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Entrepreneurial fraud: what it is and how to avoid it



From online scams to theft identification, 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 – an increase of 70 percent in fraud-related losses compared to 2020.

As a result of this unfortunate trend, many of us are learning to keep a watchful eye on our online information. We ignore potentially virus-caused emails, change our passwords every few months, check our credit card bills for inconsistencies, and use dozens of other tedious methods to try to stay safe.

But what happens when the threat of fraud does not come in the form of a suspicious email or a link? What if it instead 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 repaired immediately? How do you know who to trust and who might be trying to fool you?

In this article, we will address the intricacies of entrepreneurial fraud, explore how these individuals work, uncover the steps you can take to prevent this type of behavior, and explore Central Insurance̵

7;s commitment to protecting its policyholders from this and all types of potential fraud.

What is entrepreneurial fraud?

Entrepreneurial scams can take many forms, but there are some very common types that homeowners should be aware of.

The first occurs when an entrepreneur is brought in to help handle a situation and either completely falsifies the amount of work done or simply surcharges for the work completed.

“Every time you have physical damage to your home and you need someone to repair it, there is a possibility that you may have fraud with contractors,” said Anthony Gaytan, an anti-fraud operations analyst at Central Insurance’s special investigative unit.

Gaytan explains that this particular form of contractor fraud will often occur during an emergency where a homeowner is so desperate to solve the problem that they cannot wait for an insurance adjuster to assess the extent of the damage before getting a contractor in place. . As a result, contractors can set their own fees and trust that the homeowner does not have time to check or dispute them.

Did you know: Experienced insurance companies such as Central have registers of the average cost of all types of home repairs. This allows us to easily compare a quote from a contractor and see if the amount is reasonable, or if the insured is potentially used. Our fraud experts even track market trends that can affect rising costs (whether it’s inflation, supply chain management issues or current timber costs) so when policyholders call and ask about a quote’s legitimacy, we can provide the most accurate information possible..

“Fraudulent contractors are intentionally targeting vulnerable homeowners,” explains Jeff Lieberman, head of Anti-Fraud & Recovery at Central Insurance’s Special Investigative Unit. Whether they are older, have just suffered a great loss or are in immediate need of help, these individuals are much more likely to trust someone they should not, making them the perfect prey for a fraudster.

“Many of these shady entrepreneurs are stormtroopers from other countries who go from place to place looking for the next storm so they can exploit and make our policyholders victims,” ​​Gaytan adds. It is this strategic mindset that contributes to the danger to these entrepreneurs.

Check this out: Contractor Fraud PSA from The National Insurance Crime Bureau

The second type of entrepreneurial fraud is when an entrepreneur tries to trick a homeowner into paying more fix a problem that is excessive, simply does not exist, or is actually improved during an initial inspection by the contractor themselves.

Roofers are a type of contractor who can fall under this umbrella of scams, given that they do most of their work in an area of ​​the home that we can not easily judge on our own.

“We see many cases where a roofer comes by and tells a homeowner that they just happened to be in the area, or that a neighbor just got a new roof and they noticed damage to theirs as well. Then they go up to the roof to ‘inspect the injuries’ and actually improve or facilitate the injuries themselves, says Lieberman.

In cases where the damage is self-inflicted by the contractor, the roofer often continues to repair the damage and charge the homeowner accordingly. In other cases, the roofer can simply make his introduction, “assess” the damage to the roof without adding it and insist on a down payment to fix what does not exist. The contractor often takes the down payment and never comes back.

Given these very different but equally damaging approaches, Gaytan warns that “virtually any unwanted approach from an entrepreneur is something to be very careful about.”

How to avoid entrepreneurial fraud

While the thought of being exploited when you are vulnerable may seem daunting, there are steps you can take to ensure your safety against fraudulent contractors.

1. Know what to look for

While it may sound obvious, ask an unwanted (or even in-demand) contractor to do so. show or even make a copy of their official contractor license is an easy way to determine if they are legitimate. All reputable contractors should carry their license 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 into account the registration plate of their vehicle. If the contractor seems to be from abroad, there is a very good chance that the individual is chasing scam opportunities in particularly vulnerable places.

Try this: The National Insurance Crime Bureau offers a VINCheck Lookup tool that allows you to search the license plate of a suspected contractor’s vehicle.

Lieberman also recommends looking for contractors who raise money or payment outside of an official quote before the work is completed. For example, if they ask for a deposit on the job, ask to be paid before the job is done, or promise to pay the deductible for a project, they are likely to be fraudulent.

2. Document everything

In both emergencies and non-emergencies, it is important to capture as much information as possible before hiring a contractor. Make sure always take photos, videos and measure the damage available. The more data you have, the easier it will be to “prove and validate your own claim before a contractor comes out to your property,” says Lieberman.

Take action: Even before an emergency, Lieberman recommends that you take the time to record or photograph your entire home from top to bottom to ensure that you are covered in the event of an unexpected loss. “Open every drawer you have, because if you are exposed to a fire, for example, you will have an extremely hard time remembering every single thing you had in every drawer in your house.”

In general, “all the documentation you have about any losses, the more protected you are in the end,” Gaytan concludes.

Hire your insurance company

The very best way to prevent insurance fraud is through file a claim with your insurance company at the first sign of damage to your home. Once that claim has been filed, Lieberman explains that the insurance company will “send out a field damage representative or independent adjuster to cover the loss. Then, at that point, the field representative will instruct the contractor to perform the work.”

Going through your agency ensures that you are matched with a reputable contractor in good standing who is unlikely to try to commit fraud. It also eliminates many steps when it’s time to file a refund claim 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 was flooded with water and the roofs collapsed on the floor due to a hurricane, I did not have time to call my insurance agent first,” he reflects. “It was a situation where I just had to react, and I realized that I was handed over to my contractor in that situation. Yes, I was hoping that I would get compensation from the insurance company and that they would take the scope of the work to face value, but I could also immediately see the potential for a sharp drop in the price of the contractor. It was a dangerous place to be. “

The central difference

At Central, we believe that fraud with contractors is a crime that can be prevented, and we have adopted many methods internally to better protect our policyholders from these situations.

Our special investigation unit “conducts a significant amount of training with our adjusters in detecting red flags with entrepreneurial claims”, says Gaytan. “The adjusters get to learn what to look for so if they see something strange, they can send it to us for immediate investigation.”

Did you know? As a result of Central’s emphasis on education, this group was able to identify and investigate over 1,700 cases of dubious claims in 2021 alone.

Another aspect that distinguishes Central’s fraud detection is its adoption of data and AI-driven strategies to help track patterns and fraudulent behavior among entrepreneurs. “We [work] with law enforcement agencies and the National Insurance Crime Bureau, which places nationwide warnings on specific contractors to look out for, Lieberman said. This data is then fed into Central’s personnel analysis system, which keeps us one step ahead of fraudulent contractors.

In addition, Central has a unique partnership with the Geospatial Insurance Consortium, a program designed to provide up-to-date aerial photographs and geospatial information about policyholders’ property. This type of software allows Central to collect and develop a timeline of images that depict the history of a policyholder’s roof, for example. In this way, if a contractor were to try to trick an insured person into agreeing to repair invisible roof damage, that policyholder would be able to call and check with Central to ensure that the damage exists and matches the description of the quote.

Learn more about protecting yourself

Understanding entrepreneurial scams and how to identify a potentially fraudulent individual is the best way to protect yourself and your loved ones from this type of dangerous behavior.

Do you want to better equip yourself with information about entrepreneurial scams? Use this supplier search checklist to guide you through your next contractor experience and, if you are a central policyholder, contact your agent for more information on Central’s built-in homeowner protection procedures.


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