Personal rate evasion and fraud causes higher insurance rates for all but vehicle location data helps to investigate.
When discussing garaging issues, the focus of the conversation is usually around garaging fraud. But that is really a misnomer. It probably should be more broadly referred to as garaging issues or rate evasion. Carriers tell me about a broad mix of issues and concerns in the market. They refer to “Snow Birds” in Florida for 6 months out of the year, or of college students that don’t actually live at home, and even garaging fraud both at the consumer and at the agent level.
But here’s the big surprise, it seemed that carriers really had no idea of the overall impact to their book of business either from premium leakage or losses. I found it interesting that few carriers look at garaging issues at Renewal, or at time of claim unless it ended up at SIU as an out-of-state loss. Yet the losses are hitting their books and impact us all in the form of higher insurance rates.
Before we get into my garaging fraud findings, it’s worth noting that my insights come from comparing carriers’ garaging fraud or personal rate evasion data to DRN’s vehicle location data. This data comes from over 4 billion nationwide vehicle sightings that include license plate and vehicle images, plus location data for the sightings including time, data and location maps. When you think about the implications for garaging fraud, it’s easy to see how having actual vehicle location information versus the reported address can provide you with evidence to investigate claims and policies. And it’s easy to see how the data that carriers work with now is no match for these five types of rate evasion.
The Oops “I Had No Idea” Garaging Fraudsters
1. Snow Birds: According to a Florida study, approximately 750,000 people took up temporary residence in the state during the peak of the season. Interestingly, the same study indicated that over 600,000 residents (Sunbirds) left Florida in the summer for cooler climates. And, carriers say that it is not only Florida they move to, but also the West and South West.
2. College Students: Over 2,500,000 students are returning sophomores that live out of state. Freshman are generally not allowed cars on campus; but beginning their sophomore year, cars are allowed. From anecdotal and my own observations looking at carrier data versus DRN’s vehicle location data, it is obvious the vast majority of these students are not picked up by the carriers.
3. Moving: I know of a couple of incidents where the billing address was changed but not the garaging address. I have mentioned this to a number of carriers and they are usually in disbelief. I know it happens from personal experience. And while I have no idea how pervasive the issue is, keep in mind that 7,500,000 people move out of state every year. With numbers like that, it’s worth investigating.
The “Shame on You” Garaging Fraudsters
4. Agents: I couldn’t find any studies that report agents adjusting garaging data to allow a premium level that enables an applicant to become a policy holder. But, carriers share that they do occasionally find agent issues. They generally stumble upon them at the claims process when there are an inordinate number of claims from the agent’s book that have garaging issues.
5. Consumers: I personally witnessed garaging fraud when I was 16. My friends’ parents were discussing how they had registered their cars out-of-state at a secondary residence. What I find interesting about this behavior is that it was an open “secret.” They bragged about it. These were middle class families, not high risk drivers.
“No Big Deal Fraud” is a Very Big Deal
We have done a number of studies of garaging fraud at DRN and the results show that some of the carriers are clearly being lied to regularly. This suggests that there is an informal network of policyholders (and/or agents) that spread the word about which carriers will write policies how to get away with providing erroneous garaging information.
Garaging issues are on the rise; and our studies show a range from 5% to a high of 45%, depending on the size and type of sample. Now think about that vehicle location data again. It can “score” the policyholder’s address against the vehicle location data and tell you whether you should investigate further for garaging fraud. At investigation, it can give you the evidence you need – a line of defense against anti selection, rate inadequacy, and loss mitigation. Note that access to DRN’s vehicle location data is subject to DPPA permissible use.
The problem with this type of fraud and many others is that the cost ends up being passed on to everyone. My rates go up, your rates go up. Detecting fraud adds up to a win for all – better priced policies for consumers and a more profitable book for carriers.