March is fraud prevention month in Canada, which is all the more reason for homeowners to be wary of home insurance fraud since it can translate into higher premiums for everyone.
There are three major kinds of home insurance fraud — inflated claims, restoration and vendor fraud, and title fraud, which is a specific type of identity theft, made easier by the widespread use of the internet and digital technologies.
It should go without saying you want to avoid committing any home insurance fraud, even inadvertently, but you also need to know how to spot it so you can prevent or report it if need be.
Exaggerating your claim
Home insurance is not intended to be a source of profit for a homeowner, but it’s what drives one of the most common forms of insurance fraud — making an exaggerated claim.
Because your insurance covers the contents in your home, you can file a claim for any losses or damages to those items in the event of a fire, flood, or other damage to your property that’s covered by your policy, subject to any deductibles. For your insurer to pay you for your losses, an insurance adjuster will need to review your claim's details to make sure you're compensated in-line with the value of what has been lost or damaged.
And this is where the potential for fraud comes into the picture. Insurance fraudsters see an opportunity to be reimbursed beyond the actual value of what was lost or stolen. For example, a flooded basement might lead to claiming the loss of high-end, expensive woodworking tools that are actually moderately priced.
Another means of exaggerated claims is to submit a receipt from someone else for something you don’t own, perhaps one for an electronic device such as a computer or flat-screen TV.
The consequence of making an exaggerated claim is that you jeopardize any legitimate coverage you have so even your valid losses aren’t reimbursed by your insurance provider. You’ll also have trouble making legitimate claims in the future, and because an exaggerated claim is a crime, an adjuster may involve the police.
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Fraud by restoration
If you file a claim for your provider to pay for contractors to fix damage to your home, be aware of the risk of restoration fraud. A vendor may overbill for the job under the assumption that your insurer will pay the full amount. Many insurance companies have a list of preferred vendors. Ask your insurance company for a referral.
According to the Canadian Home Builders’ Association, the best way to protect against restoration fraud is to vet the contractors you hire thoroughly. Check their references and get everything in writing. Don’t pay upfront, and don’t pay cash. Restoration fraudsters will also try to take advantage of your lack of knowledge regarding the repairs being undertaken, so educate yourself and understand the project's key steps to keep the contractors accountable.
Knowing your rights and responsibilities can help protect you from restoration fraud. In Ontario, for example, the Consumer Protection Act dictates that if an estimate is included as part of a home renovation contract, the final price for all goods and services cannot be more than 10% over the original estimate unless you have agreed to new work or a price. That is all the more reason to have a contract with an estimate. And for significant renovations, it can't hurt to have a lawyer review the fine print.
Title fraud isn’t new, and of the three main types, two are essentially identity theft:
- A fraudster steals your identity so they can sell your home without your permission. Your policy may provide you with coverage for identity theft, but if you’re uncertain, ask your broker or provider about adding this optional coverage to your policy.
- A fraudster forges documents so they can re-mortgage or refinance your home.
- Value fraud happens when a lender is misled into believing a home is worth more than it is, either because the property’s attributes and value are intentionally misrepresented or expensive problems are concealed.
Title fraud is incredibly stressful on an unsuspecting homeowner, and until the title is restored, you can't sell or mortgage your home. It takes a great deal of time and money to take back your title and resolve the fraud.
Title insurance can protect you from the impact of this type of fraud, although it doesn’t prevent you from becoming a victim of it. It will cover the legal expenses and other costs related to restoring the title while providing additional protection for losses not directly associated with it. These include structures or renovations previously completed without required permits, unknown work orders, encroachments, liens, zoning, and by-law violations.
How to report home insurance fraud
If you suspect you are a victim of home insurance fraud, here’s how to report it:
- Call your local police department, file a complaint, and be sure to get a police report number
- Contact the Canadian Anti-Fraud Centre
- File an online complaint with the Competition Bureau of Canada
- Notify the Insurance Bureau of Canada
Insurance fraud ends up costing everyone more money through higher premiums, whether it’s a homeowner making exaggerated claims, a contractor overbilling for repairs or restorations, or identify theft where a fraudster takes control of a home. It’s not always preventable, but as a homeowner and home insurance policyholder, being vigilant and understanding your rights can help prevent it from happening to you.