There isn’t much transparency for consumers in the world of car insurance. Big Insurance companies typically guard their pricing models and the algorithms behind them with secrecy.
About seven years ago, Maryland regulators got a window into how Allstate determines its car insurance rates. Allstate originally approached the Maryland Insurance Administration for permission to run each policy through an algorithm that could be adjusted for numerous variables.
The Maryland Insurance Administration was told that Allstate wanted to test new rate increases with different variables to avoid losing customers to large hikes. As Maryland regulators began to ask questions, Allstate supplied thousands of pages of data.
This data gave regulators and ultimately, consumers, an unprecedented look into the car insurance industry and its practices. What regulators learned was that Allstate had engaged in pricing models that could be seen as discriminatory—and it was likely that other insurance companies had similar practices.
What Maryland Regulators Learned About Allstate’s Rates
As a result of the trove of documents provided by Allstate, the Maryland Insurance Administration learned that many policyholders were charged seemingly arbitrary rates and others were overcharged because of their willingness to pay high premiums.
One example, cited a male policyholder whose rates should have been a little over $3,700 for six months but he was actually billed double that amount.
The Markup and Consumer Reports found that drivers who paid more than $1900 biannually were subject to rate increases up to 20% while lower-paying drivers saw an average increase of 5%. The 20% rate increases disproportionately affected middle-aged and senior drivers.
Rate increases also disproportionately affected veterans and widows. It seems that this retention pricing model was geared to squeezing as much as possible from drivers but not so much that they would abandon their insurance carrier for one with lower rates.
Price Retention Models Might Be More Commonplace Than You Think
After reviewing public documents, the Consumer Federation of America issued a press release criticizing Allstate’s practices. The Consumer Federation of America further expanded on pricing concerns including the fact that rates could vary up to 30% based on a person’s month of birth.
This organization, like the Maryland Insurance Administration, raised concerns that many other large insurance companies could be engaging in similar pricing schemes.
Another aspect to rate changes that regulators found troublesome was the fact that drivers who were owed discounts received small refunds at a fraction of what they could’ve been owed. Without regulators’ intervention, consumers would have likely never known how much they were overcharged and if they were even entitled to discounts.
While Maryland did not move forward with Allstate’s proposals because regulators found them discriminatory, other states did not demand as much transparency from insurers and ultimately, allowed them to implement new rate policies.
According to public records, ten states have accepted Allstate’s retention pricing model that Maryland rejected.
What makes retention pricing concerning is the fact that purchasing car insurance is not a choice. Drivers are required by law to carry insurance and can suffer serious consequences including the loss of their license and hefty fines if they drive without insurance coverage.
What This Means for Louisianans Price Retention Models Might Be More Commonplace Than You Think
Although Louisiana was not one of the ten states that allowed Allstate to implement its pricing retention model, the Louisiana Department of Insurance is weary of being deliberately misled by Allstate representatives: “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.” Once again, a major insurer doing business in Louisiana demonstrates that it has no fear of, and little respect for, Louisiana insurance regulators. These are the folks who pay the lobbyists who write the legislation, which is introduced before our Legislature in the name of Tort Reform.
Auto insurance coverage is mandatory in Louisiana and drivers should carry policies with adequate coverage. Our Baton Rouge car accident attorney recommends that Louisianans shop insurance plans from a number of providers. While this is a time-consuming endeavor, it could yield hundreds of dollars in savings each year.
Our personal injury law firm serves clients in and around Baton Rouge. We have extensive experience protecting drivers in the aftermath of car accidents. If you’ve suffered from a car accident or are having trouble fighting your insurance company for fair compensation, call our office to schedule a consultation.