-- 254 marriages and 124 divorces
-- 25,608 vehicles registered of which 6,402 are new
-- 163 drunk-driving arrests
-- 5 traffic fatalities
-- More than 2,800 auto insurance claims paid
-- 445 new drivers licenses issued
Policyholders change jobs, cars are acquired and sold, and kids get their
drivers licenses and start to use the family car. On average, 52 percent of
existing policies have a change in driver or vehicle every year, and 30
percent of households replace vehicles every year. These changes affect
annual mileage, commute, and other rating factors.
In 2006, driver rating errors rose to $9.5 billion, up from $8.7 billion in
2005. The report reveals that flaws in vehicle rating factors such as rated
commute distance, annual mileage, vehicle usage and rated territory were
also major contributors to the $400 million increase over the 2005 figures.
"It's important that insurers understand how rating error is broken down,
revealing where leakage can -- and should -- be prevented," said Bhat.
"And, once the problem is understood, premium leakage is easily decreased
through the consistent, ongoing collection, validation and maintenance of
accurate rating data."
Industry should use sophisticated data analysis techniques to stop premium
leakage
"The insurance industry can fight back against this leakage using the right
analysis tools," said Bhat. "Let's face it. Some policyholders misrepresent
facts and don't report lifestyle changes. Others just boldly commit fraud.
Underwriting doesn't have to accept these trends as a cost of doing
business, or, worse, as permission to cover leakage protection by inflating
premiums for all policyholders."
The QPC report shows how auto insurers could better analyze rating data to
identify and correct flawed information. This could improve industry
profits. It could also prevent price inflation, which affects honest
insureds.
"Honest people shouldn't be in the position of subsidizing dishonest,
high-risk drivers," said Bhat. "In fact, some low-risk drivers could even
see a reduction in their premium."
Auto insurer profits lie hidden in manageable data
A significant cause of premium leakage is under-reporting the number of
miles driven. The QPC report shows that annual mileage contributes to a
loss of $1.7 billion dollars. Interestingly, 17 percent of vehicles are
driven more than 20,000 miles per year, yet only four percent are actually
rated in this category.
The industry is losing another $1.8 billion due to inaccurate commute
information. Vehicle-garaging errors continue to be a problem. QPC has
identified thousands of examples where young drivers keep their vehicles
registered at their parents' homes long after they've moved to large cities
such as New York or Los Angeles, where coverage costs tend to be higher.
Rating integrity and competitive advantage
QPC helps auto insurers minimize rating error. QPC processes auto insurance
companies' book of policyholders through a battery of more than 150
proprietary tests, cross-reference checking and pattern-matching algorithms
to identify errors and discrepancies that might suggest customer fraud.
QPC also provides insurers with additional services, such as policyholder
phone interviews to discover missing drivers, verify garaging addresses,
determine annual mileage, and other key rating information. Over time,
insurance companies with accurate rating information are better able to
compete and are more financially stable.
About ISO
ISO is a leading provider of products and services that help measure,
manage and reduce risk. ISO provides data, analytics and decision-support
solutions to professionals in many fields, including insurance, finance,
real estate, health services, government and human resources. Clients use
ISO's databases and services to classify and evaluate a variety of risks
and detect potential fraud. In the U.S. and around the world, ISO's
services help customers protect people, property and financial assets. For
more information, visit www.iso.com.
About Quality Planning Corporation
An ISO business, QPC is focused exclusively on providing decision integrity
solutions to the insurance industry. QPC works with insurance companies to
identify areas of significant premium leakage using sophisticated database
management, statistical analysis and modeling, customized survey design,
and highly targeted customer interaction. Quality Planning Corporation
(QPC), the rating integrity solutions company, was founded in 1985 and is
headquartered in San Francisco. For more information, visit
www.qualityplanning.com.
(1) The sample was limited to audits where Quality Planning retained
contractual rights to aggregate data for industry analysis.
Contact Information: Contact: Tim Cox Zing Public Relations 650-369-7784