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How to Defend Against Auto Fraud

Personal auto insurance fraud is a problem. According to Verisk Analytics, it’s a problem on the rise. Between 2008 and 2011, the National Insurance Crime Bureau saw a 34% increase in questionable claims.

Auto fraud is also an expensive problem. Industry estimates show that soft fraud accounts for about 10% of paid losses and loss adjustment expenses a year. In 2011 alone, the total amounted to well over $13 billion.

The problem, it seems, is that many Americans don’t consider small mistruths to be fraud. They seem to think it’s OK to slightly change the facts if it saves them money!

False garaging addresses and mileage estimates

One of the most common types of soft fraud, lying about where the car is garaged to receive auto insurance rates for a more affordable ZIP code, has traditionally been a tricky one to track. But with the data that smartphone apps for usage-based insurance (UBI) are designed to collect, it’s much easier to compare the reported garaging address with the actual garaging address. The same is true regarding the estimation of annual mileage.

While untruths about garaging and mileage may seem harmless, they add up to big profit loss. In fact, insurancefraud.org reports that premium rating errors account for nearly 10% of the $161.7 billion in personal auto premiums written. The group found that drivers are five times more likely to report midterm mileage changes that reduce premiums than they are to report changes that may increase premiums. The website quotes a 2010 Quality Planning study that found that vehicle-garaging rating errors account for more than $2 billion in annual premium leakage.

How to step up your defense against soft fraud

Verisk puts it this way:

“Basically, carriers need to step up their game in a big way. They’ve made large investments deploying technology and data to improve the customer and agent experience. But they’re falling behind in the race to identify fraud and rate evasion — a race they can’t afford to lose.”

While most auto insurers think of UBI as a strategy to improve customer attraction, retention, pricing and loss ratios, it might be time to expand UBI thinking to include the objective of fraud deterrence. When you add in the potential savings of eliminating even 10% of premium leakage from auto insurance soft fraud, the ROI for UBI becomes even more compelling.

How to Boost Loyalty in Auto Insurance

In any industry, customer loyalty is a precious commodity. That’s no less true in the world of auto insurance. As Bain puts it: “Loyalty improves a carrier’s economics and leads to sustained, above-market growth.”

But what does it take to make customers stay with an auto insurer for the long term?

Customer retention isn’t just customer satisfaction.

When customers choose to stick around because of the benefits an insurer provides, their actions are driven by positive experience. You could say, then, that the key to customer retention is customer satisfaction.

You’d be mistaken. A new survey released by Accenture Global found that while 86% of insureds who filed a claim were satisfied with how it was handled, 41% of those customers are still likely to switch insurers in the next 12 months.

In fact, the data shows that the very act of filing a claim makes a customer more likely to switch insurers, even when they’re completely satisfied with how it went.

It’s not to say customer satisfaction in the claims process doesn’t matter – speed and transparency being the two most important factors, according to 94% of Accenture survey respondents. Having access to digital channels also ranks high in satisfaction requirements.

However, if having a claim tends to trigger the insurance shopping process, the most important question may be how to prevent the claim altogether.

Use UBI as a tool to prevent claims and build the relationship.

By harnessing usage-based insurance data, insurers can define strategies to help customers manage risks and even reduce the number of claims they file. As a result, insurers not only lower claims costs, but may gain an advantage in customer loyalty, Bain says.

However, usage-based insurance isn’t just about data collection. It offers insurers the opportunity to go far beyond information gathering, and to nurture the relationship. UBI provides a chance to communicate with customers every time they drive, in a constructive manner. UBI is the ultimate digital connection – not hinging on potentially negative touch points like claims or billing, but rather facilitating quality, helpful coaching.

And here’s the great thing: The relationship-nurturing capabilities start immediately. Insurers can provide helpful driving tips as soon as UBI policyholders install the app and take their first trips. Insurers don’t have to wait for data, actuaries and new rating tables. They have an instantaneous ability to provide coaching and thereby start a new kind of insurance relationship.

They say that when you teach a man to fish, you feed him for a lifetime. What happens when you teach a man, or a woman or their teenagers to drive more safely and avoid the pain of accidents? They appreciate it and remember it. And, greater loyalty, retention and referrals just might ensue.

Click here to learn how usage-based insurance works for insurers.

3 Ways to Allay Drivers’ Privacy Fears

Usage-based insurance, a.k.a. pay-as-you-drive, is an intriguing proposition to drivers.

For most drivers, usage-based insurance offers plenty of allure: cost savings, extra motivation to drive safely and added incentive for the ecologically minded to drive less often. But some customers note privacy concerns.

Here are three ways to address privacy to make customers feel more comfortable.

1.  Show them the benefit. Younger consumers have grown up in the digital age, and, as such, they’ve gotten used to sacrificing a bit of privacy to gain something of value. According to Pew, 81% of Millennials are on Facebook, and a full 55% have posted a “selfie” on a social media site. If they understand that giving up some driving privacy may allow them to earn better rates, and that they may even become better drivers from the feedback they receive, privacy concerns may fall by the wayside.

2.  Be transparent. Track only the data you need, and be straightforward about it. Inform your customers of what you track, where you store it, why you need it and how you protect it. Honesty garners respect, and transparency puts you one step ahead.

In the area of transparency, smartphone UBI delivers a clear advantage over the use of onboard diagnostic devices. With a black box plugged into the dash, consumers have no idea what you’re looking at. With smartphone UBI, they can see every factor measured and how they score.

When marketing and onboarding new customers, be clear about how data will and will not be used. Some consumers may want to know if their information will be given to police or other third parties. Answer these questions clearly, and abide by the policies established.

3.  Continue to offer choices. Some drivers love the concept of UBI and are willing to reveal their habits to participate. Others are not — and that’s okay. By providing your customers the information they need to understand their options, and reminding them they’re free to choose whatever is best for them, you relieve concerns and build trust — not to mention brand loyalty.

For more on how UBI works for drivers, click here.

Use-Based Insurance: The New Lie Detector?

The California district attorney offices in 22 counties recently filed 171 felony and 28 misdemeanor charges against 187 people for alleged auto fraud involving 40 insurance companies. While these numbers are staggering, the truth is that 49 other states could probably do the same.

Insurance fraud is becoming more of a norm than an exception, particularly in the wake of a shaky economy. In fact, 24% of those polled by the Insurance Research Council said it’s acceptable to pad an insurance claim to make up for a deductible, and 18% said it’s okay to pad a claim to make up for premiums paid in the past!

In auto insurance, fraud involves several little white lies, including:

  1. Falsifying the garaging address
  2. Underestimating annual miles driven
  3. Omitting some drivers in the household
  4. Overstating the extent of damages when filing claims
  5. Fudging when and how an accident occurred
  6. Forgetting to report changes that may affect applied discounts. According to a 2010 report by Quality Planning, premium leakage cost auto insurers $15.9 billion in 2008. False reporting of vehicle rating factors, including annual mileage and rated territory, accounted for $6.5 billion in lost premium. Driver rating factors, such as unrated operators, accounted for $8.9 billion.

Fortunately, through smartphone-based usage-based insurance (UBI), auto insurers finally have a way to deter and detect fraud, and to recapture a portion of the dollars lost to premium leakage. Here are some reasons:

  1. First and foremost, usage-based insurance has a built-in deterrence factor. Those who are more prone to fraudulent activity are least likely to sign up. Therefore, the quality of your policyholder pool naturally improves as a byproduct of UBI.
  2. False garaging addresses are easy to detect thanks to the GPS element of a smartphone UBI platform.
  3. Annual mileage driven becomes a non-issue because the usage based insurance app periodically communicates with the vehicle’s odometer.
  4. Certain smartphone UBI apps develop driver signatures over time and are able to detect when other people are driving by comparing current driving behavior to the normal policyholder driving behavior. This capability could flag the possibility of unreported drivers.
  5. Smartphone UBI apps also detect hard braking and sharp cornering events, as well as a vehicle’s geographical location at any given time. This data could be used to corroborate a policyholder’s claim. For example, if a policyholder says a tree limb hit his car in his driveway at 9:09 p.m., but the UBI data shows that the car had a hard braking event that occurred 22 miles away from home at 9:09 p.m. on the date of the reported damage, further investigation may be warranted.

As you calculate the potential costs and returns of usage based insurance, make sure to include the potential impact of fraud reduction in your equation. That figure could be just as important as the new market share you plan to attract.