Rating Error Reduces Auto Insurer Revenue By $15 Billion

Study by analytics expert Quality Planning concludes auto insurers could stem losses by better analysis and more frequent updates of policyholder information

SAN FRANCISCO, November 1, 2011 — Quality Planning, a company that validates policyholder information for auto insurers, has released its annual premium rating error report, which quantifies the errors and discrepancies that result in auto insurers undercharging policyholders. The report, available at www.qualityplanning.com, estimates that the private passenger auto insurance industry missed $15.4 billion in revenue in 2010 simply because of policyholder misinformation. Quality Planning is a member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK).

Report highlights:

  • The year 2010 saw a slight decrease (0.41 percentage points) in auto premium leakage compared with 2008 (the last time this report was published) as a result of a combination of factors, yet still representing almost 10 percent of the total $164.10 billion in personal auto premium written in 2010.
  • Flawed mileage reporting, both annual and commute, was the single largest contributor to rating factor error in 2010, representing a loss of more than $3.0 billion in premium.
  • Two other factors — unreported drivers (household drivers not declared on the policy) and driver characteristics and discounts (which include driving experience, age, marital status, student discounts, affinity group membership, and misrepresentation of driver identity) — accounted for $2.7 billion and $1.9 billion in lost premium, respectively.
  • There was a very small decline (0.02 percent) in premium leakage from policyholders who use their vehicle in a business but report its use as strictly pleasure.
  • Quality Planning also found a sizeable decline in premium leakage due to errors stemming from driver characteristics and discounts (0.27 percent) as well as a decline in violations and accidents (0.20 percent).

“The year 2010 saw a slight decrease in auto premium leakage compared to 2008. While there is ample evidence that people, on average, drove somewhat more in 2010, we believe that the overall mileage increase in driving obscures the fact that there was a segment of the population whose driving was drastically reduced due to job losses and tougher economic times,” said Dr. Raj Bhat, president of Quality Planning. “Inaccurate mileage assessment is one of many factors that cause premium leakage. Addressing premium leakage across all rating factors can make a big difference. In many cases, it can reduce the auto underwriting ratio by as much as three points.”

The report, “Auto Insurance Industry ‘Donates’ $15.4 Billion,” can be found at www.qualityplanning.com. The report aggregates and summarizes audit results of around 5 million policies from multiple carriers. The data includes substandard to preferred books of business, all distribution channels, and national and regional carriers. State-level data is then weighted to reflect the total national private passenger auto line.

About Verisk Analytics
Verisk Analytics (Nasdaq:VRSK) is a leading provider of information about risk to professionals in insurance, healthcare, mortgage, government, and risk management. Using advanced technologies to collect and analyze billions of records, Verisk Analytics draws on vast industry expertise and unique proprietary data sets to provide predictive analytics and decision-support solutions in fraud prevention, actuarial science, insurance coverages, fire protection, catastrophe and weather risk, data management, and many other fields. In the United States and around the world, Verisk Analytics helps customers protect people, property, and financial assets. For more information, visit www.verisk.com.

About Quality Planning
Quality Planning is focused on providing rating integrity solutions to auto and home insurers. A member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK), Quality Planning works with insurance companies to identify areas of significant rating error using sophisticated database management, statistical analysis and modeling, customized survey design, and highly targeted customer interaction. Quality Planning helps clients work within their existing rating plans and charge fair prices to policyholders based on a true representation of risk. The company was founded in 1985 and is headquartered in San Francisco. For more information, visit www.qualityplanning.com.

Release: Immediate

Tim Cox

Archived Press