who never visit the property. They write estimates based on photos, sometimes taken by the homeowner and sometimes by a field inspector who has no estimating training. Writing an estimate from photos without physically inspecting the damage almost guarantees that scope will be missed. Damage behind walls, under flooring, in attic spaces, and in areas not photographed simply will not appear on the estimate.

Some carriers also use proprietary "estimate review" software that flags line items exceeding certain thresholds or that appear on a pre-set exclusion list. The adjuster may write a thorough estimate only to have it reduced by automated review before it reaches you. The estimate you receive may not even reflect what the field adjuster originally wrote.

What You Can Do

Understanding how Xactimate works puts you in a stronger position to challenge an inadequate estimate. Here are concrete steps you can take:

1. Request your ESX file. Put your request in writing and cite California Insurance Code Section 2071. The carrier must respond within 15 days. If they refuse or claim the file does not exist, that is a potential fair claims violation.
2. Get two or three contractor bids.Obtain written estimates from licensed general contractors for the same scope of work. These real-world numbers provide a benchmark to compare against the Xactimate estimate. If three contractors all say the job costs $80,000 and the carrier's estimate says $45,000, you have a documented gap.
3. Hire a public adjuster or independent estimator.A professional who works in Xactimate daily can review the carrier's estimate line by line, identify what was omitted, verify the settings, and prepare a competing estimate that reflects the actual scope and cost of repair. This is what public adjusters do.
4. Do not accept the first estimate as final. The initial estimate is a starting point. Insurance companies expect negotiation on larger claims. Accepting the first number without pushback almost guarantees you are leaving money on the table.
5. Document the gap. If contractor bids exceed the insurance estimate, put the discrepancy in writing to the carrier. Ask them to explain specifically why their estimate is lower. Force them to justify the number, not just assert it.
6. File a supplement. If additional damage is discovered during repairs, or if the initial scope was incomplete, you have the right to submit a supplemental claim for the additional costs. The first estimate does not cap your recovery.
7. Understand your dispute options. If negotiation stalls, California policyholders have several paths: invoking the appraisal clause in your policy (which resolves amount disputes through a panel process), filing a complaint with the California Department of Insurance, or retaining legal counsel for bad faith claims. The avenue depends on whether the dispute is about coverage or about the dollar amount.

What Not to Do

A few common mistakes policyholders make when dealing with Xactimate estimates:

• Do not assume the estimate is correct because it looks official. A 20-page Xactimate printout with line-item detail looks authoritative. That appearance of precision makes people assume accuracy. But an estimate full of omissions is still wrong no matter how professionally it is formatted.
• Do not sign a contractor agreement for the insurance estimate amount. If you lock in a contract at the carrier's number before disputing the estimate, you may limit your ability to recover the true cost. Get the estimate corrected first.
• Do not wait too long to challenge the number. While California does not impose a strict deadline for disputing an estimate, delays make the process harder. Challenge the estimate promptly while the damage is still visible and the circumstances are fresh.
• Do not make repairs without documenting the original damage. Once repairs are complete, the physical evidence of what was wrong is gone. Photograph and video everything before construction begins. If possible, have a professional inspect before demolition starts.

Related Resources

• Overhead & Profit: When Your Claim Should Include O&P
• Supplemental Claims: Getting Paid for Additional Damage
• Your Right to Claim Documents Under California Law
• What a Public Adjuster Does and When to Hire One