Survey: 1 in 3 Lie to Get Cheaper Car Insurance Rates

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This post comes from Des Toups at partner site CarInsurance.com.

If you fudged the facts when you applied for car insurance, you are not alone.

Thirty-four percent of drivers have omitted information or supplied false information to their car insurance providers, a new survey from CarInsurance.com finds.

Men were more likely to lie than women, 42 percent vs. 27 percent. Drivers under age 30, who pay the most for car insurance, were three times more likely to submit incorrect information than drivers over 50.

Among the drivers reporting a lie – and many reported more than one — the most common were:

  1. Annual mileage — 36.3 percent.
  2. Where car is parked — 32.4 percent.
  3. Names of drivers with access to vehicle — 25.1 percent.
  4. History of tickets or accidents — 20.5 percent.
  5. Gaps in insurance coverage — 19.2 percent.
  6. School grades, or teen driver’s grades — 18.9 percent.
  7. Anti-theft devices on the car — 17.4 percent.
  8. Primary type of use (such as business, school or work) — 17.3 percent.
  9. Education level — 16.9 percent.
  10. Marital status — 16.9 percent.
  11. How long they’d been licensed — 15.8 percent.
  12. Major modifications to their car — 15.7 percent.
  13. Refresher or defensive driving courses — 14.4 percent.

The online-panel survey of 2,000 licensed drivers took place in October 2013, with respondents divided evenly by sex, age groups 18 to 65 and by geographic regions.

Leaks in the risk pool

You might call them little white lies. The official car insurance industry term is “premium leakage.”

Where you live, who else can grab the keys, and the grades your kid got might seem like harmless enough fibs. After all, your own driving record is great, and you’ve never had an accident.

Those little bytes of misinformation add up. In all, insurance companies lose about 10 percent of their potential premiums to bad information, according to analytics gatherer Quality Planning Corp. in San Francisco. Each factor represents two sides of the same coin: savings for you, uncovered risk for your car insurance company.

For example, the address where a car is parked at night greatly influences the car insurance rates you are quoted. A good driver in a 2012 Honda Accord with a clean record and no claims would pay about $1,472 a year for full coverage in Barrington, R.I. The same driver would pay about $2,175 in Providence, only 10 miles away. (See “Car Insurance Rates by State and ZIP Code” to see how rates differ in your neighborhood.)

Gaps in insurance coverage are another big rate changer.

Other fibs are meant to help the driver qualify for car insurance discounts. Good grades can mean a discount for families with students of 10 percent or more. Marriage discounts can be just as big.

Will you get caught in a lie?

Those surveyed gave three reasons behind their decisions to submit bad information:

  • To save money — 63.3 percent.
  • No correct answer option on insurance form — 28 percent.
  • Felt cheated by the company in the past — 8.7 percent.

More than 40 percent of those who lied said their insurance company eventually discovered the bad information. Of those who were caught:

  • 33.5 percent said their claim was denied.
  • 31.5 percent said their premiums went up.
  • 25.4 percent said their policy was canceled.
  • 7.6 percent said they were sued for fraud.
  • 2 percent said nothing happened.

Much of the information that drivers supply is verified as a matter of course during the underwriting process. An insurance company will pull a report from your state DMV, for example, to look for violations. Claims databases will show previous accidents and damage reports.

Details corrected as the policy is issued shouldn’t affect your relationship with the insurance company, says CarInsurance.com analyst Penny Gusner. “It’s charging you the correct premium,” she says. “But if a lie squeaks through and is later detected, you’ve got an issue to deal with.”

The era of Big Data makes such discoveries easier. Companies that routinely sift public databases can tell your insurance company if there is an “undisclosed driver” at your address, if you have a newly licensed teen, whether you’re using your car for business, and even how many miles you’re driving.

Let’s say a friend borrows your car and wrecks it. An “undisclosed driver report” turns up evidence that he lived at your address. At that point, Gusner says, the company could deny your claim altogether, pay the claim but charge you back premiums as if the driver had been included all along, or cancel your policy because of misrepresentation.

“Honesty really is the best policy here,” Gusner says. “Otherwise the money you’re paying to protect your car and assets might just go to waste.”

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