Jane Dotson
Car insurance companies use annual mileage to assess a driver's risk of filing a claim and set insurance rates. The more miles a driver spends on the road, the higher the risk of being involved in a car crash. Insurance companies may request annual mileage estimates from customers when they sign up for a policy, and some states, like California, require insurers to verify vehicle mileage at least every three years. While insurers may not investigate every customer's mileage, they are likely to look into it when a customer makes a large claim. Customers have the right to challenge any mileage determined by the company and provide their odometer reading. Updating mileage with an insurer might help lower premiums or qualify for low-mileage discounts.
| Characteristics | Values |
|---|---|
| How often do insurance companies check mileage? | Insurance companies are allowed to check mileage every three years. They usually rely on the honor system, especially when first signing up for an insurance policy. |
| How do insurance companies check mileage? | They may use DMV records of smog checks, which record mileage. They may also use mileage updates through insurance photo inspection sites such as CARCO and other service records. |
| Why do insurance companies care about mileage? | Mileage is a key factor in assessing risk and setting insurance rates. The more miles a driver spends on the road, the higher the risk of being involved in a car crash. |
| What happens if you lie about your mileage? | If you lie about your mileage and make a large claim, the insurance company may investigate and refuse to pay out. |
| Can you challenge the insurance company's mileage determination? | Yes, you can challenge the insurance company's mileage determination. You have the right to provide your odometer reading and what you believe you'll be driving in the upcoming year. |
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What You'll Learn
Insurers may check mileage when a claim is made
Insurers may check your mileage when you make a claim, especially if it's a large claim. This is because the number of miles you drive in a year is a key factor in assessing the risk of you filing a claim. The more miles you drive, the higher the risk of being involved in a car accident. Therefore, drivers who spend more time on the road are likely to pay higher premiums than those who drive less.
Insurers may also check your mileage when you first sign up for an insurance policy. They will typically request that you provide an estimate of your annual mileage, which will be used to determine your risk level and set your insurance rates. If you are on a limited mileage policy and have blatantly lied about how many miles you're driving, they will find out and may cancel your policy and deny any claims.
In addition to the above, insurers may also periodically check your mileage. For example, under California law, auto insurers are required to verify vehicle mileage at least every three years, and they are allowed to access various state databases to obtain this information. Other insurance companies may send out annual mileage request forms every few years to track the true annual mileage of their policyholders. If you do not return these forms, your yearly mileage may be increased, resulting in a higher insurance rate.
It's important to note that not all auto insurers rely solely on your annual mileage to set your insurance rates. There are other factors at play, such as your age, gender, driving record, the car you drive, your level of coverage, and vehicle usage. However, it is in your best interest to provide accurate and up-to-date mileage information to your insurer to avoid any issues or discrepancies when making a claim.
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Mileage affects insurance rates
For example, a Verisk analysis found that vehicles driven less than 3,000 miles annually were involved in 40% fewer claims. On the other hand, cars driven 20,000 miles or more annually recorded 31% more claims. Insure.com determined that a car insurance policy with 20,000 miles or more driven annually is 36% more expensive than if you drive 5,000 miles or fewer a year.
Insurance companies also consider your daily commute and how often you make it. For example, if you live in a suburb but commute 40 miles each way to work in a major city, your rates may be higher than someone who commutes five miles to work locally. This is because you are at more risk of an accident than someone driving a shorter distance in less busy areas.
Insurers have various ways of tracking your mileage. They ask for an estimate when you apply for insurance, and some verify your mileage during the year. Some insurers also obtain DMV records, smog checks, or oil changes to track mileage. Some insurers also offer pay-as-you-drive or usage-based insurance plans, which track your driving performance and mileage.
It is important to provide accurate mileage to avoid denied claims or overpaying for coverage. If you find yourself driving more or fewer miles than you originally estimated, you can always contact your insurance company to change the number and receive lower rates.
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Insurers can obtain mileage data without customer knowledge
While insurers are required to ask about mileage every three years, they can use alternative sources between these periods. This enables them to identify discrepancies and potential fraud, such as when a customer declares driving 5,000 miles annually but has consistently clocked 20,000 miles. Insurers are responsible for accurately assessing risk and maintaining fair pricing, and underreported mileage can lead to increased premiums for all customers.
Insurers can also obtain mileage data from MOT records, although using this data to prove annual personal mileage may be challenging. They are more likely to investigate mileage if a customer makes a large claim after an accident, and discrepancies can result in denied claims or cancelled policies. Customers have the right to challenge any mileage determined by the company and provide their odometer reading and estimated future mileage.
To improve data accuracy and efficiency, insurers can utilize solutions like the Smartcar API, which provides continuous, automated verification of mileage data. This helps insurers take control of their data, mitigate risk, and enhance profitability. However, any solution must be cost-effective, seamless, and tamper-proof to maximize adoption and minimize disruption for drivers.
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Customers can challenge insurer-determined mileage
In some cases, insurance companies may determine a customer's mileage without their knowledge, which can lead to unexpected increases in insurance costs. This typically occurs when insurance companies use sources other than direct customer reporting to estimate mileage, such as DMV records or data from services like oil changes or smog checks. While insurance companies are only required to ask for mileage estimates every three years, they may use alternative data sources to update their information in the interim.
Challenging insurer-determined mileage is particularly important because inaccurate mileage reporting can have significant consequences for customers. Underreporting mileage, or providing an estimate that is significantly lower than the actual mileage, can result in financial losses for insurance companies. As a result, they may respond by raising premiums for all customers or taking action on individual policies, such as invalidating the policy or denying claims. Therefore, customers should be mindful of the potential impact of underreported mileage and take steps to provide accurate estimates to avoid these negative outcomes.
Additionally, it is worth noting that insurance companies have different methods for determining mileage. While some may rely on self-reporting or odometer readings, others may use aftermarket hardware like OBD2 mileage trackers or smartphone apps. However, these alternative methods come with their own challenges and may not always provide accurate data. As a result, insurance companies may struggle to obtain precise and up-to-date mileage information, which can impact their ability to make timely policy adjustments.
To address these challenges, insurance companies can benefit from implementing automated mileage verification systems, such as Smartcar. By automating the process, insurance providers can access fresh and accurate data beyond annual renewals, enabling them to offer pay-per-mile insurance programs. Automated verification also reduces the burden on policyholders, leading to increased satisfaction and retention. Ultimately, by adopting automated systems, insurance companies can improve accuracy, mitigate risks, and enhance their profitability.
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Mileage discrepancies may lead to claim denial
In the case of purchasing a used vehicle, it is essential to be aware of any mileage discrepancies. While dealerships are not strictly liable for violating reporting requirements, they may be held liable if they knowingly sell a vehicle with incorrect mileage on the odometer. As a consumer, you have the right to challenge any mileage determined by the insurance company. Keep track of your odometer readings and estimates for the upcoming year, and contact your insurance agent or company to discuss any discrepancies.
Additionally, when purchasing a used vehicle, it is advisable to inspect the odometer reading during a test drive and before signing any documents. Signing a document with the true mileage is binding, and it can be challenging to seek a remedy for a mileage discrepancy after the purchase. While dealerships are encouraged to correct errors and disclose them to customers, they may not always do so. As a result, it is crucial to be vigilant and proactive in verifying mileage to avoid potential issues with insurance claims or vehicle purchases.
In summary, mileage discrepancies can have significant consequences, including claim denial by insurance companies and legal implications in the case of vehicle sales. It is essential to be proactive in tracking and verifying mileage, challenging any discrepancies, and ensuring transparency in all transactions to protect yourself from financial losses or legal disputes.
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Frequently asked questions
The more miles you drive, the higher your premium will be, as you are more likely to be involved in an accident.
Insurance companies typically rely on the honour system, but they may send out mileage request forms every few years. They may also obtain mileage data from other sources, such as DMV records.
If you don't return the form, your insurance company may update your annual mileage to the state average, resulting in a higher premium.
You have the right to challenge any mileage determined by your insurance company. Contact your agent or insurance company and provide them with your odometer reading and your estimated mileage for the upcoming year.
