CFA accuses Allstate of illegal pricing scheme

Daily Herald Staff Report
Updated 12/17/2014 5:59 PM

A Washington, D.C.-based consumer watchdog group Wednesday claimed Northbrook-based Allstate is part of an illegal pricing scheme in several states, including Illinois.

Consumer Federation of America said an Allstate document shows that the insurance company is basing customers' auto insurance premiums on so-called "marketplace considerations" that have nothing to do with the risk that a driver will cause an accident or file claims.


This and similar schemes, often referred to as price optimization, have been developed by insurance companies and consulting firms to increase profits by raising premiums on individuals, who are unlikely to shop around to find a better price, CFA said in a statement.

CFA noted in its letter to state insurance commissioners that, for example, a male driver with a perfect driving record, who had been with his previous auto insurance company for more than five years, lives in Mequon, Wisconsin, and was born on Jan. 12, 1968, pays 29.5 percent more than the same driver would if he were instead born three months later on April 9, 1968.

CFA's findings have been distributed in a letter to all the state insurance commissioners. Allstate used drivers' actual birth dates to individualize the marketplace consideration surcharge, leading to "clearly absurd" prices, according to the CFA statement.

Allstate does not agree with the findings. "Allstate is committed to operating with absolute integrity, said Allstate spokesman Justin Herndon.

He countered the allegation regarding the date of birth, saying that it is grossly mischaracterized and does not take into account all of the risk characteristics. He said Allstate's rating plans have been risk-based.

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"Marketplace considerations, consistent with industry practices, have been appropriate in developing insurance prices, and we are open and transparent with regulators," Herndon said. He added that the CFA reports have nothing to do with the management shake-up also announced Wednesday at Allstate.

Meanwhile, CFA found that Allstate introduced this pricing system in Wisconsin, Arizona, Colorado, Idaho, Illinois, Indiana, Iowa, Louisiana, Maryland, Missouri, Oklahoma, Nebraska, Oregon, Pennsylvania, Tennessee, Utah and Virginia.

"Allstate's insurance pricing has become untethered from the rules of risk-based premiums and from the rule of law," said J. Robert Hunter, CFA's director of insurance and the former Texas Insurance Commissioner. "Unfortunately, we believe that Allstate is not alone in using this new and patently unfair approach to auto insurance pricing, they are just the first to be unmasked."

Because auto insurance is required in all states but New Hampshire, rules in every state require that premiums are based on factors related to a policyholder's level of risk, and prohibit insurers from "unfairly discriminating" by using non-risk factors, CFA said.

• Daily Herald Business Writer Anna Marie Kukec contributed to this report.

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