You are completing your insurance application for your snow contracting business. You want to make your business as attractive as possible, so you can get the cheapest rates available. You decide to shade the truth a little.
Everyone does it, right? It’s harmless.
The insurance company has the financial resources. They won’t get hurt.
They are the smart underwriters. The onus is on them to figure this out, to price the risk correctly. They must understand that everyone lies. So, they built this into their pricing and underwriting already.
No one is really getting hurt ... are they?
The reality is those “little white lies” are not harmless – as insurance fraud costs the industry $80 billion every year, according to data from the Coalition Against Insurance Fraud. You might not consider those “little white lies” in the same league as hard fraud – that is, intentional fraud where there is collusion between tow trucks and mechanics, corrupt attorneys with corrupt doctors, etc. However, these lies and fraudulent acts all add up to a meaningful cost to consumers – between 15-20% of insurance premiums – as insurers build these costs into their pricing. In effect, policyholders are indirectly paying increased premiums for your “little white lies.”
Here are some common examples of typical white lies.
- You claim your injuries are worse than they are. Soft injury claims are often hard to disprove. Corrupt plaintiffs attorneys counsel and shepherd their clients who do not have any genuine and legitimate injuries to doctors and chiropractors to incur and often times inflate medical bills which they use as evidence of “pain and suffering” sustained by their client. The higher the medical bills, the greater the pain and suffering, the higher the insurance claim for bodily injury.
- Your automobile is vandalized and/or broken into and you claim your set of golf clubs and/or other valuable items like cameras that were in the trunk were stolen when they were not.
- Lying about where your auto is garaged – e.g. in the suburbs where your parents live instead of the city where you actually live – so you can benefit from cheaper rates.
- Lying about your driving record or past accidents.
- Not mentioning on your insurance application any activities or exposures that increase your risk – e.g. you drive Uber/Lyft on the side; you rent out rooms in your home to AirBnB; you operate a business office out of your home, etc.
And here are examples of the “white lies” that may be committed by snow contractors.
- Understating your snow receipts or percentage of snow-related work.
- Not being truthful on the application about the work performed for higher-risk properties such as Big Box stores; health facilities, etc.
- Misrepresenting the amount of work you subcontract out.
- Misrepresenting the contractual provisions and extent of liability you assume under the vendor agreements you sign.
- Claiming you obtain Certificates of Insurance from your subcontractors which name you as an Additional Insured when you don’t.
- Misrepresenting prior loss history or large loss activity.
What are the potential ramifications of your “white lies”? Perhaps you might get away with it. Perhaps your
insurance underwriter is not as thorough as others and overlooks your misstatements. Or perhaps your insurance underwriter or the insurer needs to meet certain production numbers this quarter and relaxes its underwriting standards to write your business. Maybe you just luck out.
On the other hand, if you get caught lying, the ramifications are likely more than just a “slap on the wrist.” For example, the insurer may:
- Deny your claim; or
- Void your policy;
- Increase your policy premium, if not outright cancel or non-renew your policy;
- Criminally prosecute you for fraud;
- Sue you in civil court where you may incur additional fines and penalties in addition to the legal defense costs; and
- You may lose your reputation in the community as you may be judged as having committed fraud;
- You are deemed uninsurable if carriers learn or suspect you as a fraudster.
So, while it may be tantalizing to lie and save money in the short-term, the potential downside to you may be substantial and just not worth the risk. Many insurers often employ tools and reporting agencies to independently verify, corroborate and investigate the statements you make on your insurance application. Finally, you are often required to sign the insurance application and related documents attesting to the veracity of your statements and representations. In the event of a claim or loss, if the insurer surfaces any misinformation or untruth that they deemed was material in offering you insurance coverage, they may deny your claim.
Honesty is the best insurance policy, and honesty ensures your policy premium is based on the genuine exposures of your operations; that your insurer does not have any surprises when they investigate a claim that is filed against you.
Don’t complain about insurance companies ripping you off or taking advantage of you, start by telling the truth. Ask your friends, family and business associates to do the same. Lying to your insurance company ultimately raises rates for everyone. In fact, lying can have many farther-reaching implications, including denied claims, policy cancellation, civil and criminal actions, and, of course, higher rates.
In some instances, insurers may decide to “pick up its marbles and go home”, completely withdraw from a line of business, a coverage or a territory, then everyone loses.
A frequent Snow Magazine contributor, Michael Moncada is an insurance expert with The McGowan Companies and has more than 35 years of experience in the industry.