What's the purpose of mileage verification in auto insurance?

Mileage Verification: Your auto insurance premium may be affected if a response is not received by

Dear ,

California law requires all insureres to routinely verify vehicle mileage, which is a state-mandated component of calculating insurance premiums.

Please provide us with your 12-month mileage estimates by completing and returning this survey. For your convenience, we included the mileage currently reflected on your policy and an estimated 12-month mileage calculated by based on information from you and/or sources permitted by the California Department of Insurance. This includes odometer readings, commute information, and/or the California Department of Insurance permitted 12-month mileage estimate of 13,000 miles.

If we do not receive a response to this request, we will use the Estimated 12-month Miles to be Driven shown for each vehicle on the back of this page to calculate your upcoming renewal premium.

The state regulation is cited as a prime motivator for this verification, but then the mileage is explicitly said to relate to the premiums. Who's the primary driver pushing for this information? Would the insurance company get in trouble for not collecting this information? What are all the interests involved here exactly?

I'm in TX and never heard of this. I think when you first insure a vehicle the Insurance company asks for the current mileage and a range of miles driven per year and that's it, never again.

@AbraCadaver some agents/insurers are more gung-ho about verifying vehicle usage than others. In my area, some insurers even send letters asking for current odometer readings, after a few failed attempts they even non-renew you. It's usually to ensure your "pleasure" rated (cheaper rate due to being rarely driven) car isn't actually your daily commuter, and instead of 10K miles/year you're actually putting way more per year, thus representing a higher risk.

2 Answers 2

If a combination of vehicle type, drivers history, and location result in a probability of claims per mile driven; then having an estimate of miles driven each year allows the insurance company to price their policy for each driver appropriately.

Now some costs don't depend on the miles driven. These include claims for towing, claims for theft, claims for damage occurring while the vehicle is parked.

The total miles on the vehicle does also allow the insurance company to adjust the value of the vehicle for low mileage or high mileage.

The state (in the US the state sets the insurance laws) wants to make sure that the insurance companies are using actual numbers so that the drivers who will make most of the claims are charged a higher rate, but those that will make fewer claims are charged a lower rate.

based on information from you and/or sources permitted by the California Department of Insurance

In general a state/insurance company might have other sources of mileage updates. In my state we are required to get a safety inspection every year. That means there is an annual update into the system provided by the inspection station.

What are the consequences if one's estimates were off for the year, by a little, by a lot?

In my state the insurance company prices the vehicle policies at less than 7,500 miles per year; between 7,500 miles and 15,000 miles; and above 15000 miles. So they don't have to be exact. If over time you are claiming less than 7,500 miles, but they get external updates that say it is closer to 15,000; they may want to increase your rates.

Do all or most insurers carry out this practice?

In my experience if the state requires them to collect the numbers, all insurance companies will try and collect the numbers.

The points brought up in mhoran_psprep's answer match my experience working with some actuaries in a commercial auto carrier. I'd like to add a personal note that expands on those points a bit.

My family has several antique autos. The insurance premium for such autos is generally quite low. One reason for this is that they are usually driven very slowly and cautiously. Another is that they are typically driven very few miles per year, and are thus not exposed to harm as much as cars driven on a regular basis. In fact, in my state, we can get special "Historical" license plates, which have the limitation that the cars are only to be driven for test drives, parades, and other antique-appropriate functions. As such, our antique cars are all driven far fewer than even the 7,500 annual miles that is a typical low-mileage value as mentioned in the previous answer. In fact, of our five current antique autos, none has been driven over 300 miles in any year since we've had them.

The specialty insurance company that we buy coverage from takes this into account when setting the rates, and thus is able to offer very reasonable premiums. In exchange for this, they ask us to provide odometer readings every year to confirm that we are, indeed, driving the cars such a small amount, and thus not exposing the cars, and the insurance company, to a risk beyond the level that the premium contemplates.