A new study from Quality Planning a company that validates policyholder data for car insurance companies, has shed new light on the use of odometer readings to predict annual mileage on private passenger cars.

In a quantitative study published on their website last week, Quality Planning found that when previous odometer readings are the sole method of estimating future annual mileage, more than half the vehicles rated will have an error of more than 25 percent. The failure is due to the erroneous assumption that vehicle usage stays the same from year to year.

Because annual mileage has a direct correlation to auto loss costs, insurance underwriters are driven (no pun intended) to make accurate estimates. Some insurers, and some regulators as well, believe that odometer readings are a good predictor of future annual mileage, and they collect readings either directly from the consumer, or from sources like service records and smog/inspection reports to make their estimates. Unfortunately, these sources are not actually accurate when it comes to predicting the future.

Dr. Raj Bhat, president of Quality Planning, explains, “Just because the methodology is based on measurable data, does not necessarily mean it is an accurate and acceptable method on which to base premium. Numerous factors directly affect driving behavior and therefore the total number of miles a specific vehicle is driven each year. Foremost among these are lifestyle changes and changes in the mix of household vehicles. It is essential to include these factors when predicting annual mileage, because a change in either can affect total miles driven.”

With annual mileage an important factor in calculating auto insurance premiums, Quality Planning’s study has great significance. It recommends that odometer readings be used only as a baseline, and says they should be supplemented with further data that addresses such factors as lifestyle changes, the number of vehicles in the household, and other similar conditions that could impact the actual number of miles each policyholder drives in a year.

The complete study can be found on Quality Planning’s website.