How drivers cheat their insurers

Drivers' favorite tricks

"We don't really know how much is intentional," Cox says. "We just know that these inaccuracies, be they intentional, be they an honest mistake, are costing the auto insurance business a lot of money."

Sixteen billion dollars a year, specifically. That is Quality Planning's estimate of passenger-auto premium leakage in the U.S. Drivers paying the correct premiums subsidize those who've fraudulently or inadvertently misstated their risk, U'Ren says.

A list of drivers' favorite auto insurance cost-cutting tricks is topped by those who lowball their mileage on insurance applications.

It's "not uncommon," Quality Planning says, to find insurance companies where owners of more than 60% of the vehicles insured say they commute just three miles a day or less. Analysts spot such inaccuracies by comparing policy applications against gigantic databases containing, to name a few sources, motor vehicle records, professional registries, prison addresses, census reports and smog data. In 2005, Quality Planning found, 17% of cars and trucks racked up more than 20,000 miles, yet owners of only 4% admitted that much driving.

Insurance applicants can demonstrate an uncanny ability to avoid a higher-rated category. "If the rate goes up at 5,000 (miles), you'll find this big cluster of folks at 4,999," Cox says. "It hits every single company."

To snag a lower rate, a driver may use a phony address -- for instance, a post office box or a mail drop in a neighborhood less prone to collisions and break-ins. Otherwise-law-abiding suburban parents commonly let grown children use their address rather than pay higher premiums for their central-city addresses.

How's this for service?

"Or they'll use Grandma's address because she lives in a good territory," says U'Ren. "We even had instances where an agent used his own agency address, because he lived at a good address. Then he, in turn, mailed customers' statements to them."

Since everyone needs insurance -- to register a car, get a license or even to drive a new car off the lot -- another favorite scam is inventing Social Security numbers on applications. If yours, for some reason, reflects poorly on you, you might construct a new set of numbers for the occasion. Not much creativity is required, apparently: The most popular phony Social Security number used, according to Cox, is 123-12-3123.

• Video: Cut the cost of insuring your teen driver

So-called affinity discounts are popular targets, too. Insurers slot customers into categories according to the likelihood they'll file a claim. Certain groups -- members of the Elks, perhaps, university alumni associations, Costco or the military -- are statistically lower risk than others. Insurers dangle discounts accordingly, and cagey customers claim membership in clubs where they've never set foot, U'Ren says. Inversely, the word is out, apparently, that students, the riskiest drivers of all (divorced women are the second-riskiest group, Cox says), are charged most for auto insurance, so plenty fudge the question on applications.

Sometimes fraud can be traced back to agents who sold the policies, apparently coaching their customers in hopes of securing their business and offering a better rate. One such case involved the discounts some insurers offer for vehicle safety features such as air bags, seat belts, headrests, anti-lock brakes and traction control. U'Ren recalls that, years ago, when air bags and red rear-window safety lights first appeared, his company identified an agent who had applied discounts for them to every vehicle he wrote insurance for.

"He had a 1965 Volkswagen with an air bag discount," U'Ren says. "Of course there were no air bags on a 1965 Volkswagen."

Published Sept. 7, 2007

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