You haven’t even made it all the way inside from your mailbox, and you’re already frustrated!
It seems like every year when that homeowner insurance renewal comes, it’s asking for more money. You haven’t had a claim since you bought the home 15 years ago; it just doesn’t seem fair.
Well, when it comes to one of the biggest causes for home insurance premium increases, you’re right. It’s not fair.
When Homeowners Become Victims
The State of Florida is currently faced with a major insurance crisis.
It comes in the form of widespread fraud…specifically fraud perpetrated by crooked contractors and public adjusters responding to claims caused by alleged water damage and hail storms. Homeowners become victims when they fall for a too-good-to-be-true offer from the scammer.
Let’s take a look at some examples of how this fraud is committed.
Example #1: Water Damage Claims
It’s 8:00pm on a Sunday. You just got home from a weekend trip out of town. You walk inside and find that your water heater broke about 10 minutes after you left on Friday afternoon and water has been pouring into your home for 2 days.
You quickly search for a Water Mitigation vendor on your phone and call the first one you see. They arrive within an hour. So far so good, right?
They shove a contract in your hand and say, “Sign this so we can start pumping out the water, drying things out, and making repairs. If you don’t sign, we don’t work.” You want this water to stop pouring out, so you sign it. Your house is dry. Your cabinets and walls are repaired.
You don’t discover the real problem until about a year later. That’s when you find out that there is a contractor’s lien against your home. Your credit, ability to sell your home, and dignity are all shot. How could this happen?
Example #2: Hail Damage Claims
It’s May 1. There’s a knock on the door.
The nice gentleman from the roofing company says there have been multiple reports of hail damage in your neighborhood. Several of your neighbors have gotten new roofs for free through their insurance. He asks if he can go on your roof to inspect for damage.
Everything spirals downhill from here.
Little did you know, the roofing contractors you hired to “fix” your roof actually faked the hail damage just so they could file a claim! Major network news specials in the last 18 months have exposed roofers trampling on roofs with sports cleats (shoes with spikes on the soles) and even using coins to push hail sized marks into shingles.
There weren’t any hailstorms recently? No problem. They just look up on the internet when the last one was. Even if it was more than 6 months ago, a claim can still be made. They have you sign the same type of form and get started on the work.
The story is quite similar to the one above, because both shady contractors had you sign an “Assignment of Benefits” (AOB) form.
Assignment of Benefits is the Enemy!
You signed the Assignment of Benefits form just to get your home back to normal. It sounded so reassuring when the contractor said, “Don’t worry. You won’t have to do a thing. Don’t even worry about calling your insurance company. We’ll take care of it all.” Little did you know, it also stripped you of ALL of the rights in your Homeowner Insurance Policy.
In fact, it transferred them exclusively to the contractor.
Here’s what really happened: The contractor filed a claim on your behalf. They also began the dry-out, demolition, and repairs almost immediately. This was so your insurance company’s adjuster never had time to see or assess the physical damage for themselves.
The contractor then billed your insurance company for $20,000. Your insurance company knows this price is inflated, because they had a few dozen other customers in your general area file similar claims. These other homeowners had the same repairs as you, but their costs ranged from $4,000 to $8,000.
Your insurance company decided to be generous in their offer and told your contractor they’d pay $8,000, which was at the upper end of what the repairs should cost. Your contractor took the $8,000 but then filed a law suit against the insurance company for remaining $12,000.
The end result, even though your insurer did the right thing, is the contractor filing a $12,000 lien against your home.
How Fraud Affects Your Home Insurance Premiums
We’ve shown you how this contractual highway robbery can affect you personally, but how could it affect your home insurance premiums if you’ve never filed a claim?
Imagine going into a store and paying $10.00 for a 12oz soda that typically costs less than $2.00. The insurance company literally heads towards going broke because they calculated your home insurance premiums on the $2.00/soda rate but were made to pay $10.
They have to pass that cost on to you at the next renewal, or they won’t have enough money to play claims. In fact, this type of insurance fraud has gotten so bad that many insurance companies are requiring homeowners to replace their roofs after only 10 years or risk less comprehensive coverage or no coverage at all.
Never had a claim? It doesn’t matter.
Insurance is “risk pooling.” Simply put, it’s sort of like socialism. Every homeowner puts a dollar in a bucket. Most won’t need to take any money out. That’s the point. When everyone contributes, there will be enough money for the few that do. But when costs are falsely elevated, more money is coming out of that bucket; everyone has to put more into the bucket so that fires, windstorms, and other damages can be fixed.
So, What Can You Do?
What can you do? The Golden Rules are 1) IF IT’S TOO GOOD TO BE TRUE, IT IS and 2) THERE IS NO FREE LUNCH.
- Choose contractors wisely. Never use a contractor that finds you. Only use firms that you find or are referred to by a reputable source.
- Always read contracts before signing and avoid Assignment of Benefits clauses at ALL costs. If a contractor asks you to sign one, do not hire them.
- If you think you have a claim, call your independent insurance agent first. Discuss the situation with them and ask if they can refer you to reputable contractors.
- Call your insurance company to see if they have a preferred contractor network, as you’re thinking about having some work done on your home. Very often, preferred networks offer better warranties too!
- Call, write and visit your local legislators. That means your State Senators and Representatives. Unfortunately, Florida is a particularly hard state to advance insurance-related legislative change in. This for many reasons, including that many of the members of our House and Senate are active participants in the legal framework that defrauds insurers of millions of dollars each year. They don’t want to cut off their economic source, and they’ve certainly given up on the integrity and dignity of their public office. Which leads me to my last tip….
- Vote in state and local elections. The people making laws to regulate the insurance industry are put in office by everyday voters like you.