REPORT SAYS U.S. INSURANCE INDUSTRY LOSES $13.7B ANNUALLY DUE TO AUTO PREMIUM RATING ERROR:

Quality Planning Corporation (QPC), the Rating Integrity Solutions Company, released its annual Premium Rating Error report, detailing just how much often-overlooked premium rating errors diminish the overall profits of auto insurance companies. QPC estimates that $13.7 billion of premium revenues were foregone in 2002. With underwriting profit averaging less than 5 percent, and investment revenues trending downwards, a revenue increase of nearly $14 billion in premium revenues would clearly make a significant difference to the financial fortunes of leading auto insurers. QPC’s Premium Rating Error report, which presents the results of premium audit reviews of over 13 million private passenger auto policies from 10 carriers, reveals the extent to which different categories of rating errors contribute to the overall premium rating error. The biggest culprits reportedly are unrated drivers (1.7 percent) and commute/annual mileage (1.6 percent). To put the $13.7 billion premium rating error into perspective, it represents about 10 percent of personal auto insurance premium revenues industry-wide. Dr. Daniel Finnegan, founder and CEO of QPC, noted, “Our research shows that if an auto insurance company can cut its rating error by fifty percent, it is likely that the company can more than double its profits.” Finnegan sees the problem of rating error extending beyond industry profits, adding, “Rating error introduces significant inequalities into auto insurance; honest people subsidize the dishonest, low-risk drivers subsidize high-risk drivers, those that use their vehicles little subsidize high mileage users.” The report can be found online at: www.qualityplanning.com/ research.html.

Topics USA Auto Market