The importance of adding all household
vehicle operators to your policies
It is imperative that newly licensed drivers be promptly added to the
auto policy and that they remain on the policy even if they are away at college.
By Marc McNulty, CIC, CRM
According to the data analytics provider Verisk, “Undisclosed drivers not listed on auto insurance policies are the leading cost of mispriced risk, accounting for an estimated $12.5 billion in annual leakage for personal auto insurers. Approximately 40% of these drivers are under the age of 25, and it takes an average of 13.6 months for newly licensed drivers to be added to policies.”
This is a serious problem that insurance companies have focused on in recent years. So, what are they doing to combat this problem? For starters, carriers are using vendors like Verisk to assist them with uncovering information like missing drivers.
You may have noticed that some of your carrier websites are now running reports during the quoting process to assist with identifying drivers in the household. That is this process in action.
Carriers are also amending policy language to restrict coverage for undisclosed drivers, and this is where trouble can start if caution isn’t exercised. For example, one national carrier has amended the “Changes” portion of their personal auto policy’s General Provisions by adding the following:
You also agree to disclose all licensed drivers residing in your household.
This is important because of the Fraud provision that appears on the very next page of the policy form, which is substantially more restrictive than the Fraud provision in ISO’s PP 00 01 09 18 Personal Auto Policy (italicized sections are for emphasis):
This policy was issued in reliance upon the information provided on your application. Any changes we make at your request to this policy after inception will be made in reliance upon information you provide. We may void this policy or deny coverage if you or any insured or any other person or entity seeking benefits under this policy have concealed or misrepresented any material fact or circumstance, or engaged in fraudulent conduct, at the time application was made, at the time changes were requested, or any time during the policy period.
We may void this policy or deny coverage for an accident or loss if you or an insured have concealed or misrepresented any material fact or circumstance, or engaged in fraudulent conduct, in connection with the presentation or settlement of a claim.
We may void this policy, cancel this policy, or deny coverage, at our option, for fraud or material misrepresentation even after the occurrence of an accident or loss. This means we will not be liable for any claims or damages which would otherwise be covered. If we make a payment, we may request that you reimburse us. If so requested, you must reimburse us for any payments we may have already made.
The “we may” portions of this language allows for some wiggle room, but another carrier uses slightly stronger language (“we shall”) in the Fraud or Misrepresentation portion of their personal auto policy:
This policy was issued in reliance upon the information provided on your insurance application. Material information provided on your insurance application includes, but is not limited to, information regarding license and driving history of you, relatives, and all persons of driving age residing in your household; the description of the vehicles to be insured; the location of the principal place of garaging; and your place of residence.
We shall void this policy at any time, including after the occurrence of an accident or loss, if you:
- made incorrect statements or representations to us with regard to any material fact or circumstance;
- concealed or misrepresented any material fact or circumstance; or
- engaged in fraudulent conduct;
at the time of application. This means that we will not be liable for any claims or damages that would otherwise be covered.
Finally, another national carrier has taken things a step further and specifically lists limits of liability for both “Household Drivers” and “Undisclosed Drivers” on its auto policy declarations. In addition to eliminating optional coverages such as roadside assistance, rental reimbursement, and diminishing deductibles for undisclosed drivers, the policy reduces the liability limits (including uninsured/underinsured motorist liability) down to state minimums (at least under their Ohio form).
This carrier’s Ohio amendatory endorsement provides the following definitions:
UNDISCLOSED DRIVER means a driver who is:
- a resident of your household, including any unmarried dependent children while temporarily away from home; or
- a guest staying in your home for more than one hundred and eighty-five (185) days; or
- any person who operates your covered auto more than thirty (30) days per year who is not listed as a rated driver in your Declarations.
UNDISCLOSED DRIVER does not include a driver who is:
- your dependent child who initially obtained a driver’s license no more than one hundred and eighty-five (185) days prior to the accident; or
- a person who became a resident of your home no more than one hundred and eighty-five (185) days prior to the accident; or
- a guest staying in your home no more than one hundred and eighty-five (185) days prior to the accident; or
- a person who at the time of the accident was listed as an insured or operator under another automobile policy for the use of your covered auto.
Obviously, there are some conflicts pertaining to youthful drivers/dependent children. It is imperative that newly licensed drivers be promptly added to the auto policy and that they remain on the policy even if they are away at college. An oversight in either of these areas can have severe consequences.
In addition to the reduction in liability limits, the amendatory endorsement amends the General Policy Conditions by adding:
- If an undisclosed driver is operating or using a vehicle covered by this policy and is involved in an accident, the policy will not provide coverage for medical expenses to any occupant of the vehicle.
- If an undisclosed driver is operating or using a vehicle covered by this policy and is involved in an accident, the policy will not provide Comprehensive or Collision coverage for the loss.
While driver conversations can be messy (e.g., “Yes, he’s my roommate but he never drives my car.”), it’s best to advise your insureds that they need to disclose any licensed drivers living in their households. If the other driver(s) never operate the insured’s vehicle(s), then driver exclusions shouldn’t be an issue—the other driver(s) simply need to have their own auto policy in place.
That type of conversation is certainly easier than advising your client that they have no collision coverage after an undisclosed driver is involved in an accident!
The author
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.
