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Your Car Insurance Company May Know When You Are Lying

Written by Hank Coleman - 16 Comments

When was the last time you told your car insurance company how many miles you actually drive every year? It was probably the last time you shopped around for a new car insurance policy. Is that number of miles driven still correct? Have circumstances in your life changed such as a new job that requires you to drive a longer commute to work? Did you give a low guess as to the number miles you drive to your car insurer from the beginning?

You may be surprised to find out that your car insurance company has a number of ways to find out when you are lying about your driving habits. Not only does inaccurate reporting hurt the car insurance companies, but you could be faced with higher car insurance premiums in the future because of all this fibbing.

Why so many fib to their insurance

Car insurance companies use a variety of factors when determining how much you will pay for your car insurance premiums. They use details about driving history, accident history, the number of claims you have filed, your driving habits, your credit score, and other factors. Most drivers understand that insurers ask about the number of miles you drive each year because there is a direct correlation between the amount you drive and your likelihood to file a claim against your car insurance.

Simply put, driving more puts you at a greater risk of an accident. But, purposely understating the number of miles you drive every year to your car insurance company in order to receive a lower insurance premium can have serious repercussions.

Premium leakage is a big problem for insurers

A recent report from Quality Planning, a research firm for the insurance industry, found that car insurance companies lost an estimated $15 billion in premiums because of incorrect information policyholders reported to them. This is called premium leakage, and car insurance companies consider it a big deal for obvious reasons.

There are several ways that your car insurance company can find out that you have not been telling the truth about your driving habits and, specifically, how many miles you are driving each year. Not only do they ask you about your driving habits when you initially purchase the policy, they collect data from other sources such as the car dealership and your mechanic.

They also collect data from any claims you file, and they pick up warning signs of fraud by mining their huge data base for anomalies in reported data and statistics using complex proprietary algorithms on driving behavior. Car insurance companies even hire consulting firms to help them track down serious offenders who have lied about their driving habits.

New insurance features could cost you

Another way that you can let the cat out of the bag on how much you actually drive is by volunteering the information yourself. Pay as you drive monitoring services such as Progressive’s Snapshot program have been profiled on televisions commercials and are increasing in popularity. The car insurance industry is pushing these programs heavily now with the lure of big savings on premiums.

In fact, several insurers now allow you to plug a small device into your car’s data port to record information about your driving habits. Customers are flocking to the program in the hopes of saving on car insurance. The car insurance companies have praised the programs as saving their customers an average of 10% to 15% and as much as 30% in some cases.

This is a great tool that can prove you deserve a lower premium on your car insurance if you are actually a safe driver. The device measures the number of miles you drive, how often you brake hard, and the time of day you are driving. But, the pay as you drive device does not monitor your speed or track you by global positioning satellites (GPS).

Most car insurance companies like Progressive do not use the data to raise your car insurance rates initially if the results are negative. The one danger, though, is that car insurance companies are able to hold the data that they collect against you the next time you renew your car insurance policy. Since most policies are renewed and re-priced every six months, using one of these devices could backfire.

What about you? Have you been honest with your insurance company? Have you ever used a pay as you drive monitoring device in your car? If so, what has your experience been like?

Published on February 29th, 2012
Modified on March 12th, 2012 - 16 Comments
Filed under: Insurance

About the author: Hank Coleman is a freelance writer who has written extensively for many financial websites and publications. Hank holds a Master's Degree in Finance and is actively pursuing Certified Financial Planner status.

16 Responses to “Your Car Insurance Company May Know When You Are Lying”

1
Matt Says:
February 29th, 2012 at 10:15 am
We did Progressive’s Snapshot program last spring/summer. Overall, we had a very positive experience (plus it was interesting to view the data through their site about our driving habits) and saw rates decrease 15% on one car and 28% on the other after 3 months of data gathering. They then had us return the device. By participating in the program, we “agree” to allow them to collect data again with the device as needed, but it will be up to us whether we allow that to happen or simply decline and lose the discount. We were promised no increase in rates during the program, but I was wondering how they could overlook people with unsafe driving and not eventually spike their rates.
Upon renewal in October, our Snapshot rates were continued with the same discount. Of course, they now have our habits recorded in their database, but it is nice to be rewarded for safe driving with lower premiums.
2
PennySaved Says:
February 29th, 2012 at 2:26 pm
A couple of years ago, I got a better rate on my car insurance when I told my insurer that I was not driving my car much and I found out I could quality for a lower rate. My 1994 Geo Prizm only has 53,000 mile on it because I only drive it occasionally. I use mass transit during the week for work.

Occasionally, the insurance company sends me a form I must complete and return telling them what the mileage is.
3
cheapO Says:
February 29th, 2012 at 3:57 pm
I will never feel bad for insurance companies..ever! I try to avoid insurance at all costs unless required by law. I don’t see why you have to provide them with accurate information. They are making money off of you..
4
Hank Says:
February 29th, 2012 at 8:09 pm
cheapO – If everyone provided insurance companies with incorrect data, all of our insurance premiums would be higher. We would be forced to supplement those pricing inequalities since the whole process would be very inefficient for everyone. Also, just to point out, every company you deal with is making money off of you. Should we stop using our grocery store loyalty cards because they are also collecting our shopping data from us while giving us coupons?
5
Penny Says:
February 29th, 2012 at 9:39 pm
I periodically have to supply oil change receipts showing mileage to prove that I drive as little as I do so that I can qualify for the lowest rates. I’m happy to do so since I save a bundle. It helps that I’m a telecommuter.
6
don Says:
February 29th, 2012 at 11:25 pm
Fibbing on mileage is not worth it. If getting a low premium is a goal, then it is best to own an old car.
7
Tyler S. Says:
February 29th, 2012 at 11:50 pm
Hopefully I will be enrolling in the monitoring service with my company soon. Working from home has its benefits!
8
Jenn Says:
March 1st, 2012 at 7:24 am
I’m pretty sure my car insurance company actually has a mileage higher than what I actually drive in a year. I think I just went with what was average at the time I signed up and have never changed it, but I drive mostly to work and back (3 miles), to roller derby practice and back (~1 mile) and some running around in town. Occasional roadtrips for derby bouts, but all in all, I’m not exactly racking up the miles in my car.
9
debi Says:
March 1st, 2012 at 10:21 am
I feel like it’s an invasion of my privacy and I tell as little as possible. They are usually looking for ways to raise your rates.
10
Hank Says:
March 1st, 2012 at 10:49 am
debi – I understand where you are coming from, but I almost think that it is a case of the glass half full or half empty. If you do business with good, reputable companies, then everyone benefits when insurance companies have the best information in order to set their prices the most fair that gives them a profit, lowers our premiums, and rightly costs others who are poor drivers and at risk for costing the rest of us more money with higher accidents, etc.
11
Ginger Says:
March 1st, 2012 at 11:15 am
I see no reason to lie. If you have to lie to get the better rates, why not just change your habits?
12
John Says:
March 1st, 2012 at 5:43 pm
It’s possible that in case of a claim (especially a large one because, for instance, you hit someone), the insurance company might try to point to the discrepancy between the actual mileage on your odometer and your claimed driving habits as evidence that you lied about your driving habits on your application. They could then try to use that lie to deny coverage.

Even if you ultimately win the litigation you will be forced to enter into to get the insurer to cover you, you will have spent a ton in attorney fees. And all that to get the coverage that you would have been entitled to if you had not been trying to save a couple of bucks a month.

(And no, I am not an insurance company representative trying to get insureds to pay more money. I am an attorney, and this is exactly what I would advise the insurance company to do in this situation if it were my client.)
13
Thad P @ thadthoughts.com Says:
March 1st, 2012 at 7:42 pm
I would be interested in using something like snapshot. Does anyone know if Geico has a similar program?
14
more information here Says:
March 2nd, 2012 at 12:20 am
Very great post. I just stumbled upon your blog and wished to say that I’ve really loved browsing your weblog posts. In any case I will be subscribing for your rss feed and I’m hoping you write again very soon!
15
Long Says:
March 2nd, 2012 at 11:51 am
John is right. Lying to your insurance company in order to receive a lower premium is grounds for denial of coverage.

If the insurance company discovers false information, they can legally deny any claims and drop coverage immediately. Their legal argument is that they may not have even considered you for coverage in the first place; given they had truthful material information to make their insurance decision.
16
BG Says:
March 6th, 2012 at 6:21 pm
Perhaps the insurance companies need to reword their applications. I remember the last time we switched ins. companies, and the question was worded something like:

“How many miles do you drive to work?”

My wife is around the 6-mile mark (one way to work), but I told the agent that she puts 17k miles on the car each year.

If they are truly after the total yearly mileage, then they should ask that question — not try to infer something from poorly written questions (or trick me into a “denial of coverage” issue based on their incorrect assumptions).

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