Can Smartphone UBI Help Combat Soft Insurance Fraud?
Personal auto insurance fraud is a problem. According to Verisk Analytics, it’s a problem on the rise. Between 2008 and 2011, the National Insurance Crime Bureau saw a 34% increase in questionable claims.
It’s also an expensive problem. Industry estimates show that soft fraud accounts for “about 10% of paid losses and loss adjustment expenses a year.” In 2011 alone, the total amounted to well over $13 billion.
The problem, it seems, is that many Americans don’t consider small mistruths to be fraud. They seem to think it’s OK to slightly change the facts if it saves them money!
Take false garaging addresses and mileage estimates, for example
One of the most common types of soft fraud, lying about where the car is garaged to receive auto insurance rates for a more affordable zip code, has traditionally been a tricky one to track. But with the data that smartphone UBI apps are designed to collect, and it’s much easier to compare the reported garaging address to the actual garaging address. The same is true regarding the estimation of annual mileage.
While these untruths may seem harmless, they add up to big profit loss. In fact, insurancefraud.org reports that premium rating errors account for nearly 10 percent of the $161.7 billion in personal auto premiums written. They found that drivers are five times more likely to report midterm mileage changes that reduce premiums than they are to report changes that may increase premiums. The website quotes a 2010 Quality Planning Corporation study that found that vehicle-garaging rating errors account for more than $2 billion in annual premium leakage.
How to step up your soft fraud defense
Verisk puts it this way:
“Basically, carriers need to step up their game in a big way. They’ve made large investments deploying technology and data to improve the customer and agent experience. But they’re falling behind in the race to identify fraud and rate evasion – a race they can’t afford to lose.”
While most auto insurers think of usage based insurance as a strategy to improve customer attraction, retention, pricing and loss ratios, it might be time to expand UBI thinking to include the objective of fraud deterrence. When you add in the potential savings of eliminating even 10 percent of premium leakage due to auto insurance soft fraud, the usage based insurance ROI formula becomes even more compelling.
Learn more about smartphone UBI here. Also, download our free smartphone UBI report, “10 Reasons to Unplug and Unburden Your UBI Program.”