Say you have some damage to your car: nothing great, maybe a few dents up front with some scratches amounting to a couple thousand dollars in repairs. Here’s how to get an insurance company to pay for them. For free:
1. Sign up for an expensive Comprehensive and Collision policy with a low deductible – don’t worry about the expense – the goal here is to get the best coverage possible. Get immediate coverage and ask them to bill you.
2. Immediately file a claim for the damage you want repaired.
3. Within a few days the claim will be paid.
4. Once you have the money in hand cancel the policy, just throw the premium notice away.
Is this honest? No. Does it happen? Sadly, all the time. For three reasons:
1. Using VeracityID’s database of millions of policies we’ve found that customers who establish new Comprehensive and Collision policies submit claims at a two to four times higher rate in the first month than in the other 11 months of their coverage period. Clearly customers are ‘saving up’ their claims for when they get ‘better’ insurance. And insurance companies encourage this behavior by in most cases letting them.
2. Many insurance information systems are antiquated and fragmented. It is quite likely that your insurance company – or one you can find – has no real time integration between its billing and claims paying systems. Typically they’ll note the enrollment event but often only update premium payment status periodically.
3. And since most jurisdictions require claims to be paid far sooner than the time in which a premium bill becomes past due, a dishonest customer can game the gap caused by weak insurer technology.
Insurers struggle to prevent this fraud unless they can prove that the damage preexisted the policy. This is because we estimate that 97 percent of US consumer auto policies are written without a physical inspection of the vehicle. It is particularly easy to get away with this fraud if the damage is small and isn’t associated with a reported event like a moving violation or theft. And even if they catch the ‘free’ gambit, an unscrupulous customer can still get damage amounting to thousands of dollars paid for for the price of a single month’s premium. Thousands of customers do this every day, rocking back and forth between Minimum State Liability insurance and Comprehensive and Collision insurance as their car damage dictates.
VeracityID can easily isolate and measure the magnitude of this issue and issues like it by using idFusion (TM), our fraud identification and prevention solution. idFusion gives insurers tools like Policy Time Migration (TM) which arrays all carrier policies by Policy Year. Using this, carriers are able to identify and analyze claims “hot spots” across the Policy Life Cycle by time and policy element. Hot spots like the First Month Excess Claims problem. Once problems are identified, idFusion delivers the alerts, workflow and tools that enable insurers to address and ultimately prevent these events from occurring.
The good news is that the First Month Excess Claims Problem has a solution that idFusion can implement for insurers. The bad news is that if they don’t implement it then it’s the honest policy holders that foot the bill. We think that’s wrong – which why we founded VeracityID.