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Your vehicle's history can ding your car insurance rates

"Show me the Carfax."

That's no longer just the mantra of used car buyers. Insurance underwriters are saying it, too.

In September, Carfax secured two patents for its systems and methods that use vehicle-history data to help car insurance companies better assess risk and price policies. In a press release, Carfax said hundreds of companies are using Carfax's technology.

Carfax spokesman Chris Basso declined to be more specific on the numbers or identify users. To date, 43 states have approved the use of Carfax vehicle-history information for underwriting or setting rates, he notes.

An accurate mileage reading

The vehicle history includes odometer readings, which can be used to estimate how many miles you drive your car each year.

"It is up to the individual insurance companies to determine whether to include mileage as a rating factor and how much weight to give it," Basso says, "But anecdotally, we know that most of our insurance clients use the mileage readings reported to Carfax as part of their rating process."

vehicle history and car insurance ratesMost auto insurance companies rely on customers to report how many miles they drive each year. But the Carfax report often is more accurate, Basso says.

Carfax says it typically can calculate a vehicle's annual mileage more than 40 percent of the time, allowing insurers to more accurately rate policies and validate self-reported mileage.

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Insurers increasingly are using driving data to link prices more closely to drivers and vehicles. Some insurance companies have been asking policyholders who want better car insurance rates to install tracking devices in their cars to more accurately assess mileage and driving habits.

"But the number of consumers willing to install tracking devices in their cars still is very small," Basso says. That's why a vehicle's history can be a valuable tool that more and more insurers will use, he says.

Here's more on "Who's doing what? The rise of usage-based auto insurance."

Discovering accidents

Carfax gathers information for insurers that helps them to better determine what problems in a car's past might impact its safety and performance, Basso says. "Insurers can use this information to make more educated decisions about risk and potential for subsequent claims."

For example, a Carfax report will indicate whether the car's airbag was ever deployed or whether its frame was ever seriously damaged. The California Highway Alliance found that in 4 percent of instances where a vehicle's airbag deployed, the car was subsequently repaired incorrectly.

Cars that have been involved in serious collisions still show up on dealers' lots. If a car was ever in a serious accident or damaged by a flood and declared "totaled," that shows up in the Carfax report, too, Basso says. "Too often we see cases of unscrupulous body shops not properly repairing wrecked vehicles or purposely committing vehicle fraud."

The data available from Carfax also help insurers identify cars with compromised structural integrity. Such vehicles tend to have a higher claim frequency and more severe damage than other vehicles, insurance industry analyses show.

Carfax says its vehicle history database has more than 10 billion records and covers virtually all cars, light trucks, and SUVs manufactured in the U.S. since 1981. It uses vehicle data from more than 34,000 sources, including all state motor vehicle departments and many police departments, service facilities and collision centers.

The "like new" debate

Russ Rader, spokesperson for the Insurance Institute for Highway Safety, says that just because a car has an accident history doesn't mean its structural integrity has been compromised. Cars can be repaired "like new," he says.

Some automakers complain that if repair shops don't use the original manufacturer's parts, repairs don't hold up, he says. However, the institute's studies show that many car parts can be reverse engineered "to match the performance of the original equipment parts" at a lower price.

Read more: "Are you entitled to brand-name car repair parts? Know your rights."

More from Beth Orenstein here

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