Recent study shows that auto insurance companies are losing billions of dollars in revenues because of the wrong information written by policy holders in auto insurance application forms. The study says that because of the incorrect or misleading information that were supplied by policy holders, the auto insurance companies undercharged policy holders by $15.4 billion.
The study was conducted by Quality Planning Corporation, a group connected with Verisk Analytics. They claim that because of discrepancies in the information given by policy holders, the right amount of monthly premiums were not collected by auto insurance companies, resulting in huge amount of losses in insurance revenues.
It was reported that in the year 2010, a loss of about $3billion U.S. in monthly premium was caused by the incorrect yearly premium mileage rating report. There were several reasons why it happened. According to the study by the Quality Planning Corporation the drivers gave misleading information about themselves. They did not write about their personal profile such as age, marital status, student’s discounts, and affinity group membership and misrepresented their own identity. The drivers did not include in the policy the other members of their family who are also driving. Total losses amounted to $2.7 billion and 1.9 billion U.S. dollar in lost premium in 2010. Some fraudulent drivers reported using their cars for pleasure only, but the truth is they are using the cars for business. The study is based on 20 major auto insurance companies and approximately 18 million auto policies nationwide.
It was reported that if auto insurance companies will not take the proper measure to analyze and solve this problem, they may end up losing billions of dollars in the coming years. The premium rating error is the culprit behind this phenomenon which is mainly due to dishonest drivers who deliberately give false information and profile. The report shows how auto insurers can solve this problem. Better data analysis and audit is important to avoid premium error report. Inaccurate assessment of mileage should be prevented to avoid premium leakage.
Quality Planning Corporation suggested a three step rating integrity process. This includes the application of advance and modern technologies and intelligent data gathering and analysis. Strict audit checks must be done to verify the driver’s profile, accidents and violations, annual mileage, identity theft and locate the vehicle’s garage. The insurers must have a concrete validation program that can verify the changes in driver’s profile. A direct contact with the policy holder is also important to establish a lasting relationship with the insurer and the insured. This will help validate future claims so that fraudulent activities can be prevented.