NCOIL Updates Insurance Fraud Law and Readopts Contractor Protection Model

The National Council of Insurance Legislators (NCOIL) has revised its anti-insurance fraud model law for the first time in 30 years, enhancing regulatory tools to address increasing fraud cases linked to severe weather events and contractor activities. This update broadens the scope of fraudulent acts, introduces measures against contractor-related fraud schemes, and strengthens consumer protections to close enforcement gaps. The revisions draw heavily from a Louisiana bill designed to improve regulatory enforcement and safeguard insured parties, reflecting state-level commitment to tackling rising fraud costs impacting both homeowners and commercial insureds. Alongside this, NCOIL has readopted an expanded Storm Chasers Consumer Protection model act, originally targeted at roofing contractors but now applicable to all contractors operating post-disaster. This model addresses critical issues such as abandoned work, fraudulent liens, solicitation practices, and conflicts of interest, providing a regulatory framework to govern contractor conduct after catastrophic events. A significant provision limits post-loss assignment of benefits, which has been a contentious issue in several states due to its role in escalating repair costs and litigation. The insurance industry and regulators have highlighted the growing impact of natural disasters, inflation-driven repair expenses, and associated litigation as catalysts for increased fraud exposure. States prone to catastrophes report higher incidents of unlicensed contractors and claim disputes following severe weather seasons. These dynamics contribute to growing fraud-related loss costs that insurers must factor into underwriting decisions and rate filings, influencing the overall affordability and availability of coverage. The Coalition Against Insurance Fraud estimates the financial impact of fraudulent activities at approximately $308.6 billion annually in the U.S., equating to nearly $1,000 per household in added insurance premiums. NCOIL's actions, including legislative model updates and advocacy for programs like the Terrorism Risk Insurance Act (TRIA), aim to stabilize insurance markets by mitigating fraud and maintaining capital market confidence. The adoption of these models by state legislatures is expected to shape enforcement and regulatory practices in upcoming disaster seasons, influencing claims processing, contractor oversight, and strategic fraud prevention at a market level.