How Insurance Claim Contractor Scams Work: Everything You Need to Know About Insurance Scams
Insurance claim contractor scams have become more common across the United States.
FEMA recently issued a warning to homeowners about the dangers of contractor scams.
Insurance and licensing boards across the United States, meanwhile, have issued similar warnings. The North Carolina Licensing Board for General Contractors, for example, recently issued a warning about fake contractors.
The Maryland Insurance Administration issued a similar warning after spotting numerous fraudulent contractors working in painting, construction, and cleaning.
For all of these reasons and more, it’s crucial for homeowners to learn how to protect themselves.
There’s no better time than today to educate yourself. Keep reading to discover everything you need to know about insurance claim contractor scams, roofer and roofing scams, public adjuster scams, and other fraudulent insurance practices.
How Insurance Claim Contractor Scams Work
Insurance claim contractor scams work in different ways but follow a similar pattern.
Here’s a common example of an insurance claim contractor scam:
- After a natural disaster, a “contractor” may go door-to-door offering to manage an insurance claim on your behalf. That contractor may point to your hail-damaged roof, for example, and claim they can repair it while securing a high insurance payout.
- You sign a contract authorizing the contractor to manage your claim and negotiate with the insurance company on your behalf.
- The contractor takes your insurance money and performs substandard repairs, pocketing the difference and earning huge profit – and leaving you with a poor-quality roof.
In some cases, the fraudulent contractor simply takes the insurance money and leaves town.
Be advised, in some states, such as Texas, it is illegal for a contractor to handle or negotiate your insurance claim on your behalf.
There have been many real-world examples of these scams in action, forcing regulators across the country to issue warnings.
Two contractors in Florida were recently arrested for participating in a roofing contractor scam, for example. The two roofers approached homeowners using the name “NBRC Construction,” offering to replace or repair a roof. The contractors collected insurance money to repair the roof damage, then fled town. The scam was wildly successful: the two contractors scammed 100+ victims across six counties in the Tampa Bay area before being caught.
Types of Insurance Claim Contractor Scams
Many insurance claim contractor scams fall into two categories:
- Substandard Work Scams
- Take the Money and Leave Scams
Substandard Work Scams: Substandard work scams are the most common type of insurance claim contractor scam. These scams can be difficult for policyholders and insurers to spot until it’s too late. With these scams, the contractor agrees to repair the property to pre-loss condition, only to use substandard materials to complete repairs. The property may look repaired – but it’s low-quality and built from shoddy materials, inevitably leading to future issues.
This is especially easy for roofing contractors when shingle manufacturers auction off low quality or damaged shingles that have too few granules, or mechanical damage to shingles during the manufacturing process. Contractors are able to buy these shingles at a greatly reduced cost but they don’t come with a typical warranty. So, contractors get one copy of the warranty paperwork from a valid bundle of shingles at one of the big box suppliers and supply it to you. Each bundle of shingles should have its own warranty paperwork.
Take the Money and Leave Scams: Take the money and leave scams are more straightforward. A contractor approaches homeowners – typically in a disaster-prone area – offering to manage the insurance claim. Homeowners agree because they’re stressed and overwhelmed by the recent natural disaster and aren’t sure how to proceed. The contractor takes money from the insurance company and agrees to perform repairs, only to take the money and leave town.
How Storm Chasing Contractor Scams Work
The two types of insurance claim contractor scams listed above may fall into “storm chasing” contractor scams.
These scams, as you may have guessed from the name, involve contractors visiting disaster-struck areas to take advantage of vulnerable homeowners:
- The contractor watches for severe weather to strike a region – say, a hurricane, tornado, blizzard, or other severe weather event.
- Immediately after the disaster occurs, the contractor gathers a crew and travels to the affected area.
- The contractor uses various tactics to persuade homeowners to let them manage their upcoming repairs and insurance claim. The contractor may claim they can maximize payouts or get repairs done ASAP, for example. In more extreme cases, the contractor may even offer to pay the homeowners’ deductible or give a portion of insurance money to the homeowner.
- If the homeowner agrees, the contractor performs a rush job on the property, repairing damage to a substandard quality using lower-quality materials. Or, the contractor simply leaves town with the insurance payout. In either case, you’re left with damaged property and no insurance payout.
After a storm, be wary of contractors who knock on your door looking for business. The best contractors don’t resort to storm chasing tactics; the best contractors are typically busy after a storm regardless.
How Public Adjuster Scams Work
Public adjusters are licensed insurance industry professionals who represent ordinary members of the public – like homeowners and commercial property owners. Most public adjusters are honest and legitimate professionals licensed by their state’s department of insurance.
A good public adjuster acts in your best interests, representing your side throughout the insurance claim process.
Unfortunately, some public adjusters are unlicensed con artists. Others try to scam policyholders or take advantage of vulnerable homeowners after a disaster.
Here are some of the most common public adjuster scams and how they work:
Claim Mill Public Adjuster Scams
Many public adjuster scams are considered “claim mill” scams.
Here’s how a Claim Mill scam works:
- A public adjuster or public adjuster company may accept an excessive number of clients, then sell customer referrals at an inflated cost to lawyers.
- The public adjuster company attracts homeowners with claims of higher payouts and expedited claims, only to sell clients to lawyers to make a quick profit.
- Or, the public adjuster company may influence homeowners to use affiliated companies – like appraisers and restoration companies owned by family members – at an inflated price.
One of the most notorious claim mill scams in recent Texas history involved Correct Claim, a public adjuster firm that created a web of interconnected companies. Correct Claim would approach homeowners offering to serve as a public adjuster for an upcoming claim.
Correct Claim would offer to perform an appraisal on the home, for example. However, the appraisal company recommended by Correct Claim was owned by a family member. Investigators believed home appraisals were not completed in an impartial manner.
Then, the appraisal company would sell the estimates to Correct Claim for $350. Correct Claim would sell the home repair estimates to lawyers for $2,000 a piece, then refer homeowners to these law firms. Lawyers passed the $2,000 charge onto homeowners as a litigation expense.
In a related case, Correct Claim sold 770 appraisals to a single appraisal company. That appraisal company was also connected to Correct Claim. That company could not handle 770 appraisals at once and only ever completed five of the appraisals.
In court documents, Correct Claim revealed it had 2,600+ clients:
“Correct Claim stated in one of its filings that it had over 2,600 clients. Obviously, it is impossible for a public adjuster to adequately represent 2,600 clients,” explained Dallas attorney Steve Badger, who investigated Correct Claim’s business dealings.
While Correct Claim was making money through a claim mill, homeowners were waiting for repairs to be completed. Correct Claim made money while homeowners suffered.
Unlicensed Public Adjuster Scams
Most states require public adjusters to be licensed. You must pass an exam and meet certain standards of ethics to be a legitimate public adjuster.
Public adjusters in Texas, for example, are obligated to represent the policyholder and actually work on the claim. Texas also prohibits public adjusters from receiving referral kickbacks, and public adjusters must adhere to a code of ethical practices.
Some public adjusters ignore these requirements, illegally acting as public adjusters for unsuspecting homeowners. Homeowners believe the public adjuster is acting in their best interests, only to be disappointed by the results.
How to Avoid Insurance Claim Scams
You can avoid 95% of contractor scams by asking questions, doing background checks, and avoiding quick decisions.
Ask Questions
The best way to avoid insurance claim scams is to ask smart questions before hiring anyone to work on your insurance claim.
Some of the questions to ask before hiring a contractor include:
- Can you provide three referrals?
- Are you local? Where are you based?
- How long have you been in business?
- What’s your experience level for my type of project? Have you successfully completed similar projects in the past?
You should also ask questions before hiring a public adjuster. A good public adjuster can increase claim payout and speed up your claim, while a bad public adjuster can slow down your claim and charge excessive fees.
Questions to ask before hiring a public adjuster include:
- What percentage of claims do you close successfully without needing an attorney?
- Can you provide three referrals?
- How much experience do you have with my type of claim?
- How many clients can you handle at one time while still devoting proper attention to each claim?
- How long have you been an adjuster?
- Do you require payment upfront? What is your fee structure? (Be wary of public adjusters who ask for payment upfront, as most public adjusters work on contingency. In fact, it’s illegal in some states for public adjusters to charge a fee before an insurance claim is settled).
By asking the questions above, you prove you’re informed. Plus, it reduces the risk of being scammed by a fraudulent public adjuster or contractor.
Complete a Background Check
We recommend completing a background check before hiring a public adjuster or contractor.
A background check could involve a simple internet search (which could be fine for smaller projects) or a deep dive into the person’s history.
Some of the ways to complete a background check include:
Conduct a thorough internet search for the contractor or public adjuster
Check the Better Business Bureau page and company website for further information
Read any available reviews from previous customers
Check the adjuster’s license with your state’s contractor or public adjuster database to ensure it’s valid
You can find a link to check a public adjuster’s license in your state here.
Never Be Pressured Into Making an Immediate Decision
Fraudulent insurance contractors may demand an immediate decision. They may present their offer as a limited offer, for example, and claim they have other clients willing to sign.
Legitimate contractors and public adjusters should not pressure you into making an immediate decision – especially when it’s something as important as a large home or commercial insurance claim.
If you’re feeling pressured by a contractor or public adjuster, separate yourself from the situation and take time before making an immediate decision.
Final Word
You should be wary when someone approaches your house or commercial property after a disaster.
In some cases, it’s a legitimate contractor or public adjuster seeking new business. In many cases, however, the person is trying to take advantage of a home or business owner in a vulnerable situation.
By following the tips above, you can reduce your chances of falling victim to an insurance claim contractor scam or public adjuster scam.
Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.
