Fraud is one of the largest contributors to premium leakage in the personal auto insurance industry. Insurers spend large amounts of time and money uncovering and preventing auto insurance fraud. Policyholders pay on average $200 to $300 more on their premiums every year to account for losses from undetected fraud. While most insurers focus their efforts on preventing fraud related to violations and accident claims, there are other forms of soft and hard insurance fraud that can easily be discovered and avoided, saving the overall industry $10.4 billion per year.
Soft and hard insurance fraud
Auto insurance fraud happens when a policyholder knowingly states erroneous information to their insurer in order to receive a certain benefit. For example, when a policyholder falsely reports their car as stolen, this counts as auto insurance fraud.
However, there are two different types of insurance fraud: soft fraud and hard fraud. Soft fraud is a lot more common and also harder to detect. Soft fraud occurs when a policyholder hasn’t planned on lying to their insurer, but they do so once the opportunity presents itself. An example of soft auto insurance fraud is when a policyholder got into an accident and then exaggerates the severity of their injuries in order to get a larger payment from their insurer.
Hard fraud occurs when a policyholder deliberately plans and executes the fraud. For example, staging a car accident in order to receive money from the insurer counts as hard insurance fraud.
When trying to detect and prevent soft and hard insurance fraud, most insurers focus on situations like the ones mentioned above: violations and claims. While violations and claims cause auto insurers $3.5 billion in premium leakage every year, there are three other forms of fraud that cause much larger losses and that insurers often don’t know how to solve.
Underreported mileage, misrepresented garaging, and incorrect VINs cause auto insurers $10.4 billion in losses each year, which amounts to 36% of all premium leakage. Luckily, insurance providers can easily eliminate all of these losses using the Smartcar API.
Eliminating insurance fraud with the Smartcar API
Smartcar helps insurers detect and prevent all losses associated with underreported mileage, misstated garaging locations, and faulty VIN reporting. We have developed the first car API that allows insurers to eliminate error-prone self-reporting to fight soft and hard auto insurance fraud.
🔩 How it works
Insurers can embed our Smartcar Connect flow into their web portal or mobile application. This flow takes care of collecting user consent, allowing policyholders to link their vehicles with just a few clicks directly from the insurer’s app.
At Smartcar we take vehicle owner privacy very seriously. That is why Smartcar Connect provides policyholders full transparency around the exact types of information they are about to share with their insurers. This thoughtful user privacy agreement allows insurance providers to build and maintain the trust of customers.
After a policyholder has connected their car to the insurer’s app, our API technology enables the insurance provider to retrieve real-time telemetry from the policyholder’s vehicle. This can range from an on-demand odometer check to automatic mileage, location, and VIN verification on a pre-configured schedule.
🚘 Mileage verification
Our odometer API allows insurers to verify their policyholders’ mileage either annually to calculate renewal premiums or monthly as part of a pay-per-mile policy. By adjusting premiums to accurate mileage information, our customers have been able to eliminate fraud from mileage underreporting, solving a $5.4 billion industry problem.
🏡 Garaging location verification
To eliminate garaging misrepresentation, insurers can use our location API and spot-check where a policyholder has parked their vehicle. Using Smartcar, insurers have been able to uncover misstated garaging locations and addresses that are no longer accurate, addressing a $2.9 billion annual problem.
🔢 VIN verification
Finally, to reduce the risk of fraud and errors at the point of sale, Smartcar’s VIN API allows insurance providers to automatically verify a policyholder’s vehicle identification number. Insurance companies that use Smartcar have been able to avoid $2.1 in losses every year, eliminating all soft and hard fraud that involves erroneous VIN reporting.
This is how insurance providers can easily address $10.4 billion in losses from soft and hard fraud related to mileage, garaging, and VINs. To learn more about Smartcar and our API solutions, please don’t hesitate to schedule a demo with our team.