Carfax Patents Tie Insurance Rates to Car History

Two patents awarded to Carfax in recent months highlight the company’s services that tie a vehicle’s history to how an insurer prices insurance for that vehicle.

Both of Carfax’s patents, awarded by the U.S. Patent and Trademark Office (USPTO) in August, protect the company’s rights to an “apparatus and method” for underwriting and rating insurance policies based on vehicle history data. The system, according to the USPTO, can enhance “underwriting of an insurance policy for the identified vehicle” based on “scores” that it produces based on a vehicle’s background.

“While auto insurers have historically looked at the type of vehicle being insured, evaluating the specific vehicle on a policy is a truly novel concept,” David Lackey, general manager of the Carfax Banking & Insurance Group, said in a statement.

And while insurers have historically used Carfax data to see whether they should insure a car based on whether it has been damaged by a fire or flood or has been sold for scrap, the patented invention would also give them access to information such as whether the air bag has been deployed, whether it’s been damaged by hail, how many previous owners it had, and much more. This information could then be used to adjust the cost of coverage.

“Insurers are interested in knowing if a vehicle was previously damaged because prior damage has been linked to incidents of further damage,” according to Larry Gamache, communications director for Carfax.

The patents are listed as 8255243 and 8255244. Carfax already serves “hundreds of insurance clients,” David Lackey, general manager of Carfax Banking & Insurance Group, said in a statement.

Several variables can be used in those patented systems that are of particular interest to insurers, including accident and title information as well as mileage data, according to the statement. Mileage information is critical in insurers’ evaluation of vehicles, Gamache said in an interview with Online Auto Insurance News.

“Odometer readings help insurers assess vehicle miles that are traveled and that helps in their actuarial tables,” Gamache said. “It also helps in investigating claims and can help reduce incidents of illegitimate claims.”

“Assessing the value of vehicles helps effective underwriting for vehicles based on its history,” he said. “It helps policyholders pay more accurate rates and, in the aggregate, helps both insurers and their customers.”

Recent Disaster Highlights Weight of Vehicle History

Following Superstorm Sandy, several groups issued warnings to consumers about the possibility that used cars from flood-damaged regions may be coming from “unscrupulous salvage operators and dealers” that might be trying to resell salvaged vehicles that have been damaged beyond repair by the flood waters.

“Unscrupulous salvage operators and dealers often try to conceal from potential buyers the fact that vehicles have been damaged by a natural disaster,” National Insurance Crime Bureau (NICB) CEO Joe Wehrle said in a statement.

Vehicle history reports, like ones provided by Carfax, can help illuminate a car’s background.

State officials are also pitching in as identifying salvaged and flooded vehicles becomes more important after Superstorm Sandy.

Illinois Secretary of State Jesse White issued an announcement this week that his office would be “screening title applications” for cars from Sandy-impacted states and flagging those registered in flood-struck counties. To obtain a clean Illinois title, White said that his office will require a “Hurricane Disclosure Statement” signed by the car’s registered owner and insurance agent. Those unable to provide those forms will only receive state flood titles for their cars.

With hundreds of thousands of vehicles affected by flood waters, the impact to the nation’s vehicle fleet of this magnitude has not been seen since Hurricane Katrina, according to the statement.\

“Consumers may want to consult companies that provide additional information about the history of vehicles,” according to the statement.

In the case of flooding brought by Superstorm Sandy, salt water is especially damaging to vehicles. On its website, Progressive notes that “freshwater causes less damage to your car than salt water” because the latter can be especially corrosive to car parts.

Progressive CFO Brian Domeck said during a conference call with investors that most cars’ flood claims from Superstorm Sandy would be labeled total losses.

Flooded cars are covered by the comprehensive portion of an auto policy, which also covers other-than-collision incidents such as vandalism and theft.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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