A company which verifies policyholder data for auto insurance companies has found out that insurance companies are losing out about $150 million by way of unpaid premiums each year due to the application of farm-use discounts on luxury vehicles.
If you go by the latest versions of farm vehicles you would be in for a surprise as you are likely to find a Mercedes, BMW, Porsche Carrera etc. None of us would expect to see these high-end vehicles pulling tillers or spraying pesticides, or hauling fertilizers between rows of corn. But, this is what their owners have listed these vehicles as – Farm equipment.
There is a huge insurance fraud racket that is going on with some of the motorists claiming their luxury cars as farm equipment in order to gain hefty discounts on the auto insurance premium costs.
Quality Planning which is a San Francisco-based company does the verification of policyholder’s data for these auto insurance companies. Individuals can avail discounts of up to 20% as insurers offer the farm-use discounts for those vehicles that are used only on the farm. These discounts are offered because these vehicles are less prone to theft, mishaps, collisions or any other form of damage, when compared to vehicles in urban areas.
Around 80,000 vehicles were examined by Quality Planning and all these vehicles had claimed farm-use discounts last year. Hence, geocoding techniques were being used to determine if the addresses where these cars were being housed belonged to the urban or rural areas. It helps in determining if anyone is actually engaged in farming activities in these areas.
It was found that around 8% of the vehicles which is 6,382 vehicles were being housed in ZIP Codes where only less than 1% of the population had actually engaged in farming activities, as per the US census data.
There were a number of vehicles that had been listed as farm vehicles and they include an Audi, Cadillac Seville and a host of other vehicles.
Robert U’Ren, Senior Vice President of Quality Planning stated that it was the honest people who ended up subsidizing the premiums of dishonest people. Improper application of farm-use discount is carried out by insurance agents as well as dishonest policyholders as a money-saving move and it cost companies around $150 million by way of unpaid premiums each year.
Farm use is generally not verified and hence it has become biggest loophole for cheats who can easily use them to cut costs.
