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What Is Contractor Fraud and How Can You Avoid It?

Aug 24, 2022

Contractor insurance

What Is Contractor Fraud and How Can You Avoid It?

Fraudulent behavior is becoming increasingly common in the business world. In 2021, for instance, a Federal Trade Commission report revealed that consumers reported losing $5.8 billion due to fraud. Compared to 2020, these fraud-related losses increased by 70 percent. One of the most common and costly forms of fraud is contractor fraud. That’s why you need to know how contractor fraud works and how to spot the scammers and avoid falling victim.

What Is Contractor Fraud?

Contractor fraud takes various forms by there are a few common types that every homeowner should know.  The first scam occurs when you bring in a contractor to handle a given situation, and they either overcharge you for the work done or falsify how much work they've done. This type of fraud often occurs during emergencies, where you badly need to fix a problem that you aren't willing to wait for the insurance adjuster to assess the level of damage before a contractor gets on-site. Consequently, contractors can decide what to charge, trusting that you don't have the time to dispute them.

Fraudulent contractors deliberately target vulnerable homeowners. Those targeted could be elderly, have just experienced an immense loss, or are in desperate need of assistance. When you're vulnerable, you're more likely to trust individuals who shouldn't be trusted.

The second scam is where a contractor attempts to trick you into paying them to fix a problem that doesn’t exist or is exacerbated by the contractor during the first inspection. For instance, a roofer may come to you and tell you that they were helping your neighbor fix their roof, and they notice damage in yours too. They’ll then get on your roof to assess the damage and then cause or enhance the damage. The fraudulent contractor will then proceed to fix the self-inflicted problem and charge you accordingly. Conversely, the contractor may ask for a down payment to do repairs and then vanish with the down payment. Therefore, you should always be cautious when someone claiming to be a contractor approaches you unsolicited.

How to Avoid Contractor Fraud?

You can avoid being tricked by fraud contractors by following these tips:

  1. Know What to Look For

    Before you engage any contractor (whether solicited or unsolicited), you should seek their contractor’s license. Any genuine contractor will always have their license with them and will willingly show it to you. You should note the license plate of the contractor’s vehicle. If they’re from out of your state, there is a good chance that they're scammers targeting particularly vulnerable places. The National Insurance Crime Bureau has a VINCheck Lookup tool that you can use to search a suspicious contractor’s vehicle license plate. Moreover, you should be cautious when dealing with a contractor who asks you to pay them outside the official quote.

  2. Document Everything

    In case of damage, ensure you document it by taking measurements, videos, and photos. This information will help you validate your claim before a contractor comes to your property.

  3. Engage Your Insurance Carrier

    The most effective way of preventing fraud is by you filing an insurance claim as soon as you notice damage to your property. Your insurer will send an independent adjuster or their filed claims representative to assess the damage. Then, they’ll connect you with a contractor to fix the problem. Working with your insurance agency enables you to get help from a reputable contractor who’s unlikely to defraud you.

How Humble Insurance Group Can Help You Protect Yourself from Contractors Fraud

Besides following these tips, you can also buy a contractors insurance policy to cover your finances in case a contractor damages your building. To learn more about insurance policies that'll adequately protect you, your family, and your property, contact us today at Humble Insurance Group.

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