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How Silent Fraud Can Sabotage Your Insurance Policy
Goodbye brick and mortar, hello click and order. Rapid advancements in technology, ease of accessing the internet and mobile shopping applications are changing the way today’s consumer purchases goods and services. This is no exception in the auto insurance industry.
A recent study conducted by JD Power, showed over the past ten years, 77% of those shopping for car insurance began their search on the internet, with price being the most important factor in their purchase. Obtaining a quote or purchasing insurance online is becoming easier than ever before. However, it is important to understand that failure to disclose all information required on an application could be costly.
Silent fraud is not new in the insurance industry but the chances for it may be increased by shopping online. Omission of information can result in catastrophic loss, which is the very thing insurance is meant to protect the policy holder from. Interestingly, Generation Y (commonly referred to as millennials- born from 1980 to 1997) are the most likely to lie on an auto application.
While silent fraud may not be intentional, it may void the policy at the time of a claim, leaving the policyholder without coverage and financially responsible for the cost of claim. Let’s look at some of the most common ways silent fraud occurs.
It is important to list all members of a household and people who regularly drive your vehicles on the policy. This can be a very complicated topic and many states, like Michigan are cracking down on unlisted drivers.
The most important thing to remember is, while you probably have coverage in place for a friend or neighbor who borrows your car to run to run an errand through what is called “permissive use”, someone who drives your vehicle(s) on a regular basis, must be listed on the policy.
Examples of this include: new household members due to marriage or cohabitation, newly licensed drivers, caregivers and household employees.
• Annual Milage and Garaging Zip Code
Many companies offer discounts or impose surcharges based on annual mileage and the garaging location of a vehicle.
Driving less and living in less densely populated areas presents less risk, therefore companies reward these circumstances with lower rates.
Likewise, long commutes and heavily populated areas increase the potential for accidents. Commonly overlooked lifestyle changes such as change in jobs or a child taking a vehicle to college can significantly impact rates and coverages, particularly across state lines. When in doubt, always ask a licensed agent how such changes may affect you.
• Vehicle Details
Failure to report correct vehicle identification numbers (VIN), accurate trim packages, accident history and overall condition of a vehicle can also result in a void or reduction in coverage.
Every vehicle has a unique identification number and within that number, the details about that vehicle (such as year, make, model, transmission, engine and factory options) are coded. While many companies use a database to reference VIN numbers to verify vehicle information, simply transposing a number can result in insuring a different vehicle!
Any enhancements or after-market upgrades should always be reported. It is also important to consider that over time the value of a vehicle decreases. If you have an antique or classic car that has been restored, its value will likely be higher than a vehicle of the same year, make and model that has not.
Likewise, a vehicle that has been involved in an accident, in which substantial damages are incurred, can limit the amount and type of insurance available for that car.
Keeping in mind that pricing is one of the most important factors for many when purchasing auto coverage, it is important to be aware of the discounts available with your policy.
Common discounts include age, marital status, military/veteran status, driving record, club membership, defensive driving courses, good student, multiple vehicles and companion policies. It is important to visit with a licensed representative of a company to determine what discounts may apply to you and to review those discounts each year. It is not uncommon for policy holders to pay more than necessary for a policy because they weren’t aware of the discounts available to them.
It is also important to report any changes as they occur because taking advantage of a discount you are no longer entitled to, can also be considered silent fraud.
You’ve likely heard the phrase, “Omission of the truth is a lie” and in the case of auto insurance, this is no exception. Certainly, this is not an exhaustive list of all types of silent fraud. In a day and age where technology offers convenience and cutting out the middle-man may decrease the cost of many goods and services, it is easy to see how a simple oversight or failure to disclose information can result in a greater expense in the end. Being informed is the first step in ensuring adequate coverage but perhaps Benjamin Franklin said it best, “Honesty is the best policy”.