
How Allstate’s auto insurance algorithm squeezes big spenders - isiahl
https://themarkup.org/allstates-algorithm/2020/02/25/car-insurance-suckers-list
======
Johnny555
I stopped using Allstate years ago -- I mentioned to my agent (this was back
when it was still common to actually go see an agent in person to get
insurance) that I had a chip in my windshield from a rock and I had to pay to
fix it. He said "No, don't pay for it, just make a claim and we'll pay for it
no deductable for glass fix since we want you to have a clear windshield".

So I made the claim. Then made 2 more claims through him that year (major road
construction meant lots of debris on the highway I commuted on).

And then I got my premium notice and they increased my premium by 5X
(something like $300 every 6 months to $1500) due my claim history -- I had no
accidents, just $120 in window repair claims.

I immediately switched insurance companies and never went back. It was a good
lesson for me -- don't use insurance if you can avoid it. So now I run $1000
decuctables when I can since I really don't want to make an insurance claim
unless it's catastrophic.

~~~
wpietri
I think high deductibles are an excellent choice for those of us who do well
financially. I do that myself. But I should note that 40% of Americans can't
handle sudden a $400 expense, so it doesn't work well for everybody:
[https://www.cbsnews.com/news/nearly-40-of-americans-cant-
cov...](https://www.cbsnews.com/news/nearly-40-of-americans-cant-cover-a-
surprise-400-expense/)

~~~
zrobotics
But for people on lower incomes, why would they be better served with low-
deductible (and expensive) policies? If they can't afford a sudden $400
expense, why is spending additional money each month for a more comprehensive
policy a good idea? Remember, auto insurance doesn't cover mechanical
failures.

A perfectly valid option is to have a higher deductible, and use offset that
with putting the funds that would have been needed for the more expensive
policy into a general savings account. However, that does require some
financial discipline and planning.

And for people who make little enough money where saving that money every
month isn't a viable option, they really have no business buying any sort of
comprehensive auto insurance anyway. Liability only insurance is far cheaper,
and provides all the protection necessary to prevent a car accident from being
financially world-ending.

~~~
mcherm
> And for people who make little enough money where saving that money every
> month isn't a viable option, they really have no business buying any sort of
> comprehensive auto insurance anyway. Liability only insurance is far
> cheaper, and provides all the protection necessary to prevent a car accident
> from being financially world-ending.

You might want to consider this from a different perspective.

For the well-paid like myself who has invested well and has substantial
savings, a liability insurance claim that could potentially cost several
hundred thousand dollars is "financially world-ending", while having to pay
for repairs on my car after an accident is not.

But for someone with no savings, being unable to drive their car because they
cannot afford to pay for repairs after an accident may mean losing their job
(public transportation isn't so great where they live) and definitely
qualifies as "financially world-ending" for them. Whereas several hundred
thousand dollars of liability is actually LESS of a threat -- the lawyers can
quickly discover that they don't own anything worth collecting and may not
even go after their assets, but even if they do, at worst it empties their
bank account (which we presumed has less than 400 dollars in it).

------
exhilaration
The best thing you can do is shop for auto insurance every year or two. The
longer you stay with a particular company the more likely they are to very
slowly and carefully hit you with small rate increases until you're paying far
more than their competitors will charge you. Insurance companies understand
and exploit consumer behavior better than even the best marketers.

~~~
RHSeeger
I have USAA and can't say enough good things about them. Whenever I call them,
they're there to walk through whatever I need with me. The first thing they
ask is if everyone is ok; it's trivial, but means something. In general, their
rates are really good; it used to be that, when other companies called, you
could tell them you have USAA and they're acknowledge they can't match the
rates and hang up.

Admittedly, not everyone has access to USAA but, if you do, I highly recommend
them.

Noting this because I've been using them for insurance for decades with no
intention of switching.

~~~
frayesto
Another USAA member here. I haven't had to do an auto claim yet, besides
simple windshields, but have had several property claims.

They have been great. In fact, right now USAA is in the subrogation process
against the offending party for a claim on a bicycle.

I've been happy with their insurance products, their even better customer
service, and have no plans of changing.

~~~
hnburnsy
Counterpoint, had USAA auto for 20+ years, added 2 young drivers and premiums
went up 4200 per year. Switched to Geico and recouped 2700 of that.

Always shop around.

~~~
prostheticvamp
Geico is so huge I expected their customer service to be an absolute shitshow.
Then I totaled my car, and they were actually helpful and easy to work with. I
remain shocked to this day, and I’m still 90% convinced it was a fluke.

~~~
perl4ever
Geico seems to do a good job at auto insurance. But like everybody, they try
to get you to also sign up for other insurance, and it appears all other
insurance under their banner is actually from random other companies that
aren't run by them or seamlessly integrated with their systems. And
furthermore, their partners seem to be only interested in the association so
they can overcharge, more than making up for any multi-line discount.

------
kevindong
How insurers determine your rate is generally available online [0]. That being
said, some of the documents are almost unreadable.

I recently tried to figure out how I could optimize the amount of renter's
insurance coverage I got from State Farm for the premium paid (I'm currently
paying the minimum premium that they'll charge for any renter's insurance
policy; $125/year) and their posted document was so dense and filled with
jargon that I couldn't do it [1]. The document only contained the changes made
since the previous approval. But I couldn't actually find the previous
approval. So I was missing quite a few critical pages.

[0]: This is for NY:
[https://filingaccess.serff.com/sfa/home/NY](https://filingaccess.serff.com/sfa/home/NY)

[1]: The overall filing package
([https://filingaccess.serff.com/sfa/search/filingSummary.xhtm...](https://filingaccess.serff.com/sfa/search/filingSummary.xhtml?filingId=131741055)).
The rate document is named "NY HO 2019-05-01 Pages Changed.pdf"

~~~
pwinnski
The complexity seems to be the point.

Many states allow complete opacity, and in those states, the companies operate
completely opaquely. In states in which information is required to be made
public, it's buried in overwhelming detail and hidden behind "change X from
0.04 to 0.007 from sub-reference 37N" language. That's deliberate.

~~~
dsfyu404ed
They're selling a service that people are required to buy. It should be no
surprise that the equilibrium reached is "be as consumer hostile as possible
without violating the letter of the law enough to get told to stop"

~~~
cortesoft
There are lots of things we are 'required to buy' \- food, shelter, etc. There
is still competition, though, and we don't see price gouging in food, for
example, just because people have to buy it.

If insurance is so overpriced, then why don't other companies enter the
market?

I don't think insurance companies have crazy profit margins, so I don't think
it is really price gouging going on. It might be shady competitive practices,
to trick people into not realizing they are paying more, but I don't think it
is because people are required to have insurance.

~~~
lowercased
> There is still competition, though, and we don't see price gouging in food,
> for example, just because people have to buy it.

There's not a law that requires me to buy food, nor a law that requires me to
buy specific types of food. I can grow my own food, or buy from other people
locally if I wanted to.

> If insurance is so overpriced, then why don't other companies enter the
> market?

It takes extremely deep pockets to be able to sell insurance in the first
place, and it's a relatively regulated industry.

Anyone can grow some tomatoes and sell them to me at a farmers market with
minimal overhead. Few can sell me comprehensive insurance that will pay out
when I need it.

~~~
cortesoft
Food and food sale is pretty regulated. There are probably even more
regulations around food production than insurance.

------
danso
FWIW, the authors also published an extensive methodology, which is ~700 words
more than the article. [https://themarkup.org/allstates-
algorithm/2020/02/25/show-yo...](https://themarkup.org/allstates-
algorithm/2020/02/25/show-your-work-car-insurance-suckers-list)

And there's a github repo: [https://github.com/the-markup/investigation-
allstates-algori...](https://github.com/the-markup/investigation-allstates-
algorithm)

------
leereeves
> 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.

This man was being charged over $15,000/year for auto insurance?

~~~
czinck
Probably has a DUI or 2. Also possible that they have a car worth a lot, but I
think normally that goes through a specialty insurance company, or is just
"self-insured" for collision coverage so the value of the car doesn't affect
the premium.

~~~
giarc
Would All State still insure a person like that? I thought most well known
companies would drop people with DUIs and leave them for lesser known "high
risk insurance" companies.

~~~
ssharp
Ideally, Allstate would access risk accurately and set their rates
appropriately. For high-variance situations like this, over-indexing your loss
ratio seems like a not-so-bad move.

Yes, you can get our insurance with your two DUI's but your price is 2x
expected loss. Pretty solid odds if you're pretty confident in your pricing
model.

------
bernardv
The insurance industry is notoriously afraid of transparency, and the state-
based rate filing system makes it too easy to divide and conquer. This is an
industry ripe for disruption via total transparency.

~~~
Ididntdothis
“This is an industry ripe for disruption via total transparency.”

A lot of industries are ripe for this kind of disruption. With availability of
more and more data there is a growing asymmetry between companies and
consumers. Just yesterday I looked up something on Amazon. Sent the link to my
girlfriend. She saw a price that was $10 more. Same often happens with
flights. And in US healthcare the patient doesn’t even have the slightest idea
what things will cost or what discount the insurance gets.

To have functioning markets both sides need information but with all these
algorithms the information gets very one sided.

~~~
zamfi
> Just yesterday I looked up something on Amazon. Sent the link to my
> girlfriend. She saw a price that was $10 more.

Out of curiosity, are you and your girlfriend in the same geographic market &
served by the same amazon warehouse? And are you both prime members?

I wonder if this is personalized to the individual or based on other factors.

~~~
Ididntdothis
We live in the same house. She has Prime , I don’t.

~~~
Mountain_Skies
Had the exact same experience back in December with an Echo Flex. I saw a good
price, knew my roommate wanted one, so I went downstairs to let him know. His
price was $10 higher even though he has Prime and I do not. Same address. The
only difference I could think of was that he is a heavy user of multiple Echo
devices while I own one that's in its box in a closet. He probably spends at
least ten times as much annually with Amazon as I do.

~~~
Ididntdothis
I guess amazon views prime users as suckers who will pay more.

~~~
perl4ever
...for shipping. Free shipping costs $10.

I wanted to order something the other day that should be in a local store, but
wasn't, and random specialty websites had stuff for $20 plus shipping. So I
found something equivalent on Amazon for $8, and when they pestered me about
signing up for Prime to get free shipping, I did it and then set a calendar
reminder for a week later to cancel it after I got my order. This sort of game
could well make people working at Amazon feel justified in manipulating
customers, but there doesn't seem to be any choice except to play the game
everybody is.

Random things on Amazon that I consider buying are often double or triple the
price they should be, so I try to buy anywhere else if at all possible these
days.

------
Shivetya
Allstate, a favorite of recent news in metro Atlanta as well. I did check with
them recently when I did my yearly check on rates; they were one of the higher
ones for home and auto combined. Fortunately my state (Georgia) rejected
Allstate from doing what was in this article [2]

Local news station has had two recently articles about them. From finding
methods to not pay damages at a cemetery caused by a car insured by them [0]
to be called out for not paying bills when their insured drivers caused damage
to other drivers [1]

The second story is more damning because it is law firms that end up court for
suits call out Allstate for having the most issues, it also noted that ten
years ago, the American Trial Lawyers Association named Allstate the worst
insurance company in America. Google searches still return that note but it
should be noted that lawyers tend to call out most insurance companies.

* Both have video components that may start on their own [0][https://www.wsbtv.com/news/local/2-investigates-car-crashes-...](https://www.wsbtv.com/news/local/2-investigates-car-crashes-into-church-cemetery-insurance-company-refuses-pay/JGE4FAWUXVGZTKHHPPICVQ27AU/?_website=cmg-tv-10010)

[1] [https://www.wsbtv.com/news/2-investigates/are-you-in-good-
ha...](https://www.wsbtv.com/news/2-investigates/are-you-in-good-hands-not-if-
you-get-hit-by-someone-with-allstate-victims-say/1007518669/?_website=cmg-
tv-10010)

[2] [https://www.consumerreports.org/media-room/press-
releases/20...](https://www.consumerreports.org/media-room/press-
releases/2020/02/investigation-finds-allstates-secret-algorithm-resulted-in-
sucke/)

~~~
wil421
I’m in Metro Atlanta and my father in law is a general contractor. His roofers
and plumbers will not do business with people filing All State claims. The
roofer said he used to but All State kept denying reimbursements or repayment
of changes they already approved.

My father and his whole neighborhood had storm damage. All State approved all
the work but still took 6+ months to pay out after the work was finished.

------
Throwins
Interesting to see an article about this now. I work at a large insurer and
we've been pissed off at AllState since they filed this garbage. It's made
regulators hyper sensitive to this sort of price optimization even when we
aren't even trying to do anything close to what they were doing.

I feel like the point of the article is a little bit undermined by the last
section, though. A 71 year old having his rate increase "small amounts during
the life of the policy" is pretty normal, and the fact that he was able to
find a substantial discount elsewhere is evidence that the market is
competitive.

------
otakucode
>also offers a glimpse into a potential future where companies of all sorts,
not just auto insurers

No, not companies of "all" sorts. Just insurance companies. Other companies
are regulated by Congress as part of antitrust regulations which would prevent
them from doing this kind of thing. Insurance companies, however, are not
regulated by antitrust laws. Insurance is declared to be "not commerce" and
therefore not answerable to antitrust laws. They are permitted to break any
antitrust law they please. This is why medical insurance companies, for
instance, hold national meetings every few years to decide what price they are
willing to pay for medical goods and services. This is price-fixing, and it is
illegal in absolutely any industry - except insurance. In insurance, they can
do it publicly because there literally is no law against it. There's a law
PROTECTING it. It was called the McCarran-Ferguson Act. The plan was to repeal
it as part of the Affordable Care Act. It was the clause that enabled the ACA
to survive the entire revision process... and was then promptly removed from
the bill immediately before its passage. This is why the insurers have never
really fought very hard against the ACA. If it ever gets repealed, the
McCarran-Ferguson act, that is, insurance companies will fall under antitrust
regulation and have to change almost every business practice they follow. They
will have to compete against one another on price, compete against each other
on what prices they pay, etc. It would destroy their profit margins and
probably result in the majority of them going out of business quite quickly.
Don't hold your breath. It's why the insurance industry spends so much on
lobbying and every lobbyist for every single industry will fight its repeal.
In other words, it will NEVER happen. The law has been in place since 1945.

------
vanniv
This is a terribly misleading headline.

The actual story is: they developed a radically different risk model that
assigned new rates to everyone, but, in an effort to retain customers, decided
to spread increases over multiple years to decrease sticker-shock
cancellations.

Folks with cheap policies (which are the biggest flight risk, because are good
insurance risks and every company wants them) got the increases more slowly,
and high-risk folks (who were already paying more) got their increase in
fewer, larger steps.

This whole article is trying to make simple business into some sort of evil
scam.

~~~
kccqzy
> trying to make simple business into some sort of evil scam.

If it's not an evil scam, why have so many states (including Republican
business-friendly states) rejected this practice?

~~~
vanniv
"Many regulators disallow X" is not meaningful evidence that X is evil or a
scam.

------
seibelj
Anecdata but I had Allstate for at least 5 years, then they tripled my rates
on renewal (Massachusetts). At the time I lived in a sketchier neighborhood of
Boston, but I had no claims and a 3x increase was absurd. I switched to Geico
and it was 2/3 as much as Allstate was before the raise, and it's been great
since. Allstate is doing something weird.

------
ropiwqefjnpoa
Never had Allstate, but I had a similar experience with Amica. My auto premium
increased every year despite no changes to my driving record. I called and the
rep explained my policy was going up because of an accident from over 3 years
ago.

I immediately dropped them, switched to another company and got a much lower
rate. Added bonus, my premium drops every year or so.

------
tus88
> paying $3,750 every six months, was instead being charged twice that, more
> than $7,500

How on earth does someone pay that much on INSURANCE?!?

~~~
bradlys
Exotic cars (they don't have to be expensive exotics - just something there
isn't a lot of data on) + motorcycles can easily shove that figure up there.
Add speeding tickets, claims, DUI, and/or crashes - you're gonna raked over
the coals.

When I was looking at buying a superbike, to get full coverage - it would be
$1000/month. Clean record - but 22-23. Just liability with high deductibles
was around $200-300/month. I've since become older - so it's cheaper for full
coverage.

------
swamp40
_Allstate’s model seemed to determine how much a customer was willing to pay
—or overpay—without defecting_

Welcome to the 21st century. Comcast, Verizon, Toyota, Nabisco - the list goes
on and on.

~~~
teruakohatu
What games do Toyota play?

Here in New Zealand, Toyota dealers no longer negotiate price with consumers,
which have gotten a good reception from the public who hate negotiating with
car salesmen.

------
jessaustin
Of all the firms identified in TFA as charging poor customers higher fees,
Princeton Review strikes me as the most evil. That single test that determines
which colleges you can attend and scholarships you can get? If you're poor,
you'll pay more to study for that test. Online. Yikes.

------
_bxg1
Key blurb because the title is unclear:

> In this case, Allstate’s model seemed to determine how much a customer was
> willing to pay —or overpay—without defecting, based on how much he or she
> was already forking out for car insurance.

~~~
Cogito
And this blurb is misleading (or more to the point, the article is
misleading).

They didn’t determine how much the customer was willing to pay, they modelled
how much they could change the renewing price and still retain the customer.

In general insurance, there is a large cliff for rate change, where if you
change the price higher or lower by more than a certain percentage (different
in each case, and for different products) you are much less likely to retain
the policy.

Actuarially you have a ‘technical price’ which is the real cost of insurance,
and this includes things like acquisition cost and other operating costs, in
addition to the risk costs.

When you update your risk model you often have policies that jump in price (if
rated as ‘new business’, on technical price) so modelling the retention of the
entire portfolio is extremely important. Your price elasticity is in part
based on what percentage of the renewing policies you expect to retain with
your new rates.

Implementing a ‘capping and cupping’ strategy to limit the amount of rate
change delivered in a single year is extremely common, and allows this
estimate of retention to be more accurate.

You need policies to eventually get to the technical price (which for large
policies, like a fleet of cars, is literally based on prior claims experience)
but you also need to sell and retain policies. Capping the amount of rate
change applied in one year is a compromise between the two.

------
ikeboy
Why is the government in the business of disapproving prices in the first
place?

~~~
Edman274
Almost all state governments made it so that you can't drive a car unless you
have insurance.

The reason they did this is so that if you hit someone and cause physical
injury to them or to their property, it's possible to pay them for the damage
you did to them.

The government has decided that it is a good idea to make sure that people
generally have a way of getting money from people that have caused accidents.
We've also decided that it's in our collective best interest to allow people
that don't have hundreds of thousands of dollars of cash on hand to be able to
drive to the supermarket. However, because of these two conflicting goals, we
need a third party that can pay in these cases.

Since it's a legal requirement to give money to a third-party when someone
wants to drive, state governments have also determined that it's in our
collective best interest to not allow for bad behavior by insurers in
overcharging drivers for things not directly related to risk.

The reason for this is that making car insurance generally unaffordable to
classes of people tends to exacerbate divisions in society, at least in the
United States.

Further, members of minority communities do vote in elections, and will
generally not support candidates whose position on insurance companies
engaging in price gouging is "the free market will figure it out, sorry you
can't afford insurance."

Finally, it cannot be taken for granted that companies always discriminate
fairly when there are no laws to prevent them from not doing so. The example
we see here is evidence of this. If Allstate is making pricing decisions not
based on risk but based on willingness to shop, then that means that people
are being unfairly overcharged; it just so happens that it's not as
immediately offensive to our morals when it's "willingness to shop" vs. "being
a member of a historically discriminated group of people".

~~~
ikeboy
1\. I'm perfectly fine with mandatory liability insurance. Requiring assurance
that someone can pay for any damage they do before granting them access to our
roads is fine.

2\. "state governments have also determined that it's in our collective best
interest to not allow for bad behavior by insurers in overcharging drivers for
things not directly related to risk." This doesn't follow. You need to argue
for a market failure of some sort to justify regulation. Seatbelts are
mandatory, but it doesn't follow from there that the government must regulate
the pricing structure of seatbelt manufacturers.

3\. "The reason for this is that making car insurance generally unaffordable
to classes of people tends to exacerbate divisions in society, at least in the
United States." This is properly handled with subsidies, not mandates, as I
already mentioned in other comments.

4\. "Finally, it cannot be taken for granted that companies always
discriminate fairly when there are no laws to prevent them from not doing so."

We don't need to take that for granted. The only relevant question is whether
there is competition. If there's a monopoly, perhaps created by onerous
government regulations, then there might not be sufficient competition. Again,
you need to argue for a market failure, which you have not.

~~~
jmcqk6
You're acting like the parent you're responding to was making an argument for
something, instead of describing the current reality.

~~~
ikeboy
Perhaps. My "why are states in that business" was meant as a moral question,
not a factual question.

------
somurzakov
is there an insurer with better rates than geico for young and safe driver
with zero accident record and perhaps 1 or 2 speeding tickets ? [in the
southeast region]

~~~
mbreedlove
I found Progressive to be half the cost of Geico.

------
cosmotic
> [We] comply with state laws and regulations

Said every company that ever failed to comply with state laws and regulations

------
DesiLurker
how long before others catch on. Imagine your healthcare provider sending you
even more outrageous bills depending upon 'the list'.

~~~
runawaybottle
It’s more likely individual doctors will bill you something large and hope
your insurance pays for it.

Maybe you needed some super expensive expensive exam (when you didn’t).

------
joering2
Beautiful commercial material for Allstate competitors and you don't even have
to lie or deceive.

A black husband and wife sit by a dinner table:

\- Honey, did you see that article on Allstate? I think we may be
overpaying...

\- Why?

\- Well, it says here that Allstate plans to hike prices for the people who
pay the most even 20% more, and they call them... suckers.

\- What?

\- It also says that they plan that for people living in "nonwhite"
communities...

\- That's us!

\- Yeah... who would knew a gecko would be right? We need to call them now,
maybe we save 15% or more on car insurance as well...

And then at the closure message: Allstate admits to hiking prices for people
who pay the most and calls them suckers. Don't be a sucker, get Geico
insurance now!

