In 2013, Allstate Corporation informed Maryland insurance regulators their car insurance rates needed to be updated. Allstate’s own risk analysis revealed they were charging almost all 93,000 Maryland customers premiums that were outdated.
For example, one customer who should have been paying $3,750 every six months was instead paying double that amount ($7,500).
Allstate requested permission from the Maryland Insurance Administration to use an advanced algorithm to analyze each policy to adjust premiums appropriately. The goal was to reduce policy cancellations caused by sticker shock.
Allstate gave regulators thousands of pages of documentation about potential price changes and how they would affect individual consumers.
Analysis of Allstate Pricing Scheme
The Markup and Consumer Reports did a statistical analysis of these documents, finding it would have resulted in big spenders being charged more than other customers. For example, the customers who paid the highest premiums every six months ($1,900 or more) would have seen the price of their premiums go up by as much as 20 percent. Those with cheaper policies would have seen increases of just five percent.
The investigation also found the algorithm would have denied price decreases to those who were being charged too much. One customer would have gotten a discount of just $26 instead of the $3,772 decrease he deserved.
Fortunately, the state of Maryland rejected Allstate’s plan. Regulators called the plan discriminatory. Unfortunately, similar plans allegedly aimed at retaining customers, were allowed in other states and are being used.
Allstate did not answer any of Consumer Reports’ questions or raise concerns with their statistical analysis, which was given to the company in November. A spokesperson released a statement saying the rating plans comply with state laws and regulations.
However, an email after that said Consumer Reports’ reporting on the plan in Maryland is misleading and inaccurate, as it is based on a plan that was not used.
The analysis provides a rare behind-the-scenes look at auto insurance pricing that is usually kept secret by insurance companies.
States Using Allstate’s Retention Model
Georgia rejected Allstate’s request to use a retention model last year. However, public records reveal the retention model is being used in several states:
Allstate did not reveal to Consumer Reports if the models used in these states are the same as the retention model proposed in Maryland.
A spokesperson for the state of Arkansas said retention models would not be banned because state law only bans discrimination by insurance companies based on race, color, creed or national origin.