Home Car insurance fraud The 5 biggest lies told to car insurance companies The 5 biggest lies told to car insurance companies Written by: Michelle Megna Michelle Megna Michelle, the former editorial director, insurance, at QuinStreet, is a writer, editor and expert on car insurance and personal finance. Prior to joining QuinStreet, she reported and edited articles on technology, lifestyle, education and government for magazines, websites and major newspapers, including the New York Daily News. | Reviewed by: Penny Gusner Penny Gusner Penny is an expert on insurance procedures, rates, policies and claims. She has extensive knowledge of all major insurance lines -- auto, homeowners, life and health insurance. She has been answering consumers’ questions as an analyst for more than 15 years and has been featured in numerous major media outlets, including the Washington Post and Kiplinger’s. | Posted on January 23, 2010 Why you can trust Insure.com Quality Verified At Insure.com, we are committed to providing honest and reliable information so that you can make the best financial decisions for you and your family. All of our content is written and reviewed by industry professionals and insurance experts. We maintain strict editorial independence from insurance companies to maintain our editorial integrity, so our recommendations are unbiased and are based on a comprehensive list of criteria. Fudging on your car insuranceapplication to save on the premium may seem like a harmless white lie, but it can spell trouble for you down the road. A new report by Quality Planning Corp. in San Francisco says car insurance companies lost $15.9 billion in 2008 from what it calls “premium leakage” — meaning loss of revenue due to the inability of insurers to keep track of changes in customers’ situations that affect prices. The number represents almost 10 percent of the total $167 billion in personal auto premium written. “It’s a major problem, and some companies are taking it very seriously,” says Quality Planning senior vice president Bob U’Ren. His company designs solutions for insurers to validate policyholder information and cut premium losses. In other words, they’re in the business of making sure you’re telling the truth. Here are the most common misrepresentations customers make to their car insurance companies. 1. Under-estimating the number of miles driven Whether out of ignorance or as a strategy to cut their premiums, many people lowball the number of miles they drive. Some simply forget to call their car insurance agents when they get new jobs that lengthen their commutes. This lie was the most misrepresented rating factor in 2008 and accounted for an industry loss of more than $3 billion. Why should you care about lies? For one thing, truthful customers end up paying higher premiums to make up for those who lie. In addition, if a car insurance company catches you in a lie, it can cancel your policy and refuse to pay your claim — assuming you provided inaccurate information intentionally. Some of the misinformation reported to insurers stems from outright consumer fraud — people deliberately lying to their car insurance companies in order to score lower premiums. “People know how insurance works and how the game is played,” U’Ren says. But most misinformation is the result of unreported lifestyle changes. For example, in 52 percent of household auto insurance policies, there’s a change in the vehicle or drivers each year. And more than 25 percent of workers change jobs every year, which affects the number of miles driven, according to Quality Planning. “Oftentimes, the insurance agent is the last person you think to contact,” U’Ren says. 2. “Forgetting” to report all the drivers in the household Up to 2 percent of policies written are for households with a driver who’s not listed on the policy — and that “missing” driver is usually a high-premium teenage driver or an adult driver with a lot of premium-boosting baggage. In conducting premium audits, Quality Planning asked one mom why her 17-year-old daughter, a licensed driver, wasn’t listed on the policy. Her reply: “I totally forgot she was in the household.” Unrated drivers accounted for $2.6 billion in lost premium in 2008. 3. Fudging the garage location Quality Planning noted a slight upward trend in the number of people misreporting where they park their cars, particularly in big cities, where garage locations can affect premiums dramatically. Location discrepancies led to $1.3 billion in lost premium in 2008. 4. Claiming discounts that no longer apply In some cases, drivers conveniently forget to tell their car insurance agents that the conditions that gave them a discount have changed. For example, perhaps they ended membership in an organization that made them eligible for a special premium rate. These wrongly applied discounts, based on misinformation about the driver or the car, added up to $2.9 billion in 2008. 5. Misstating how the car is used Some customers fail to tell their car insurance companies that they’re using the car for business. An at-home daycare provider, for instance, may neglect to mention that the household van is used to transport the kids to the park every day. Insurers lost $1.5 billion in premium as a result of this type of misrepresentation. How car insurance companies find out There are a variety of ways car insurance companies can find out that you lied. If the teenage son you fail to list on your policy gets in a car accident, it’ll be pretty obvious. Insurance companies also turn to outfits like Quality Planning, which use sophisticated analytical testing to uncover rating errors. The company puts an insurer’s policies through a battery of more than 150 tests, cross-referencing data and employing pattern-matching algorithms to identify errors and discrepancies that suggest fraud or misrepresentation. If you think the insurance company can’t find out how far you drive every year, think again. Odometer readings taken at smog testing stations, for instance, can be compared to what you report to your insurance agent, U’Ren says. It’s just one example of how your information can be checked. Given the turbulent economy, insurers have good reason to pay attention. According to Quality Planning, every 1 percent reduction in rating error can result in a 20 percent profit gain. So don’t be surprised if the information you report to your car insurance company comes under increasing scrutiny.