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Lying to Auto Insurers Costing Insurance Companies Billions

When signing up for auto insurance coverage, it is important to provide accurate information. According to a new report, auto insurance companies lost more than 15 billion dollars because their policy holders gave them bad information.

For example, many people lie about how much mileage is on their vehicle or they fail to report when they get married, divorced, or have another change occur in their life. Many people avoid notifying their auto insurance company of these changes because they are afraid of their insurance premiums increasing.

However, knowingly lying to auto insurance agents is almost like fraud because you are doing something which effectively alters how your insurance premiums are determined. Now that auto insurers have this huge loss they will most likely have to pass the costs onto consumers which punishes everyone and not just those guilty individuals.

Verisk Analytics did a study on this topic in 2010. They looked at more than five million auto insurance policies to get their data. They found that three billion dollars was not given in insurance premiums due to the fact that people had lied about their mileage. This is the factor that caused the most losses for the auto insurance industry as a whole.

They also found that people who misrepresent the number of drivers in their household made auto insurance companies lose approximately 2.7 billion dollars. Lying about driving characteristics such as age, driving experience, student status, and marital status accounted for almost two billion dollars of losses. It is hard for auto insurance companies to be able to verify this type of information quickly which is why so many people get discounts and lower premiums when they should not.

As we can see with this study, more needs to be done so that an electronic verification system can be in place to help auto insurance companies deal with this problem. If they do not then the losses will become even higher because the economy is bad and people are trying to cut corners in order to save money.

Policy holders need to understand that they need to provide accurate data. States should consider creating auto insurance fraud laws so that people who blatantly lie can be prosecuted to the fullest extent of the law so that other policy holders do not get the additional costs passed onto them.

Source:
Property Casualty