Have you noticed that your not-so-new neighbors have been living on your street for more than a year now and still haven't changed their license plates? Or do you know someone who brags about saving money by using the address of a relative in another state to register his car?
Although these actions may seem like harmless oversights or even another way to lower auto insurance premiums, these vehicle owners actually are committing insurance fraud -- and it's costing you money.
Insurers determine rates for their auto insurance policies based in part on where the policyholder lives. Those who live in urban areas, where the accident risk is higher, usually can expect to pay steeper premiums than those who live in rural areas where the roads are less heavily traveled. Those who live in neighborhoods where auto thefts are more common also may pay more for coverage.
This situation encourages some to game the system through auto insurance rate evasion. Some may register their cars using the address of a friend or relative in a different state to get a lower rate, according to a 2011 Independent Democratic Conference report about rate evasion fraud in New York. Others may neglect to update their insurance information in a timely manner when they move. In some cases, organized fraud rings will buy cheaper out-of-state policies and sell them along with used cars.
A 2010 report by Quality Planning Corp. found that rated territory errors -- another name for rate evasion -- cost insurers $1.3 billion in 2008. That money comes from the wallets of auto insurance policyholders who truthfully report their locations and are forced to pay higher premiums to cover these losses.
There are certain states where misreporting is especially widespread because of the less stringent licensing and insurance reporting procedures in neighboring states. The Independent Democratic Conference report, for example, cites a 2006 study by the New York State Commission on Investigation that looked at the problem of New York drivers registering their cars in Pennsylvania. It found that 1,650 vehicles in New York were registered to just 14 addresses in Pennsylvania -- an obviously unbelievable average of 120 vehicles per address in an area of mostly one- and two-family dwellings.
In another example, according to the report, New York's Motor Vehicle Accident Indemnification Corp. received claims from 935 accidents between December 2002 and March 2006 that involved vehicles registered in Pennsylvania. The vehicles' owners actually were New York residents in more than one-eighth of those cases.
Lying about where you live or where you keep your car is punishable by a fine or imprisonment in most states, but the laws can be hard to enforce.
According to the Quality Planning report, it will be up to insurers to do a better job of verifying vehicle owners' information -- a difficult task, given that their customers constantly are moving throughout the country, switching auto insurance companies and buying new cars. But more oversight could help cut the industry's losses and reduce rates for auto insurance policyholders who've been telling the truth all along.