As regulators scrutinized the new pricing method, Allstate wasn’t always truthful in how it answered their questions.
Louisiana regulators asked Allstate whether any other states had rejected the algorithm and retention model, CGR. In a written response in February 2015, Allstate said: “The new loss model and CGR has not been disapproved in any states,” even though Maryland had by then rejected Allstate’s proposal, deeming it discriminatory.
Allstate’s letter instead said the plan had been “withdrawn” in Maryland.
A similar letter to regulators in Ohio in 2016 included Nevada and West Virginia among 23 states in which Allstate said it was using the retention model. But Nevada officials said Allstate never had a retention model in their state “to the best of our knowledge,” and West Virginia said they found no record of the Allstate filing containing a retention model.
In an email, Jones, the Allstate spokesperson, said those states’ rating plans did contain retention models, despite what the regulators said. She did not answer questions about whether and how they’d been informed about it.
Piazza, the Louisiana Department of Insurance’s chief actuary, said CGR—at least as Allstate proposed it for his state—was “basically a flavor of price optimization,” and that his office “did not let them use this.” State records show the company withdrew the plan.
“The issue with Allstate wasn't as much the individual variables as it was that the decision to increase an individual policyholder's premium was based on the probability of them leaving the company,” he said. “If they were not likely to leave the company, they wanted to charge more. That's not cost-based.”
But when an audience member at the March 2015 Raymond James Institutional Investor Conference asked Allstate officials whether they were worried about the increasing regulatory scrutiny over price optimization, vice president of investor relations Pat Macellaro was not forthcoming about the pushback the company had received from regulators. “I don’t know if it necessarily applies to Allstate,” he said.
A number of states have shut down Allstate’s efforts. Some, like Utah and Colorado, said they made the insurer get rid of the retention models.
In the past five years, at least 18 states and Washington, D.C., have issued public bulletins prohibiting “price optimization.”
Allstate continues to try to implement its retention models—though it has distanced itself from the term “price optimization.”
When Georgia regulators asked the company last year in a phone call whether its proposed plan used price optimization, records show, officials replied that it did not—saying, among other things, that the term price optimization is too inconsistently defined to say what it is.
Allstate argued regulators should approve the algorithm it was proposing because the variables inside of it comply with state law—which is akin to telling city inspectors that they have to approve a house, no matter how it’s constructed, because all the bricks, wires, and pipes would individually be up to code.
Georgia rejected the plan, calling it discriminatory.
Rate filings weren’t always this complex.
“It used to be you could look at rate filings in the '70s and '80s and you pretty much knew what an insurance company was going to price,” said Paul Newsome, managing director and senior research analyst at the investment bank Piper Sandler.
In the 1990s, insurers began using external data sources like credit scores to predict accident risk. Since then, rate filings have become increasingly filled with proprietary, opaque algorithms, according to regulators.
Gennady Stolyarov II, a lead actuary at the Nevada Division of Insurance, said all this secrecy and complexity leaves drivers in the dark about how to keep their rates low.
“If a behavior in another sphere of life affects insurance premiums in a way that consumers can't readily anticipate,” he said in an interview, “that could lead to a cascade of financial consequences arising from what seems to be an innocuous decision.”
Yet regulators play a role in helping insurers keep what they’re doing out of the public eye. Rules vary by state, but insurance companies don’t always submit full details of their pricing algorithms to regulators unless those documents are specifically requested. And insurance companies at times file documents with confidential attachments, blocked from public disclosure due to trade secrets rules.
When we asked Steve Manders, director of insurance product review at the Georgia Department of Insurance, why his state found Allstate’s filing to be discriminatory he refused to be more specific, claiming he was legally obligated to protect that data from competitors and the public.
Patty Born, a professor studying insurance regulation at Florida State University’s College of Business, doubts insurers will ever share enough information about their pricing models to allow customers to know if they’re overpaying. She said the only defense is to regularly check competitors’ rates.
“There are a lot of people who get an auto policy and they stick with that auto insurer forever because the decision is hard in the first place, figuring out what policy you want,” Born said. “Most people just never go back to look to see that they're paying more than they should.”
Bruce Bennett, a retired hospital administrator from Oklahoma, said he spent more than two decades as an Allstate car insurance customer because he felt the company provided “good service.”
But about a year ago, Bennett, who is 71, said he and his wife reached a breaking point after their premium eclipsed $3,300 for a year of coverage.
“The price increases didn’t really come after any claim. They were just small amounts all during the life of the policy,” said Bennett, who lives in one of the 10 states where public records show Allstate uses a retention model.
He shopped around and Safeco, a subsidiary of Liberty Mutual, offered to cut Bennett’s premium by nearly half—a reduction of more than $1,400 a year. He jumped at it.
“Insurance premiums were not really much of an imposition to us” when he was working, he said. "We just plodded along seeing no pressing need to switch companies.
“But now that my income is no longer six digits, we seem to notice our expenses a bit more; hence the interest in making a change,” he added. "I think the frog-in-boiling-water scenario finally got to us this year.”
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