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Garaging errors: A significant cause of premium leakage

Garaging fraud

A recent study found more than 10 percent of auto policies had verifiable garaging address defects, pointing to $3 billion in annual premium leakage related to this issue. Defects found in a Verisk client analysis ranged from no verifiable match at the given address to garaging locations reported at check-cashing facilities and prisons.1 The research is featured in a new Verisk – insurance solutions Innovation Paper, The Challenge of Auto Insurance Premium Leakage.

For areas with high premium, garaging fraud can have a substantial cumulative impact. For instance, Verisk estimates the annual value of garaging misrepresentation to the industry at $32.5 million in lost premium for the Miami area.2

Unintentional garaging errors may result from seasonal shifts in residency, students going off to college, or policyholders with paperless services who forget to report a relocation. Deliberate misrepresentation may be abetted by an agent looking to lower the customer’s rate and keep the business—for example, by listing the agency’s address rather than the real but riskier garaging location. Or consumers may initiate the misstatement in a bid to save money.

More than 10 percent of policies have some type of garaging discrepancy,3 and 4 percent of policies have a misstated ZIP code.4 Certain types of garaging errors are associated with average experiential loss ratios exceeding 100.

The 2016 Verisk Auto Insurance Premium Leakage Survey found wide variation by insurer size in the use of programs to address garaging-related leakage. Approaches also vary: Nearly nine out of ten midsize insurers outsource aspects of their garaging programs, while only 44% of those below the top 100 outsource.5

Garaging graphicCredit headers, MVRs, marketing data, and vehicle registrations can help verify legitimate residential addresses. Landline phone numbers, work addresses, ownership of multiple homes, and school addresses can also provide important clues. And certain territories warrant special attention, such as New Jersey versus Pennsylvania or New York, or Maryland and Virginia versus the District of Columbia.

Keeping track

Knowing where the car is most often driven helps price risks accurately, and sophisticated technologies and analytics can simplify this task. License plate recognition technology combined with geospatial data can reveal clusters of sightings to validate garaging addresses. When potential garaging misrepresentation is found, skilled third-party outreach can help set the record straight in a nonconfrontational way.

The Innovation Paper is based on the findings of two recent Verisk research initiatives. The premium leakage survey explored insurers' concerns, programs, and plans regarding premium leakage. Verisk also conducted a client analysis for 82 insurers split evenly between the standard and nonstandard markets. The insights from these initiatives provide readers a deeper look at premium leakage by source, best practices for tackling it, and cutting-edge tools that can enable a focused, strategic approach to balance growth, retention, and profitability.


1. Verisk client analysis.

2. Verisk client analysis estimates applied to registered vehicle data from the Florida Department of Highway Safety and Motor Vehicles, 2016; conservative estimate based on exposure-weighted average annual premium for the two counties from ISO statistical plan data based on voluntary market experience, 2015, assumes an average $1,500 annual premium with 15 percent up-charge, and 7 percent of policies, or about 144,000, subject to territory-related premium leakage.

3. Verisk client analysis.

4. Verisk client analysis.

5. 2016 Verisk Auto Insurance Premium Leakage Survey.

Read the first article in the Premium Leakage Series: Auto insurance premium leakage: A $29B problem for the industry

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