Daniel Finnegan, QPC founder and chief executive officer said his firm's research shows "that if an auto insurance company can cut its rating error by fifty per cent, it is likely that the company can more than double its profits."

QPC said its Premium Rating Error report contains premium audit reviews of over 14 million private passenger auto policies from 16 carriers and reveals how different categories of rating errors contribute to the overall premium rating error.

According to QPC, rating factors over which insurers have little control contribute the most to rating error: unrated drivers (1.6 percent) and commute/annual mileage (1.9 percent).

QPC said it is difficult for carriers to avoid fraud, misrepresentation and withholding of information by applicants and stay current with auto policy holder factors such as job status, autos owned and additional family members obtaining licenses.

While insurers build the risk of misinformation into their calculations when they determine premium pricing, QPC said they may not be doing enough analysis.

The company said unrated drivers are one area where better analysis would reduce claim costs. Policies with unrated 16-year-old male drivers in the household that are unknown to insurers exhibit total claim losses more than twice the national average, QPC said.

According to the firm, there is also a problem with the amount of annual mileage that policyholders report driving, and many carriers rate in only two categories, such as zero to 7,500 miles, and over 7,500 miles. QPC said its analysis of the loss histories of vehicles driven more than 30,000 miles found loss frequencies that were 31 per cent higher than for those vehicles driven 16,000 to 20,000 miles.

Failure to identify these higher risk vehicles and rate them accordingly represents a major source of unmanaged loss costs, QPC said.

The corporation said its research shows that carriers that build and maintain finely graduated rating plans can expect to enjoy significant competitive advantages over carriers with flat rating plans.

Mr. Finnegan said the problem of rating error extends beyond just industry profits: "Rating error introduces significant inequalities into auto insurance; honest people subsidize the dishonest, low risk drivers subsidize high risk drivers, those that rarely use their vehicles subsidize high-mileage drivers."

The report can be found online at: http://www.qualityplanning.com/research.html.QPC is a subsidiary of Jersey City, N.J.-based Insurance Services Office.