Watchdog: Allstate Auto Insurance Pricing Scheme Is Unfair

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The "Good Hands" people at Allstate have figured out a shady, possibly illegal, way to push up insurance rates, according to the Consumer Federation of America, which said Tuesday it discovered a letter from the insurance giant that is a "smoking gun."

And the group, one of the most influential consumer advocacy groups in the nation, said the implications to American consumers over what Allstate (ALL) is doing is huge and can impact anyone with car insurance.

%VIRTUAL-pullquote-If regulators don't block this scheme immediately, American consumers will pay a huge price.%"This is a watershed moment in the history of insurance consumer protection," J. Robert Hunter, CFA's Director of Insurance and the former Texas Insurance Commissioner, said in a statement. "If regulators don't block this scheme immediately, American consumers will pay a huge price. While we are forced by law to buy these companies' insurance products in order to drive, there seems to be nothing stopping them from targeting millions of unsuspecting customers with unnecessary and unjustified price hikes."

The CFA said Allstate created a new way to calculate rates that creates sometimes sharply higher rates aimed at consumers who are "unlikely shop around to find a better price."

Among the ways the new surcharges and policy adjustments are unfair, the CFA said, includes a random price adjustment based on the month someone was born. As an example, a 46-year-old man with a good driving record who was born three months after another 46-year-old man with a good driving record could be charged 30 percent more on his premium, the CFA said.

Allstate issued the following statement in response to the CFA report:

"Allstate is committed to operating with absolute integrity. The Consumer Federation of America's allegations are inaccurate. The primary allegation in the news release regarding date of birth is grossly mischaracterized and does not take into account all of the risk characteristics for these two individuals. Our rating plans, including Complementary Group Rating Plan, have been and continue to be risk-based.

"Marketplace considerations, consistent with industry practices, have been appropriate in developing insurance prices, and we are open and transparent with regulators. The Complementary Group Rating Plan meets customer needs in the market place, and our success in increasing new customers and renewing more existing customers in the competitive insurance environment is evidence of this."

Allstate is just one company, the CFA said, that has worked with consultants to create a broad array of pricing tables intended to push up profits. The price differences are determined using "marketplace considerations," which doesn't involve risk, and can result in anything from "a 90 percent discount off the standard rate to increasing his or her premium by 800 percent, depending upon Allstate's analysis of the individual policyholder's 'marketplace considerations.' "

The Consumer Federation sent a letter regarding its findings to every state's insurance commissioner.

"Allstate's insurance pricing has become untethered from the rules of risk-based premiums and from the rule of law," Hunter said. "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."
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