Nebraska and Iowa and other states should ban auto insurance companies from raising rates of customers who don’t shop around for better deals, a national consumer group said Tuesday.
Insurance regulators, including the National Association of Insurance Commissioners, are checking into the allegations by the Consumer Federation of America of Washington, D.C., that the use of “price optimization technology” violates state laws that ban unfair pricing.
Auto insurance industry officials have said that they don’t use such rating practices and that state regulators would stop it before it happens.
But the federation, whose members include more than 150 consumer-related groups, said it believes Allstate Insurance violated laws in 15 states by setting its 2014 rates higher for consumers who don’t shop for lower-cost policies — and are less likely to switch companies if their rates go up — than for those who frequently seek out bargains.
Those allegedly penalized include people who don’t use the Internet to shop and who don’t have ready access to insurance agents who can help them find lower rates.
Allstate said the allegations “continue to be wrong and misinformed. Our prices are legal and actuarially sound.”
The company said its rates are based on risks of claims using “driving safety record, garaging location and type of vehicle.” Allstate said “marketplace considerations” are part of pricing based on risks and
are used “appropriately ... we are open and transparent with regulators in all aspects of our pricing.”
The federation sent letters this week to state regulators asking them to reject such pricing plans, citing a bulletin issued by the State of Maryland in October telling insurance companies to end the practice if they are using it.
Bruce Ramge, Nebraska’s insurance director, said he is waiting to see the national commissioners group’s report on the issue, due later this year. Meantime, he said, consumers should review their insurance “to make sure it continues to meet their needs.”
Iowa Insurance Commissioner Nick Gerhart is looking into the issues raised by the consumer group’s letter, a spokesman said.
The federation said auto insurance rates should be based on driving records or other factors that affect the risks of accidents and insurance claims. The federation said it’s unfair to set rates based on customers’ willingness to seek out lower rates.
Douglas Heller, a spokesman for the federation, said this week’s letters to state regulators cited Allstate because its rate request to the State of Wisconsin became public and included what appears to be nonrisk factors in its pricing calculations.
Other companies’ rate filings in other states aren’t public, but the federation believes they also may include nonrisk factors in their pricing, he said.
“It’s a sad state of auto insurance,” Heller said. “Instead of being based on how well you drive, it’s about how much they can charge you and how quickly they can do it.”
Insurance consulting companies use “big data” to calculate how likely an individual is to react to price increases, Heller said. A person who hasn’t switched companies or complained about rates for years may tolerate bigger rate increases than someone who often shops online for auto insurance.
Companies call such nonrisk factors “marketplace considerations” but don’t give details about what they consider, Heller said.
He said the federation wants other states to follow Maryland’s lead and take steps to prevent using such factors to set auto insurance rates.
Michael Barry, a spokesman for the Insurance Information Institute, which is supported by the industry, said auto rates are subject to approval by state regulators who reject rate requests that violate fair-pricing laws.
Barry said he doesn’t know of any companies that raise rates on people just because of their insurance policy “inertia,” but if consumers think their rates are unfair, they should shop for other coverage.
“It’s not as though you’re trapped into staying with one insurance company,” he said.
Barry said at least one technology company, called Earnix, sells software that can calculate shopping habits in pricing, but he doesn’t know of insurance companies that use it. An email to Earnix, which is based in Tel Aviv, Israel, did not bring a response.