High-End Cars Insured as Farm Vehicles

A Jaguar XJ6 isn’t designed to plow a field, nor is a Mercedes SL550 good for hauling manure, but expensive sedans and sports are being insured as farm vehicles registered in unlikely farm towns such as Brooklyn, San Francisco and Washington, D.C.

Among the other most surprising farm-use vehicles are the BMW Z4, Cadillac XLR, and Porsche Carrera.

Farm vehicles, which are unlikely to be involved in rear end collisions and such, can be insured for discounts as much as 20 percent, but reducing insurance premiums this way is fraudulent. Yet, some unscrupulous car owners are doing just that to reap those discounts.

“Misapplication of the farm-use discount is one of a number of frauds perpetrated on insurance companies by dishonest policyholders and their agents,” said Robert U’Ren, senior vice president of Quality Planning, a San Francisco company that verifies policyholder data for auto insurance companies. “We estimate that premium leakage from the farm-use discount alone totals about $150 million annually.”

Auto insurance underwriters are asking how owners are getting away with deciding a BMW Z4 or a Porsche Carerra would be perfect for towing a tiller. The answer is linked to the rating factors that insurance companies use to determine policy premiums.

Also, the insurance industry does not have a perfect method for determining if someone truly lives on a farm, according to Quality Planning.

Quality Planning selected about 80,000 vehicles discounted for farm use in policy year 2010 and examined the garaging address of each one. Geocoding techniques helped determine whether the immediate area was urban or rural and if anyone was actively engaged in farming in that area.

Of the sample, 6,382 vehicles, roughly 8 percent, are garaged in ZIP codes where less than 1 percent of the population is engaged in agriculture, according to the 2000 census. Quality Planning then examined the average annual premium for vehicles for which the farm-use discount was claimed and found that the average annual premium in urban areas was $608, compared to $446 for farm-use vehicles in nonurban areas.

The differential suggests that vehicles receiving a farm-use discount in urban areas tend to be more expensive and/or are domiciled in cities with higher auto insurance rates.

The large difference in rates acts as an incentive for policyholders and, oftentimes their agents, to seek creative discounts. Since farm use is seldom verified, it is an easy tool that cheats can use to reduce the cost of auto insurance.

“Rating errors such as these introduce significant inequalities into the insurance equation and, unfortunately, raise rates for all drivers,” U’Ren said. “Honest people end up subsidizing the insurance premiums of dishonest people, and careful drivers subsidize high-risk drivers. And in a very real sense, our farmers are subsidizing unscrupulous city dwellers.”