NEW YORK, Feb. 25, 2020 /PRNewswire/ -- Walk onto a car lot, and you just know the salesman is sizing you up to figure out how much you can pay: your shoes, your haircut, your posture.
A new investigation by The Markup and Consumer Reports revealed that at least one auto insurance company is doing something similar, hidden behind a secret algorithm that few newsrooms have the ability to deconstruct and analyze.
To figure out how Allstate Corporation's customer "retention model" worked, reporters, data journalists and statisticians picked apart a rare detailed document that the company provided to regulators in Maryland.
Using sophisticated analytical methods, we found that Allstate would have given customers with cheap policies a break when they were due an increase—but not big spenders.
Allstate would have raised prices by as much as 20 percent for customers whose risk profiles called for a hike and who spent around $1,900 or more for a six-month-policy. But it would have capped increases at 5 percent for those who paid less, no matter how big a jump they were due.
In other words, Allstate's price-adjustment algorithm resulted in a suckers list that sought to squeeze big spenders for larger price increases.
And there was a clear age profile for who wound up on that list: The 20 percent increase group was overpopulated with middle-aged Allstate customers.
Seniors also would have taken a hit. They were overrepresented among people due decreases, and Allstate proposed capping discounts at a half percent, no matter how much less people should have been paying based on the company's new risk profile. Customers would have lost out on $10.5 million in discounts.
Maryland ultimately rejected Allstate's plan, calling it discriminatory, but public records show that Allstate's current plans in Arizona, Arkansas, Illinois, Iowa, Michigan, Missouri, Nebraska, Oklahoma, Tennessee, and Wisconsin use a customer retention model.
This investigation isn't just about car insurance; it offers a glimpse into a potential future in which companies of all sorts charge people different prices based on their behavior— or willingness to pay.
"With investigations like this one, we will squash the information advantage big companies hold over regular people—and even regulators and lawmakers," said Julia Angwin, editor in chief of The Markup. "Regulators told us they themselves don't always know how proposed insurance pricing algorithms work, even though they're tasked with approving them."
The Markup, staffed with an unparalleled quantitative bench of journalists and programmers, begins publishing on Feb. 25 at https://themarkup.org/. The Markup is a nonpartisan and nonprofit newsroom investigating how powerful institutions are using technology in ways that impact society.
The newsroom is based in New York City and is distinguished by its rigorous methods, fact-checking and transparency. The Markup's website does not expose its readers to third-party tracking, and the newsroom has committed to never monetizing user data.
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SOURCE The Markup