What Does O&P Mean on an Insurance Claim?
Navigate your insurance claim with confidence. Discover how Overhead & Profit (O&P) impacts your property damage settlement and how to ensure it's included.
Property insurance claims involve various components for property restoration. “O&P,” or Overhead & Profit, is a frequently encountered term. It significantly impacts how claims are calculated and settled, affecting repair funds. Understanding O&P is relevant for policyholders as it covers legitimate business costs for contractors managing repair projects, ensuring complete restoration.
What O&P Means
O&P, or Overhead and Profit, compensates a general contractor for managing property repairs. Overhead covers indirect business costs not tied to a single project, such as office rent, utilities, administrative staff salaries, and insurance. These expenditures are necessary for a contractor’s operations and service.
Profit is the contractor’s compensation for their expertise, financial risks, and project management. It allows the business to grow and remain financially sound. O&P is included in claims when a general contractor is needed to oversee complex damages requiring coordination among multiple trades. This acknowledges that managing such projects involves time, supervision, and financial responsibility beyond direct labor and material costs.
When O&P Applies
Insurance companies include O&P in a claim settlement when damage necessitates a general contractor, typically in complex scenarios requiring specialized project management. The “three-trade rule” suggests O&P applies when three or more distinct trades are needed for repairs. For instance, if a claim involves roofing, plumbing, and electrical work, a general contractor’s coordination is necessary.
O&P is also relevant for significant structural damage or extensive project coordination to return the property to its pre-loss condition. For simple, single-trade repairs, such as a minor roof leak without interior damage, O&P might not be included. In these less complex situations, an insurer may determine a general contractor’s oversight is not essential.
Calculating O&P
O&P is calculated as a percentage of total direct repair costs, including materials and labor. The common industry standard is often 20%, typically 10% for Overhead and 10% for Profit. This covers the general contractor’s indirect business expenses and serves as their compensation.
To illustrate, if direct repair costs are $10,000, O&P adds $2,000 ($1,000 for Overhead, $1,000 for Profit). While 20% is a frequently applied percentage, these figures can vary based on job complexities, regional construction standards, or competitive market conditions.
Ensuring O&P is Included
Policyholders should carefully review claim estimates and settlement offers to verify O&P inclusion. If a claim involves multiple trades or complex repairs and O&P is not initially included, policyholders should discuss the necessity of a general contractor with their insurance adjuster. This conversation should emphasize the scope of work and the need for professional project management.
It is helpful to obtain detailed estimates from reputable general contractors that clearly itemize O&P as a separate line item. These itemized estimates can then be presented to the insurer to support O&P inclusion in the settlement. Maintaining clear and consistent communication with the adjuster throughout the claims process is important to ensure all aspects of the repair, including O&P, are addressed.