Unearned discounts: Customers lie about using vehicles for farming

Insurance companies are losing millions of dollars every because some of their customers are getting discounts they don't deserve, according to a recent study by insurance analytics company Quality Planning. In order to get cost breaks, vehicle owners are fraudulently claiming that they're using cars like BMWs and Porsches as farm vehicles.
What is farm-use insurance fraud?

Many auto insurance companies offer significant discounts, typically about 20 percent, to owners of farm-use vehicles, according to Quality Planning. They're willing to cut the price of coverage because the risk of these vehicles being stolen or damaged is considerably lower than that of cars in urban and suburban settings. When it comes to luxury cars, this type of fraud can be particularly enticing because these high-value vehicles usually cost more to insure.
Insurance companies often lack the ability to confirm whether a vehicle registered for farm use is actually being used in an agricultural setting. And, given the big payoff and low risk, farm-use fraud may seem like a safe bet for many.
Quality Planning found that about 8 percent of vehicles that were indicated as farm-use vehicles (and that were receiving discounts)  were in urban areas like Houston, New York City and Los Angeles, where less than 1 percent of the population engages in agriculture. The insurance industry loses about $150 million every year to farm-use fraud, according to Quality Planning.
Farm-use fraud is just one example of what's called underwriting fraud. Other examples include customers misrepresenting their annual mileage, getting a personal auto insurance policy for a commercial vehicle or registering a car in another state where premiums are lower.
Preventing fraud

Preventing this type of fraud can be tricky for insurers, according to industry data management company ISO. According to the company's quarterly publication, ISO Review, the nature of modern life presents a variety of challenges for insurers -- their customers are constantly moving, changing jobs, having children, switching auto insurance companies and buying new cars. Amid all that activity, fraud can sometimes fly under the radar.
ISO recommends insurers undertake more rigorous audits at the moment policies are issued and whenever they are renewed in subsequent years to prevent fraud from slipping back in. Things to check include the vehicle's annual mileage, where it's parked every night and what kind of business it's being used for.

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