15 ms·

How Allstate’s auto insurance algorithm squeezes big spenders

173 points by isiahl 7y ago

bernardv 7y ago
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 7y ago
  “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 7y ago
    > 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 7y ago
      We live in the same house. She has Prime , I don’t.
      - Mountain_Skies 7y ago
        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 7y ago
        I guess amazon views prime users as suckers who will pay more.
        perl4ever 7y ago
        ...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.
      - zamfi 7y ago
        Interesting. Maybe it showed you the lowest-cost vendor, and showed her the lowest-cost vendor with Prime shipping? And the difference was $10? Or was it shipped from and sold by the same place?
        Ididntdothis 7y ago
        No idea. Shipping would have been for both of us.
  - CapmCrackaWaka 7y ago
    Companies have done this, and it doesn't work as well as you think. This is because a lot of protected classes and some other politically controversial demographics (poor people, old people, etc.) _cost more money to insure_. That is because they unequivocally do get into more accidents and have higher claim frequency. Creating total transparency into this process would be suicide for these companies - they absolutely do rate on zipcode, and poor neighborhoods absolutely have higher rates because of fraud, break ins, and generally higher claim rates. However, if you didn't rate on zipcode, then you are under-priced for these areas and you will be killed by adverse selection. TL;DR these companies have figured out how to obfuscate filings so people don't see them blatantly charging more for XYZ, and risk public outrage.
- dboshardy 7y ago
  Insurers have to publish how they calculate rates and premiums. Every method and justification has to be approved by state regulators before they even enact them. It's one of the most transparent industries already.
  - Loughla 7y ago
    I would argue that actuarial tables, equations, and formulas are not necessarily transparent for 95% of the population.
    - runako 7y ago
      This is an astute summary of the practical effect of transparency in consumer-facing markets. The information is there, therefore it is transparent. It's sort of on you if you are unwilling take it as a second job and/or hire a suite of professionals to help you understand.
      - lotsofpulp 7y ago
        That's not the practical effect of transparency. It's the practical effect of living in a complicated world that must be modeled with math that most people don't know. It is on the populace to learn the math (many resources are available online), or fund people who can evaluate it on their behalf.
    - lotsofpulp 7y ago
      That is just changing the definition of transparency. Transparency means the information is readily available. The math isn't there to obfuscate the information, it is the information.
      - kccqzy 7y ago
        All of the laws passed by Congress as well as case laws arising from court proceedings are public. By your definition, our legal system is also very transparent. But that doesn't mean you don't need a lawyer just to navigate this voluminous corpus of information.
- samsonasu 7y ago
  I dont think average folks care about transparency, they mostly care about the bottom line. I would bet that if you offered a black-box $50/month with no explanation and a transparent, easily understood $60/month people would choose the cheaper option 9 times out of 9.
  - Ididntdothis 7y ago
    The problem is that without transparency you can easily be manipulated into thinking that you are getting a good deal. Maybe in your example everybody else is getting a $30 deal but you will never know.
  - solarkraft 7y ago
    I am pretty young and have never bought any insurance, but am currently shopping for some. Since I hear relatively many "insurer didn't pay" stories (often because of a weird detail), I don't have much trust in insurance and do place a lot of value on actually understanding what will be covered. I'm still a fan of a good deal, but confidence in reliability is a pretty important part of the features, no?
    - astura 7y ago
      I always read my insurance policies to see what's covered, to be honest insurance policies are very readable and fairly easy for the lay person to understand.
- Spooky23 7y ago
  The only reason we know about this is because its a regulated market, the regulator rejected the changes, and the data is available as a public filing. The state based system allows for a diversity in regulatory regime that wouldn't happen at the federal level.
- thedance 7y ago
  The only problem with total transparency is the American public is not ready to face its own driving record. A really large fraction of drivers _should_ _be_ uninsurable, including the 20% of American adults with a history of DUIs, anyone over 70, etc.
kevindong 7y ago
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.xhtml?filingId=131741055 https://filingaccess.serff.com/sfa/search/filingSummary.xhtm...). The rate document is named "NY HO 2019-05-01 Pages Changed.pdf"
- pwinnski 7y ago
  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 7y ago
    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"
    - nradov 7y ago
      Technically most states allow drivers to post a surety bond as an alternative to purchasing a liability insurance policy. But in practice most people don't have enough cash available.
      - 7y ago
Throwins 7y ago
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.
leereeves 7y ago
> 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 7y ago
  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.
  - saber6 7y ago
    Lol I knew a guy with 2 DUIs and on a SR-22. His insurance was 550/mo with a 1 year old Honda. $1k/mo+ for insurance better be a yacht or a Bugatti or some shit lol.
  - giarc 7y ago
    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 7y ago
      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.
- briandear 7y ago
  My airplane insurance costs less than that. $15k for auto insurance is insane.
  - 7y ago
exhilaration 7y ago
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.
- toomuchtodo 7y ago
  I want a product like policygenius.com, but instead of life insurance they have my entire insurance portfolio (auto, home, renters, umbrella, personal property) and constantly price shop for me automatically as a broker between me and every major insurer. I would also like such a product to be structured so that they can never be bought by Intuit or another incumbent, preferably in some sort of employee owned coop mutual company model (if Vanguard and USAA had an insurance broker child with a tech first demeanor). Sidenote: I’ve been with State Farm for over 20 years, and my rates have only gone down.
  - fignews 7y ago
    A few months ago I switched insurance. I did some shopping with getjerry.com was very slick, didn’t end up going through them though because of large savings when going directly through the insurance company. Will try them again one year in the future. Saved $1.5K/yr
  - chrisplotz 7y ago
    I have a lot of sympathy for this feeling - I am a USAA member, but through family, nothing I did. I feel fortunate that I qualify. My cofounder and I are trying to build a company a lot like you describe to bring "USAA style" to more people. We just did our launch HN last week (Goodcover). It's renters only right now so won't do exactly what you describe, but just wanted to say I totally get where you're coming from.
    - deleted 7y ago
      [deleted]
seibelj 7y ago
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.
Shivetya 7y ago
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-into-church-cemetery-insurance-company-refuses-pay/JGE4FAWUXVGZTKHHPPICVQ27AU/?_website=cmg-tv-10010 https://www.wsbtv.com/news/local/2-investigates-car-crashes-... [1] 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 https://www.wsbtv.com/news/2-investigates/are-you-in-good-ha... [2] https://www.consumerreports.org/media-room/press-releases/2020/02/investigation-finds-allstates-secret-algorithm-resulted-in-sucke/ https://www.consumerreports.org/media-room/press-releases/20...
- wil421 7y ago
  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.
ikeboy 7y ago
Why is the government in the business of disapproving prices in the first place?
- Doingmything123 7y ago
  The government should be in the business of fighting predatory pricing. Based on the other comments that people have a very hard time figuring out how much they would be paying(significant legal jargon obfuscation) it seems like people are being "forced"(as in no alternative) into contracts where they don't have a full understanding of what they are signing/paying. That seems pretty predatory to me
  - ikeboy 7y ago
    Predatory pricing is pricing too low so competition is forced out. https://en.wikipedia.org/wiki/Predatory_pricing https://en.wikipedia.org/wiki/Predatory_pricing That's not alleged here at all. "People have a very hard time figuring out how much they would be paying" no, what's being said is people are having a hard time reading the documents submitted to the regulator. If you want to know how much you'll pay, just get a quote from the insurer directly.
- hderms 7y ago
  would you want an insurance company to be able to price your policy on socially discriminatory characteristics without regulation to stop it? or possibly worse, without anyone even knowing?
  - ikeboy 7y ago
    If those characteristics are higher risk, then they should be priced higher. And if they aren't higher risk, then a company using them to discriminate will be outcompeted by a company that is not. You realize that, say, age is a protected class and yet an obvious risk factor, right? Do you think all ages should have the same rates for car insurance? Mandating everyone pay the same price when their risks are different distorts incentives and makes us all worse off on average. Some may benefit in the short term by being subsidized by others, sure. Even if subsidies were socially desirable, price regulation is one of the least efficient ways to implement such subsidies. If the concern is that some people can't afford insurance because they're higher risk, then you can have subsidies targeted to them that pay for their insurance. That's far better than forcing an insurance company to take a loss on them.
Johnny555 7y ago
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.
- bonestamp2 7y ago
  We've also switched to higher deductibles since we have only ever made claims when it was a major accident. When I had a chip in my windshield, my agent didn't even know that they covered that "for free". I had to tell her, so I guess it's not widely know. It makes sense though -- it is in their best interest to pay for chip repair without any reason for the customer to avoid it (deductible) since it can avoid a costly windshield replacement if that chip enlarges or if there are greater injuries in an accident due to the weaker windshield. I haven't seen any major rate increases on our car insurance, but our umbrella policy premiums went 4x this year (and we switched companies too). We're with Farmers for nearly everything now, but comparing rates with other agencies is on my to do list in case anyone has done the homework and has a recommendation.
  - uberduber 7y ago
    A sizable portion of the car washes in Los Angeles have an aggressive chip repair salesman who will circle all the chips and aggressively try to sell you on free windshield repair. Guy was always confused and upset about why I wouldn't want to buy something that was free. Finally one day my windshield had enough chips to be replaced. Guy sees me pulling out my insurance card and goes "Mercury? They don't cover anything!" so now when the guy starts walking over I say "I'm with Mercury" and he immediately moves on.
swamp40 7y ago
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 7y ago
  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.
- unishark 7y ago
  Isn't this how pricing has always worked?
ropiwqefjnpoa 7y ago
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.
vanniv 7y ago
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 7y ago
  > 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 7y ago
    "Many regulators disallow X" is not meaningful evidence that X is evil or a scam.
tus88 7y ago
> 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?!?
- monster_group 7y ago
  Clearly, by buying insurance from AllState.
- bradlys 7y ago
  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.
DesiLurker 7y ago
how long before others catch on. Imagine your healthcare provider sending you even more outrageous bills depending upon 'the list'.
- colechristensen 7y ago
  Healthcare insurance can't, its not legal.
- runawaybottle 7y ago
  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).
danso 7y ago
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-your-work-car-insurance-suckers-list https://themarkup.org/allstates-algorithm/2020/02/25/show-yo... And there's a github repo: https://github.com/the-markup/investigation-allstates-algorithm https://github.com/the-markup/investigation-allstates-algori...
_bxg1 7y ago
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 7y ago
  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.
jessaustin 7y ago
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.
joering2 7y ago
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!
somurzakov 7y ago
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 7y ago
  I found Progressive to be half the cost of Geico.
cosmotic 7y ago
> [We] comply with state laws and regulations Said every company that ever failed to comply with state laws and regulations
otakucode 7y ago
>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.

173 points by isiahl 7y ago

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 7y ago
“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 7y ago
  > 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 7y ago
    We live in the same house. She has Prime , I don’t.
    - Mountain_Skies 7y ago
      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 7y ago
        I guess amazon views prime users as suckers who will pay more.
        perl4ever 7y ago
        ...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.
    - zamfi 7y ago
      Interesting. Maybe it showed you the lowest-cost vendor, and showed her the lowest-cost vendor with Prime shipping? And the difference was $10? Or was it shipped from and sold by the same place?
      - Ididntdothis 7y ago
        No idea. Shipping would have been for both of us.
- CapmCrackaWaka 7y ago
  Companies have done this, and it doesn't work as well as you think. This is because a lot of protected classes and some other politically controversial demographics (poor people, old people, etc.) _cost more money to insure_. That is because they unequivocally do get into more accidents and have higher claim frequency. Creating total transparency into this process would be suicide for these companies - they absolutely do rate on zipcode, and poor neighborhoods absolutely have higher rates because of fraud, break ins, and generally higher claim rates. However, if you didn't rate on zipcode, then you are under-priced for these areas and you will be killed by adverse selection. TL;DR these companies have figured out how to obfuscate filings so people don't see them blatantly charging more for XYZ, and risk public outrage.
dboshardy 7y ago
Insurers have to publish how they calculate rates and premiums. Every method and justification has to be approved by state regulators before they even enact them. It's one of the most transparent industries already.
- Loughla 7y ago
  I would argue that actuarial tables, equations, and formulas are not necessarily transparent for 95% of the population.
  - runako 7y ago
    This is an astute summary of the practical effect of transparency in consumer-facing markets. The information is there, therefore it is transparent. It's sort of on you if you are unwilling take it as a second job and/or hire a suite of professionals to help you understand.
    - lotsofpulp 7y ago
      That's not the practical effect of transparency. It's the practical effect of living in a complicated world that must be modeled with math that most people don't know. It is on the populace to learn the math (many resources are available online), or fund people who can evaluate it on their behalf.
  - lotsofpulp 7y ago
    That is just changing the definition of transparency. Transparency means the information is readily available. The math isn't there to obfuscate the information, it is the information.
    - kccqzy 7y ago
      All of the laws passed by Congress as well as case laws arising from court proceedings are public. By your definition, our legal system is also very transparent. But that doesn't mean you don't need a lawyer just to navigate this voluminous corpus of information.
samsonasu 7y ago
I dont think average folks care about transparency, they mostly care about the bottom line. I would bet that if you offered a black-box $50/month with no explanation and a transparent, easily understood $60/month people would choose the cheaper option 9 times out of 9.
- Ididntdothis 7y ago
  The problem is that without transparency you can easily be manipulated into thinking that you are getting a good deal. Maybe in your example everybody else is getting a $30 deal but you will never know.
- solarkraft 7y ago
  I am pretty young and have never bought any insurance, but am currently shopping for some. Since I hear relatively many "insurer didn't pay" stories (often because of a weird detail), I don't have much trust in insurance and do place a lot of value on actually understanding what will be covered. I'm still a fan of a good deal, but confidence in reliability is a pretty important part of the features, no?
  - astura 7y ago
    I always read my insurance policies to see what's covered, to be honest insurance policies are very readable and fairly easy for the lay person to understand.
Spooky23 7y ago
The only reason we know about this is because its a regulated market, the regulator rejected the changes, and the data is available as a public filing. The state based system allows for a diversity in regulatory regime that wouldn't happen at the federal level.
thedance 7y ago
The only problem with total transparency is the American public is not ready to face its own driving record. A really large fraction of drivers _should_ _be_ uninsurable, including the 20% of American adults with a history of DUIs, anyone over 70, etc.

kevindong 7y ago

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

pwinnski 7y ago
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 7y ago
  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"
  - nradov 7y ago
    Technically most states allow drivers to post a surety bond as an alternative to purchasing a liability insurance policy. But in practice most people don't have enough cash available.
    - 7y ago

Throwins 7y ago

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.

leereeves 7y ago

> 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 7y ago
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.
- saber6 7y ago
  Lol I knew a guy with 2 DUIs and on a SR-22. His insurance was 550/mo with a 1 year old Honda. $1k/mo+ for insurance better be a yacht or a Bugatti or some shit lol.
- giarc 7y ago
  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 7y ago
    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.
briandear 7y ago
My airplane insurance costs less than that. $15k for auto insurance is insane.
- 7y ago

exhilaration 7y ago

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.

toomuchtodo 7y ago
I want a product like policygenius.com, but instead of life insurance they have my entire insurance portfolio (auto, home, renters, umbrella, personal property) and constantly price shop for me automatically as a broker between me and every major insurer. I would also like such a product to be structured so that they can never be bought by Intuit or another incumbent, preferably in some sort of employee owned coop mutual company model (if Vanguard and USAA had an insurance broker child with a tech first demeanor). Sidenote: I’ve been with State Farm for over 20 years, and my rates have only gone down.
- fignews 7y ago
  A few months ago I switched insurance. I did some shopping with getjerry.com was very slick, didn’t end up going through them though because of large savings when going directly through the insurance company. Will try them again one year in the future. Saved $1.5K/yr
- chrisplotz 7y ago
  I have a lot of sympathy for this feeling - I am a USAA member, but through family, nothing I did. I feel fortunate that I qualify. My cofounder and I are trying to build a company a lot like you describe to bring "USAA style" to more people. We just did our launch HN last week (Goodcover). It's renters only right now so won't do exactly what you describe, but just wanted to say I totally get where you're coming from.
  - deleted 7y ago
    [deleted]

seibelj 7y ago

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.

Shivetya 7y ago

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-into-church-cemetery-insurance-company-refuses-pay/JGE4FAWUXVGZTKHHPPICVQ27AU/?_website=cmg-tv-10010 https://www.wsbtv.com/news/local/2-investigates-car-crashes-... [1] 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 https://www.wsbtv.com/news/2-investigates/are-you-in-good-ha... [2] https://www.consumerreports.org/media-room/press-releases/2020/02/investigation-finds-allstates-secret-algorithm-resulted-in-sucke/ https://www.consumerreports.org/media-room/press-releases/20...

wil421 7y ago
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.

ikeboy 7y ago

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

Doingmything123 7y ago
The government should be in the business of fighting predatory pricing. Based on the other comments that people have a very hard time figuring out how much they would be paying(significant legal jargon obfuscation) it seems like people are being "forced"(as in no alternative) into contracts where they don't have a full understanding of what they are signing/paying. That seems pretty predatory to me
- ikeboy 7y ago
  Predatory pricing is pricing too low so competition is forced out. https://en.wikipedia.org/wiki/Predatory_pricing https://en.wikipedia.org/wiki/Predatory_pricing That's not alleged here at all. "People have a very hard time figuring out how much they would be paying" no, what's being said is people are having a hard time reading the documents submitted to the regulator. If you want to know how much you'll pay, just get a quote from the insurer directly.
hderms 7y ago
would you want an insurance company to be able to price your policy on socially discriminatory characteristics without regulation to stop it? or possibly worse, without anyone even knowing?
- ikeboy 7y ago
  If those characteristics are higher risk, then they should be priced higher. And if they aren't higher risk, then a company using them to discriminate will be outcompeted by a company that is not. You realize that, say, age is a protected class and yet an obvious risk factor, right? Do you think all ages should have the same rates for car insurance? Mandating everyone pay the same price when their risks are different distorts incentives and makes us all worse off on average. Some may benefit in the short term by being subsidized by others, sure. Even if subsidies were socially desirable, price regulation is one of the least efficient ways to implement such subsidies. If the concern is that some people can't afford insurance because they're higher risk, then you can have subsidies targeted to them that pay for their insurance. That's far better than forcing an insurance company to take a loss on them.

Johnny555 7y ago

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.

bonestamp2 7y ago
We've also switched to higher deductibles since we have only ever made claims when it was a major accident. When I had a chip in my windshield, my agent didn't even know that they covered that "for free". I had to tell her, so I guess it's not widely know. It makes sense though -- it is in their best interest to pay for chip repair without any reason for the customer to avoid it (deductible) since it can avoid a costly windshield replacement if that chip enlarges or if there are greater injuries in an accident due to the weaker windshield. I haven't seen any major rate increases on our car insurance, but our umbrella policy premiums went 4x this year (and we switched companies too). We're with Farmers for nearly everything now, but comparing rates with other agencies is on my to do list in case anyone has done the homework and has a recommendation.
- uberduber 7y ago
  A sizable portion of the car washes in Los Angeles have an aggressive chip repair salesman who will circle all the chips and aggressively try to sell you on free windshield repair. Guy was always confused and upset about why I wouldn't want to buy something that was free. Finally one day my windshield had enough chips to be replaced. Guy sees me pulling out my insurance card and goes "Mercury? They don't cover anything!" so now when the guy starts walking over I say "I'm with Mercury" and he immediately moves on.

swamp40 7y ago

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 7y ago
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.
unishark 7y ago
Isn't this how pricing has always worked?

ropiwqefjnpoa 7y ago

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.

vanniv 7y ago

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 7y ago
> 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 7y ago
  "Many regulators disallow X" is not meaningful evidence that X is evil or a scam.

tus88 7y ago

> 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?!?

monster_group 7y ago
Clearly, by buying insurance from AllState.
bradlys 7y ago
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.

DesiLurker 7y ago

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

colechristensen 7y ago
Healthcare insurance can't, its not legal.
runawaybottle 7y ago
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).

danso 7y ago

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-your-work-car-insurance-suckers-list https://themarkup.org/allstates-algorithm/2020/02/25/show-yo... And there's a github repo: https://github.com/the-markup/investigation-allstates-algorithm https://github.com/the-markup/investigation-allstates-algori...

_bxg1 7y ago

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 7y ago
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.

jessaustin 7y ago

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.

joering2 7y ago

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!

somurzakov 7y ago

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 7y ago
I found Progressive to be half the cost of Geico.

cosmotic 7y ago

> [We] comply with state laws and regulations Said every company that ever failed to comply with state laws and regulations

otakucode 7y ago

>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.