From online scams to identify theft, fraudulent behavior has become something of an unwelcome norm in today’s society. In 2021 alone, the Federal Trade Commission discovered that consumers reported $5.8 billion in losses due to fraud—a 70 percent increase in fraud-related losses compared to 2020.
As a result of this unfortunate trend, many of us are taught to keep a watchful eye on our online information. We ignore potentially virus-inflicted emails, change our passwords every few months, check our credit card bills for inconsistencies, and adopt dozens of other tedious practices to try and keep ourselves secure.
But what happens when the threat of fraud isn’t coming in the form of a suspicious email or link? What if, instead, it comes in the form of a contractor knocking on your front door and claiming to have noticed damage to your home that needs to be addressed immediately? How are you supposed to know who to trust and who might be trying to scam you?
In this article, we’ll address the intricacies of contractor fraud, explore how these individuals operate, uncover the steps you can take to prevent this type of behavior, and discover Central Insurance’s commitment to protecting its policyholders from this and all kinds of potential fraud.
What is Contractor Fraud?
Contractor fraud can take many shapes and forms, but there are a few very common types homeowners should be aware of.
The first occurs when a contractor is brought in to help handle a situation and either completely falsifies the amount of work done or simply overcharges for the work that is completed.
“Any time you have physical damage in your home and you need someone to repair it, there’s a possibility you might have contractor fraud,” says Anthony Gaytan, an Anti-Fraud Operations Analyst within Central Insurance’s Special Investigative Unit.
Gaytan explains that this particular form of contractor fraud will often occur during an emergency situation in which a homeowner is so desperate to solve the problem, they can’t wait for an insurance adjuster to judge the amount of damage before getting a contractor on-site. As a result, contractors are able to set their own fees and trust that the homeowner doesn’t have time to check or dispute them.
Did You Know: Seasoned insurance carriers like Central have records of the average cost for any kind of home repair. This allows us to easily compare a quote from a contractor and see if the amount is reasonable, or if the insured is potentially being taken advantage of. Our fraud experts even track trends in the market that might affect rising costs (whether it’s inflation, supply chain management issues or the current cost of lumber) so when policyholders call and ask about the legitimacy of a quote, we can provide the most accurate information possible.
“Fraudulent contractors purposely target vulnerable homeowners,” explains Jeff Lieberman, Director of Anti-Fraud & Recovery within Central Insurance’s Special Investigative Unit. Whether they are elderly, have just suffered a great loss, or are in immediate need of assistance, these individuals are far more likely to trust someone they shouldn’t, making them the ideal prey for a scammer.
“A lot of these shady contractors are storm chasers from out of state who go from place to place looking for the next storm so they can capitalize on and victimize our policyholders,” Gaytan adds. It is this strategic mindset that contributes to the danger of these contractors.
The second type of contractor fraud is when a contractor tries to trick a homeowner into paying to fix a problem that is exaggerated, simply does not exist, or is actually enhanced during a first inspection by the contractor themselves.
Roofers are one type of contractor that might fall under this umbrella of fraud, considering they do most of their work on an area of the home we cannot easily assess on our own.
“We see a lot of cases where a roofer will come by and tell a homeowner that they just happened to be in the area, or that a neighbor just got a new roof and they noticed damage on theirs too. Then they go up onto the roof to ‘inspect the damage,’ and actually enhance or facilitate damages themselves,” Lieberman says.
In cases where the damage is self-inflicted by the contractor, the roofer often proceeds to fix the damage and charge the homeowner accordingly. In others cases, the roofer might simply make their introduction, “assess” the damage on the roof without adding to it, and insist on a downpayment to fix what does not exist. The contractor will often take the downpayment and never return.
Considering these very different but equally harmful approaches, Gaytan warns that “pretty much any unsolicited approach from a contractor is something to be very careful of.”
How to Avoid Contractor Fraud
While the idea of being taken advantage of when you are vulnerable may seem scary, there are steps you can take to ensure your safety against fraudulent contractors.
1. Know What to Look For
Though it may sound obvious, asking an unsolicited (or even solicited) contractor to view or even make a copy of their official contractor’s license is an easy way to determine whether they are legitimate. Any contractor in good standing should carry their license on them and be more than willing to share it with you upon request.
Another quick way to determine if a contractor is legitimate is to take notice of their vehicle’s license plate. If the contractor appears to be from out of state, there is a very good chance the individual is chasing scam opportunities in particularly vulnerable locations. You can also utilize the National Insurance Crime Bureau’s VINCheck Lookup tool to easily search the license plate of a suspicious contractor’s vehicle.
Lieberman also recommends being on the lookout for contractors who bring up money or payment outside of an official quote before the work is complete. For example, if they ask for a deposit on the work, ask to be paid before the job is complete, or promise to pay the deductible on a project, it is likely they are fraudulent.
2. Document Everything
In emergency and non-emergency situations alike, it’s important to capture as much information as possible prior to engaging a contractor. Be sure to always take photos, videos and measurements of the damage at hand. The more data you have, the easier it will be to “prove and validate your own claim prior to a contractor coming out to your property,” Lieberman says.
Taking Action: Even before an emergency, Lieberman advises taking the time to record or photograph your entire home top to bottom to ensure you are covered in case of unexpected loss. “Open every drawer you have, because if you were exposed to a fire, for example, you’ll have an awfully hard time recalling every single thing you had in every single drawer in your house.”
In general, “any documentation you have around any potential loss, the more protected you ultimately are,” Gaytan concludes.
3. Engage Your Insurance Carrier
The very best way to prevent insurance fraud is by filing a claim with your insurance carrier at the first sign of damage to your home. Once that claim is filed, Lieberman explains that the insurance carrier will “send out a field claims representative or independent adjuster to scope the loss. Then, at that point, the field representative will assign the contractor to do the work.”
Going through your agency ensures that you are being matched with a reputable contractor in good standing who is unlikely to try and commit fraud. It also eliminates a lot of steps when it comes time to submit the claim for reimbursement because the agency is already familiar with the contractor’s pricing.
In some cases, however, Lieberman notes that a homeowner’s only option is to be reactive. “When my attic flooded with water and the ceilings collapsed on the floor as a result of a hurricane, I didn’t have the time to call my insurance agent first,” he reflects. “That was a situation in which I had to just react, and I recognized that I was at the mercy of my contractor in that situation. Yes, I hoped I would be reimbursed by the insurance company and that they would take the scope of the work at face value, but I could also immediately see the potential for severe price gouging by the contractor. It was a dangerous spot to be in.”
The Central Difference
At Central, we believe contractor fraud is a preventable crime, and have adopted many practices internally to better protect our policyholders from these situations.
Our Special Investigative Unit “performs a significant amount of training with our adjusters in the detection of red flags with contractor claims,” Gaytan says. “The adjusters are taught what to look for so if they see something odd they can send it to us for immediate investigation.”
Did You Know? As a result of Central’s emphasis on training, this group was able to identify and investigate over 1,700 cases of questionable claims in 2021 alone.
Another aspect that sets Central’s fraud detection apart is its adoption of data and AI-driven strategies to help track patterns and fraudulent behaviors among contractors. “We [work] with law enforcement and the National Insurance Crime Bureau, which places nationwide alerts on particular contractors to be on the lookout for,” Lieberman says. That data is then fed into Central’s personal analytics systems, keeping us one step ahead of fraudulent contractors.
What’s more, Central holds a unique partnership with the Geospatial Insurance Consortium, a program designed to provide up-to-date aerial imagery and geospatial information on policyholders’ property. This type of software allows Central to collect and develop a timeline of imagery depicting the history of a policyholder’s roof, for example. This way, if a contractor were to try and trick an insured into agreeing to repairing unseen roof damage, that policyholder would be able to call and check with Central to ensure the damage exists and matches the description of the quote.
Learn More About Protecting Yourself
Understanding contractor fraud and how to identify a potentially fraudulent individual is the best way to protect yourself and your loved ones from this kind of dangerous behavior.
Looking to better arm yourself with information on contractor fraud? Use this Contractor Search Checklist to guide you through your next contractor experience and, if you’re a Central policyholder, get in touch with your agent for more information on Central’s built-in homeowner protection practices.