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February 26, 2020 06:01 pm

Suckers List: How Allstate's Secret Auto Insurance Algorithm Squeezes Big Spenders

Insurers are supposed to price based on risk, but Allstate's algorithm put a thumb on the scale. From a report: Seven years ago, Allstate Corporation told Maryland regulators it was time to update its auto insurance rates. The insurer said its new, sophisticated risk analysis showed it was charging nearly all of its 93,000 Maryland customers outdated premiums. Some of the old rates were off by miles. One 36-year-old man from Prince George's County, Md., who Allstate said in public records should have been paying $3,750 every six months, was instead being charged twice that, more than $7,500. Other customers were paying hundreds or thousands of dollars less than they should have been, based on Allstate's new calculation of the risk that they would file a claim. Rather than apply the new rates all at once, Allstate asked the Maryland Insurance Administration for permission to run each policy through an advanced algorithm containing dozens of variables that would adjust it in the general direction of the new risk model. Allstate said the goal of this new customer "retention model," which it was rolling out across the country, was to limit policy cancellations from sticker shock. After questions from regulators, the insurer submitted thousands of pages of documentation on the price changes -- including data showing how they would affect each individual customer, a rare public window into details of its auto insurance pricing that have otherwise been kept behind a wall of privacy, labeled a trade secret. When The Markup and Consumer Reports conducted a statistical analysis of the Maryland documents, we found that, despite the purported complexity of Allstate's price-adjustment algorithm, it was actually simple: It resulted in a suckers list of Maryland customers who were big spenders and would squeeze more money out of them than others. Customers who were already paying the highest premiums, of about $1,900 or more every six months, and were due an increase would have borne price hikes of up to 20 percent. But drivers with cheaper policies, who deserved price jumps that were just as big, would be charged a maximum increase of only 5 percent. Customers in the 20 percent group were more likely to be middle-aged.

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