Report: Auto Policy Fibs Cost Insurers $13.7 Billion

Report: Auto Policy Fibs Cost Insurers $13.7 Billion

NU Online News Service, May 6, 12:15 p.m. EDT?Motorist fibbing, fraud and omitted data on policies create rating errors that cost auto insurers $13.7 billion a year, according to a firm that helps carriers identify premium leakage.

The estimate came from Quality Planning Corp. in San Francisco, which said its information was based on premium audit reviews of over 13 million private passenger auto policies from 10 carriers.

QPC said among the items that lead to rating errors are families failing to report teenagers who reach driving age and obtain a license, motorists who supply a dead person's social security number to mask their driving history and car owners who lie about their annual mileage.

Percentage-wise, the biggest category is unrated unknown drivers on the policy, 1.7 percent and misstated annual mileage 1.6 percent, the company said.

According to QPC, the $13.7 billion figure represents 10 percent of personal auto insurance premium revenues across the industry.

Discussing the claim loss from unrated drivers, QPC noted that 16-year-old male drivers in households exhibit total claim losses more than twice the national average.

QPC said when it runs its system of checks on a company's book of policies it frequently finds some of their customers using social security numbers of long-dead individuals. These policies are associated with high claims behavior?much of it fraudulent.

Explaining the importance of proper annual mileage in rating, vehicles driven more than 30,000 miles had a loss history 31 percent higher than those autos driven 16,000 to 20,000 miles a year, QPC said.

Daniel Finnegan, chief executive officer and founder of QPC said the firm's research shows if an auto insurer "can cut its rating error by 50 percent, it is likely that the company can more than double its profits."

QPC said it checks insurers' policies for rating error using proprietary tests, cross-references and pattern matching algorithms. Interviewing policyholders and other services are offered as well, the firm said.