Got the flyer above in the mail this week. There’s no obvious damage to my relatively new roof, but I know that in other states like Florida, a big part of the home insurance crisis is opportunistic contractors taking fraudulent advantage of weather extremes to drum up repair business, even if repairs are not warranted.
Look for more of this.
Florida International University:
Florida’s insurance rates have almost doubled in the past five years, yet insurance companies are still losing money for three main reasons.
One is the rising hurricane risk. Hurricanes Matthew (2016), Irma (2017) and Michael (2018) were all destructive. But a lot of Florida’s hurricane damage is from water, which is covered by the National Flood Insurance Program, rather than by private property insurance.
Another reason is that reinsurance pricing is going up – that’s insurance for insurance companies to help when claims spike.
But the biggest single reason is the “assignment of benefits” problem, involving contractors after a storm. It’s partly fraud and partly taking advantage of loose regulation and court decisions that have affected insurance companies.
It generally looks like this: Contractors will knock on doors and say they can get the homeowner a new roof. The cost of a new roof is maybe $20,000-$30,000. So, the contractor inspects the roof. Often, there isn’t really that much damage. The contractor promises to take care of everything if the homeowner assigns over their insurance benefit. The contractors can then claim whatever they want from the insurance company without needing the homeowner’s consent.
If the insurance company determines the damage wasn’t actually covered, the contractor sues.
So insurance companies are stuck either fighting the lawsuit or settling. Either way, it’s costly.
You’ve just lived through a terrible flood, wildfire, or hurricane. Your house has suffered significant damage, and you don’t know where you’re going to live or how you’ll rebuild. Then comes the knock on the door, a call on your cell phone, or an ad on your local social media pages. A friendly contractor wants to know if you’d like help. Should you say yes?
Every year, tens of thousands of people live through natural disasters and have to fix their homes. Choosing a contractor is one of the most significant decisions they’ll make. Here are some tips to ensure you hire a trustworthy one and protect yourself from scams.
- How did you find them? If they approached you, whether at your doorstep or elsewhere, be extra careful. Often, predatory contractors go door to door, utilizing car salesman-style pressure tactics to get you to hire them. Ideally, you’ll have found them through someone you trust or through a local organization’s or government’s vetted list of vendors.
- Are they licensed? Most states require contractors to be licensed with the state. Ask the contractor to show you their license. Save a copy and independently verify their license number with your state department of insurance. If they tell you they’re licensed in another state or that they don’t have a license, be wary. Be also aware of the difference between “licensed” and “registered.” Licensed contractors have to periodically pass tests, while registered contractors simply have to provide contact information to a state authority.
- Do they work with your insurance? If your home is insured, ask them if they’ve worked with your insurance company in the past. If they say yes, call your insurer to verify that the contractor is an approved vendor and that your policy will cover the cost of any repairs they conduct.
- Did they provide an estimate of costs? Do not allow the contractor to begin work without providing you with a detailed assessment of the damage and the cost of repairs. Some contractors may utilize the fact that you want to rebuild quickly to skip steps. But always ask for a cost estimate before work begins. Then, run the estimate by your insurance adjuster or compare against quotes from other contractors.
- Did you get multiple bids? Getting estimates from other contractors will help you understand industry standards and help protect against price gouging. Insurance companies will also often ask homeowners to secure multiple bids before they approve work. Depending on the severity and scope of a disaster, it may be difficult to get multiple bids because contractors are swamped. Be patient, if possible, and call as many places as you can.
- Are they asking for partial or full payment up front? Run! Credible contractors will not demand large sums up front. Legitimate contractors typically bill in increments as work is completed.
- Have you looked up reviews online? Check their Yelp, Angie’s List, and Google reviews, but also make sure to look them up on the Better Business Bureau: 1-800-544-7693 or online. An A+ rating isn’t a guarantee of a good contractor, but reviews and complaints on the bureau’s website can help you gauge customers’ experiences with a business. Also, search for the contractor’s name along with terms like “scam,” “complaint,” and “negative reviews” on Google and social media sites like Facebook. You can also check with your local home builders association to verify credentials, reputation, and membership.
- Do you understand what you’re responsible for? Some contractors require you to obtain permits, and others take care of it. Ask your contractor, and then contact your local building inspections and permitting office to determine if permits are required. If so, confirm that the contractor has acquired them before construction begins.
- Is everything done? Before making the final payment, evaluate the completed work and require the contractor to confirm that all subcontractors and suppliers have been paid to eliminate potential liens on your property.
Decades ago, one of the customers I worked with was a Midwestern company in the crop insurance business. Hailstorms were a problem for them (back then) because it was harder back then to get their hands on before and after pictures of their own of a field where some farmer might complain, for an example I was given, that their entire planting of tomatoes had to be abandoned due to hail damage. Not all such claims were from people who’d planted even a single tomato plant that season.
So nowadays the growing quality and abundance of high-resolution satellite imagery has been very helpful, as are drones that an adjuster can bring to do quick checks of damages. This same dynamic will also be applied to other kinds of property insurance, as insurers look to collect their own views of how things on a farm or someone’s roof looked before bad weather hit, then do their own inspections in person or via drone or through satellite imagery.
Coincidentally, after one visit to that insurance customer, the salesman I worked with dropped me at the airport and then his car had genuine $1600 damage from hail, in a storm that also delayed my flight four hours, including checking the aircraft for damage when the storm passed. On the flight, the pilot told us that the thunderhead had topped out at 65,000 feet. We’re adding energy to that kind of thing.