Allstate, the good hands people, have allegedly used the underhanded tactic of an illegal pricing model for auto insurance in Wisconsin. A national consumer advocacy group, the Washington D.C.-based Consumer Federation of America (CFA), has accused the insurance giant of setting premium rates by using factors unrelated to driver risk, known as price optimization, in not only Wisconsin, but in several other states as well. The practice is formulated to raise insurance rates for customers who don’t shop for auto insurance.
So, if you’re the type of individual who believes that a sense of loyalty is in order if you stay with the same insurer for many years, it may not be a two-way street when comes to the infamous “good hands people”. In other words, according to the CFA, Allstate Insurance has actually been using that loyalty against you. A proposed rate and rule change document filed with the Wisconsin Office of the Commissioner of Insurance was cited as proof the auto insurer was setting rates with the controversial practice of “price optimization”.
By focusing on data, such as how long a policyholder has stayed with their previous insurance company, referred to as “marketplace considerations”, an insurer can typically ignore or bypass state laws and the legally accepted practice of rating a driver on actual risk factors. In essence, Allstate charges different rates to individuals with virtually identical risk, simply because they have different shopping habits. This, according to the CFA, constitutes unfair discrimination.
Thus, the raising of auto insurance rates above the level of coverage a policyholder should pay in relation to normal risk factors and which result in inflated prices, is illegal in the state.
On the other side of the coin, Allstate has vehemently denied having done anything wrong. In fact, they responded by accusations of their own, by stating that the CFA’s allegations of illegal pricing methods were wrong and misinformed. Per Allstate, their rates are completely legal and actuarially sound in practice. The insurer continued by claiming their rating plans are based on risk, using the standard factors that include driving record, garaging location, and the type of vehicle the driver owns…and, that marketplace considerations, as used by Allstate, are an appropriate means to determine and set auto insurance rates.
As of December 2013, when the rate plan went into effect in Wisconsin and was implemented or proposed in 16 other states, an estimated 58,000 drivers were insured by the Northbrook, Illinois-based Allstate Property and Casualty Insurance Company in the Badger State. Due to the more wide-spread potential of overcharging policyholders, the CFA has asked insurance commissioners in those states as well as Wisconsin to revoke Allstate’s plan. Unfortunately, reaction to the request has been somewhat slow, as only Maryland has banned price optimization so far.
More than 1,500 pages long, Allstate’s 2013 Wisconsin filing, lists a description of an added, and possibly illegal, factor to their auto insurance plan. This factor evaluates policyholders based on “marketplace considerations”, which are conveniently undefined in the massive document. Also, included is a matrix assigning policyholders to specific groups using age, gender, ZIP code and “years of prior insurance” as criteria.
The apparent wording in Allstate’s plan, along with the CFA’s delving into individual examples, as described in the matrix, has lead the consumer group to label the new ratings plan “illegal”, because it strays beyond traditional risk factors. Instead of focusing attention on driving record and annual mileage traveled, Allstate has opted to place emphasis on non-risk factors like a policyholder’s car insurance shopping history.
Don’t be caught in a matrix that unfairly charges you more for your premiums. Compare prices to make sure you’re getting the best rate on your auto insurance. Why not get a free auto insurance quote today?
Are you aware your auto insurance company could be using your past shopping history to charge you higher rates? Feel free to share your thoughts in the comments section below.