How Allstate’s auto insurance algorithm squeezes big spenders

And this blurb is misleading (or more to the point, the article is misleading).

They didn’t determine how much the customer was willing to pay, they modelled how much they could change the renewing price and still retain the customer.

In general insurance, there is a large cliff for rate change, where if you change the price higher or lower by more than a certain percentage (different in each case, and for different products) you are much less likely to retain the policy.

Actuarially you have a ‘technical price’ which is the real cost of insurance, and this includes things like acquisition cost and other operating costs, in addition to the risk costs.

When you update your risk model you often have policies that jump in price (if rated as ‘new business’, on technical price) so modelling the retention of the entire portfolio is extremely important. Your price elasticity is in part based on what percentage of the renewing policies you expect to retain with your new rates.

Implementing a ‘capping and cupping’ strategy to limit the amount of rate change delivered in a single year is extremely common, and allows this estimate of retention to be more accurate.

You need policies to eventually get to the technical price (which for large policies, like a fleet of cars, is literally based on prior claims experience) but you also need to sell and retain policies. Capping the amount of rate change applied in one year is a compromise between the two.

The minimum insurance (the one required by law in order to drive) only insures damages on the other party (injury and property). Basically the repair of the other vehicle or the fence I mow down.

What makes it cheaper than in the US (I assume) is that loss of income, healthcare costs is assumed to be taken care of by other (public) insurance, so that's not my liability if I crash into you. Put another way: car insurers can rely on the fact that everyone has other expensive insurance already. I already paid for the other partys ambulance through my taxes - I don't need to do it on my car insurance.

To take an extreme example: if I enter that I want a BMW M3 and I'm 22, the cost would likely be north of $700 per year, but it could be +/- 50% depending on whether it's in a city or rural area.

But for me (40+) the cost would be maybe up or down 10% from a couple of of hundred (say) so I wouldn't really be interested in shopping around. The reason is I shop around for my other insurance, where I have my nice call fully insured. That's a lot more expensive (Say $1000-$1500 per year and varies wildly). I'm likely to just insure my crap car with minimum insurance at a couple of hundred bucks at the same insurance company that gave the best quote for the expensive insurance of the other car. So I do shop around for insurance. Just not when I need only the minimum one. It's not worth the effort to save under $100/year to have multiple insurance companies.

They sent me to the only authorized repair center within 200 miles, then the repair center left my car outside in the rain and filled with water for two months), then USAA fought me over my demands to have the car replaced. Only for the repair shop to have an unlicensed tech work on the car and do 80k in damage due to his failed welding / repairs.. It took 9 months to get that sorted out and USAA was horrible the whole time. I couldn't believe it.

Previously I had an M3 that had the bumper ripped off while parked and they had it taken care of fast, even going after the repair shop for non oem parts under the bumper.

I guess it's a really mixed bag with them over the past few years they've been expanding.

TBH, I don't think it was that, it's just ... a lot of the answer, despite its thoroughness, came off to me as unproductive and (for lack of a better term) condescending and unserious. The answer focused on a bunch of uncontroversial points (the questioner's later comments confirmed this, that s/he wasn't some no-gov extremist), then quickly shifted over to assuming away all the controversial stuff. That doesn't feel like it's a real attempt to untangle the issue the questioner was asking about.

At the same time, most of what you said was still relevant and true, and my disagreement does amount to an objection to your logical jumps, so it's probably an unfairly high bar I'm setting here.

With that said, I think, to address the core confusion, and contribute to the discussion, you'd need to answer "why insurance specifically"?

Yes, people insuring dangerous things is good. Yes, everyone (with a few caveats) needs to buy insurance. Yes, non-discrimination is good.

None of that gets you to "therefore, we obviously need a commission to set rates", which I think prompted the question.

As (I think) the questioner notes, everyone needs to buy food. Where's the commission that approves increases in tomato prices? I'm sure some stores would like to overcharge minority groups, but competition, and the threat of lawsuits, tends to take care of that.

A responsive (not necessarily correct) answer would look more like:

"There can't be meaningful competition in this arena, and cost of coverage is easy enough to estimate, so we've gone with a model of fixed prices."

Competition in the insurance market is pretty intense, though, so that wouldn't be a satisfying explanation.

You made three claims that averaged $40 each? And you weren't aware until your agent told you that you were paying for full glass coverage?

The lesson may be that insurance agents are terrible people. I've heard plenty of FUD about Geico, but I wonder if it's really just because they sell direct.