It can be difficult to calculate the extent to which deficiencies in communication and the availability of credible data undermine insurers' profitability. Auto insurers are acutely aware of this, as many drivers misrepresent annual mileage or fail to report life changes that affect the calculation of premium, and, by extension, the potential risk assumed by the carrier writing the policy.
But when does misrepresentation meander into “fraud” territory? Moreover, what are these miscalculations really costing the auto insurance industry? Quality Planning's answer to the latter question is about $15 billion last year.
To arrive at that staggering number—or more specifically $15.4 billion in lost revenue in 2010—the San Francisco, Calif.-based member of Verisk Insurance Solutions group at Verisk Analytics analyzed 5 million auto policies. It then aggregated and summarized its audit results in an annual report intended to quantify rating errors and discrepancies that result in auto insurers undercharging policyholders.
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