How To Avoid Contractor Fraud

While most contractors are trustworthy, some are guilty of taking advantage of vulnerable homeowners – especially when the repairs involve an insurance claim.

Overall, insurance fraud is a crime that drives up insurance premiums for everyone. According to the Coalition Against Insurance Fraud, insurance fraud costs $308.6 billion a year across all lines of insurance. In property casualty insurance, some form of fraud occurs in approximately 10% of losses.

Contractor insurance fraud occurs when a contractor deliberately misleads an insurance company or policyholder to collect payment for work that was never completed, was done poorly, or was billed at an inflated cost beyond its true value. Whether you’re planning a much-anticipated remodeling project or facing repairs to fix damage from a storm, hiring a contractor can be a daunting and nerve-wracking task, so it's important to understand how to avoid contractor fraud.

Dishonest Contractors Prey on the Vulnerable

Contractor fraud can happen anytime but is most common after a natural disaster. Maybe your roof was damaged by hail or wind during a storm. Unscrupulous contractors follow storms around the country to prey on vulnerable homeowners. Many times, they solicit door-to-door and attempt to get victims to sign a contract. While getting repairs completed as quickly as possible is top of mind, it can result in letting your guard down and becoming a victim.

Tips to Avoid Contractor Fraud

While your instincts may be to rush through the process of finding help to restore your property, taking the time to find the right contractor can save time, money and additional frustration in the long run. Protect yourself from scams by considering these tips when someone offers their services:

• Work with only licensed and insured contractors.
• Get more than one estimate. Don’t be pushed into signing a contract right away.
• Get everything in writing. Cost, work to be completed, time schedule, guarantees, payment schedule and other expectations should be detailed.
• Require references and check them out.
• Ask to see the person’s driver’s license and write it down. Also, get their vehicle’s license plate number.
• Never sign a contract with blanks. Fraudulent contractors may enter unacceptable terms later.
• Never pay a contractor in full or sign a completion certificate until the work is completed.
• Avoid paying with cash or a digital payment method. Use a check or credit card to have electronic records of your payments.
• Make sure you review and understand all documents sent to your insurance carrier.
• Do not believe a contractor who says they are endorsed or certified by the Federal Emergency Management Agency; FEMA does not certify or approve individual contractors or loan companies. Call FEMA, 800-621-FEMA (3362), for more information.

See Something, Say Something

Many insurance carriers will have information about fraud reporting on their website, such as Cincinnati Insurance’s Fraud Protection Center. If you believe you’ve been approached by an unlicensed contractor or claims adjuster or have been encouraged to falsify an insurance claim, contact your insurance carrier or agent or the National Insurance Crime Bureau, 800-TEL-NICB (800-835-6422) for assistance.

Additional Resources

National Insurance Crime Bureau – Prevent Fraud and Theft
Coalition Against Insurance Fraud – About Fraud
Better Business Bureau – Hire a reliable and trustworthy contractor

This loss control information is advisory only. The author assumes no responsibility for management or control of loss control activities. Not all exposures are identified in this article. Contact your local, independent insurance agent for coverage advice and policy service.