When three major auto carriers saw their loss ratios rapidly deteriorating—a trend shared among other auto insurers—they reached out to Verisk Analytics to investigate. Their hypothesis: that a consumer demographic shift was to blame.

But Verisk’s analysis of more than 3 million policies over the past eight years reveals that the cause was actually external from the carriers themselves: Auto insurance application information was either incorrect or missing altogether, costing insurers the equivalent of 10-15% of direct written premium each year.

Why the decline in application integrity? According to Dorothy Kelly, director of product management at Verisk Insurance Solutions, some consumers may deliberately tweak or omit information, perhaps for the sake of hiding something like a DUI. Even agents may do so in order to lower rates and win more new business.

But Kelly notes that policyholders simply don’t always know the most important information to disclose to their agents—especially when they’re using digital platforms.

“If you think about the way an insurance company did business years ago, there was a meeting face to face in the home where all the vehicles were there, and the consumers were in front of the agents,” Kelly explains. But when consumers fill out applications online, “the burden is on them to provide the most accurate information.”

Consider that underestimated mileage accounts for more than 18% of premium leakage, or revenue lost because of incorrect underwriting information. “If 'annual miles driven' is not a required field, omitting it may not raise red flags,” Kelly says. “But it is a critical rating element needed for the insurance company to do its job effectively.”

How can agents help? “Guide applicants to answer all questions as accurately as possible, and follow up when life events occur,” Kelly advises.

Although the consequences of application misinformation fall mostly on carriers, “the more the insurance company can succeed in doing its job right, the more consumers have access to fair, accurate and competitive rates—and the better that business is going to succeed, which extends to the agents’ success,” Kelly says.

Jordan Reabold is IA assistant editor.