Porsche Pull, Anyone?: State Ranks 2nd In Undeserved Farm Discounts On Car Insurance

By Diane Levick, The Hartford Courant, Conn.

Aug. 10--Connecticut farmlands may be disappearing, but farm discounts on auto insurance are popping up in the strangest places -- in congested cities and on fancy sports cars.

The state ranks second highest in the nation for undeserved "farm use" discounts on premiums for private passenger vehicles in what is often -- but not always -- a scam by consumers, researchers said Friday.

The discounts, which typically range from 10 percent to 20 percent, are supposed to be granted to cars or other vehicles kept on a farm or ranch and not used in any other occupation. The idea is that such cars aren't driven as much as others, certainly not in heavy traffic, so they produce lower claim costs.

It's not new or one of the costliest scams against insurers, but farm discounts are going to thousands of vehicles in cities around the nation -- far from any crops or pasture. And the discounts are claimed for such vehicles as the BMW Z3, Chevrolet Camaro, Jaguar XJ6, and Porsche Carrera, Quality Planning Corp. said in a brief report..

"When we discovered that a Jaguar XJ6 was reported garaged at a 5-acre farm in Brooklyn [N.Y.], we weren't sure who'd be more interested -- the DEA [Drug Enforcement Administration] or the policyholder's insurance company," said Ted Harris, manager of research and development at Quality Planning.

The San Francisco-based firm works with insurers to identify areas of "premium leakage" -- errors and abuses that result in significant lost revenue for the companies.

The firm found in a review of 150,608 vehicles for which a farm discount was claimed, 11,326 of them, or 7.52 percent, were in areas where, "according to a 2000 Census survey, absolutely nobody is engaged in agriculture." Separate Connecticut data wasn't available.

Quality Planning officials don't know why Connecticut ranked so high in inappropriate farm discounts, though they note that high insurance rates in a state seem to correlate with the abuse in many cases. Connecticut had the ninth highest average expenditure for auto insurance in 2004, according to the National Association of Insurance Commissioners.

Not all 11,326 improper farm discounts represent consumer fraud, said Bob U'Ren, senior vice president at Quality Planning.

"I'm sure there are inadvertent mistakes," he said. But "there are consumers who try to take advantage of the discount, and there are agents who try to take advantage of the discount."

Insurance agents and companies may not be checking the information customers give them closely enough, and agents may be "trying to keep the customer and get a competitive advantage, and sometimes it goes a little too far," U'Ren speculates.

In some cases, consumers might get the farm discount legitimately, but fail to notify their insurer when circumstances change and they no longer qualify, he added.

Quality Planning ranked states by the proportion of total farm-use discounts it considered improper in each one. New Jersey and Connecticut ranked No. 1 and No. 2 respectively. After Connecticut, the states rounding out the top 10 were Wisconsin, Maryland, Georgia, South Carolina, Tennessee, Virginia, Ohio, and Florida.

Farm discount abuse is a tiny part of auto insurance premium errors, accounting for roughly $16 million of a $163 billion total in 2005, Quality Planning said. Other "errors" occur, for instance, because of misinformation about annual mileage, length of commute, drivers of the car, and where the vehicle is garaged -- all of which affect the premium.

Several insurers said they haven't experienced farm use discount abuse. State Farm, which gives the premium break by putting farm cars in a lower rating category, says its claim data shows the discounts were granted appropriately.

"We don't think there's widespread abuse," said Dick Luedke, a State Farm spokesman.

The Travelers Cos. said it used to give a 5 to 10 percent discount on certain auto insurance products but doesn't any longer.

The Hartford said it relies on customers to report information properly, and uses consumer questionnaires and other means to check accuracy. The goal is to ensure rates are accurate, the company said.

After all, improper farm discounts or other price reductions add to insurance costs for all consumers.

"This sort of fraud," said Quality Planning's Harris, "can cost insurance companies millions of dollars each year -- and unfortunately it's honest consumers who end up subsidizing the dishonest."

Contact Diane Levick at [email protected].

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