Carrier Management recently published an article in three parts by James Lynch, chief actuary and vice president of Research and Information Services at the Insurance Information Institute, based largely on an actuarial paper authored by Irene Bass, a former Casualty Actuarial Society president and a former member of the American Academy of Actuaries’ board of directors.
Executive SummaryOpinion: Two actuaries—Irene Bass, a former Casualty Actuarial Society president, and James Lynch, chief actuary for the Insurance Information Institute—recently analyzed a rating process used by Allstate, rejecting the idea advanced by consumer advocates that it is an actuarially unsound and unfairly discriminatory example of price optimization.
Here, consumer advocate and actuary J. Robert Hunter, director of Insurance for the Consumer Federation of America and a former insurance commissioner, reacts to Lynch’s analysis published in Carrier Management and Bass’s analysis performed on behalf of Allstate, first noting their lack of independence and then attacking their main arguments about the “premium reversal” problem that they say Allstate solves with “Complementary Group Rating.”
According to Hunter, the rare problem would not exist at all if companies didn’t cap rate increases. He also says the two actuaries supporting Allstate’s model start with a faulty premise that filed actuarial statewide rate indications are accurate. Calling CGR “a new and monumentally more complex script for the theatrics of ratemaking,” Hunter concludes that CGR “adjustment factors” designed to optimize retention are not risk-based and result in unfairly discriminatory rates.
Back in 2013, Hunter wrote one of the first articles Carrier Management published about the use of price optimization in insurance rating, “Price Optimization: A Dangerous Method.”
In today’s article, he reacts to these analyses:“Complementary Group Rating – A Report on Behalf of Allstate Insurance Company,” by Irene K. Bass, dated March 2, 2016. “Not All ‘Optimization’ Is Price Optimization; Allstate’s CGR Proves It,” published by Carrier Management.
The Bass paper, which asserts that Allstate’s new “Complementary Group Rating” (CGR) plan “does not possess key characteristics often associated with price optimization,” was written, according to its title page, “on behalf of Allstate Insurance Company.” Similarly, “Lynch was asked by Allstate officials to review and write about the plan,” the Carrier Management article introduction states. Both authors worked closely with Allstate in preparing their work and relied on Allstate for information in that process. These works, which cannot be viewed as independent analyses of Allstate’s rating methods, are reviewed below.