Suckers List: How Allstate’s Secret Auto Insurance Algorithm Squeezes Big Spenders
Insurers are supposed to price based on risk, but Allstate’s algorithm put a thumb on the scale
Allstate’s Maryland filing reveals how an opaque algorithm it has been proposing around the country would have functioned in practice. It also offers a glimpse into a potential future where companies of all sorts, not just auto insurers, charge people different prices based on their behavior—or expected willingness to pay, as projected by algorithms that draw on the seemingly limitless troves of data collected and sold about people every day.
In this case, Allstate’s model seemed to determine how much a customer was willing to pay —or overpay—without defecting
Today @themarkup @ConsumerReports released a report detailing how Allstate used an algorithm to judge which individuals were less likely to shop around in order to create a ‘suckers list’ & charge some customers more.
even years ago, Allstate Corporation told Maryland regulators it was time to update its auto insurance rates. The insurer said its new, sophisticated risk analysis showed it was charging nearly all of its 93,000 Maryland customers outdated premiums. Some of the old rates were off by miles. 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. Other customers were paying hundreds or thousands of dollars less than they should have been, based on Allstate’s new calculation of the risk that they would file a claim.
Rather than apply the new rates all at once, Allstate asked the Maryland Insurance Administration for permission to run each policy through an advanced algorithm containing dozens of variables that would adjust it in the general direction of the new risk model. Allstate said the goal of this new customer “retention model,” which it was rolling out across the country, was to limit policy cancellations from sticker shock. After questions from regulators, the insurer submitted thousands of pages of documentation on the price changes—including data showing how they would affect each individual customer, a rare public window into details of its auto insurance pricing that have otherwise been kept behind a wall of privacy, labeled a trade secret.
When The Markup and Consumer Reports conducted a statistical analysis of the Maryland documents, we found that, despite the purported complexity of Allstate’s price-adjustment algorithm, it was actually simple: It resulted in a suckers list of Maryland customers who were big spenders and would squeeze more money out of them than others.
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https://themarkup.org/allstates-algorithm/2020/02/25/car-insurance-suckers-list