Consumer Watchdog reached a settlement with Allstate and the California Department of Insurance, resolving the company’s application with the Department for a rate increase of 34.1% to its homeowners insurance policies.
Allstate’s filing also implemented new property-level and community-level wildfire mitigation discounts to comply with California regulations that took effect in 2023.
As a result of Consumer Watchdog’s challenge, Allstate fixed its wildfire mitigation discounts to offer homeowners specific discounts for each of 10 mitigation factors, agreed not to target groups of consumers for non-renewal of their homeowners policies for at least the next six months, and modified its policyholder notifications to clearly disclose the percentage and dollar impact of Allstate’s wildfire risk factors as also required under the new regulations.
Consumer Watchdog challenged the rate hike as excessive under Prop 103 and the Department’s ratemaking regulations based on the originally proposed April 2024 effective date and Allstate’s refusal to write new business as of November 2022. After the company provided further information and pushed the effective date to November 2024, resulting in increased loss projections, the proposed 34.1% was justified under the regulations.
Consumer Watchdog also challenged the company’s failure to publicly disclose the computer model that was used to determine premium surcharges based on wildfire risk.
Allstate’s proposed wildfire rating factors were developed using ZestyAI’s “Z-FIRE Model,” a computer model created to predict future losses based on a property’s vulnerability to wildfire. Consumer Watchdog sought access to the model to verify its results. Prop 103 requires public disclosure of anything impacting rates, and the Department of Insurance regulations state insurance companies must make wildfire risk models publicly available if they plan to use them to rate customer policies.
Allstate and ZestyAI refused to publicly provide the model and the Department of Insurance did not require the companies to produce it. “Public disclosure is necessary to test a model’s assumptions to ensure that they don’t result in premiums that are excessive, inadequate, or unfairly discriminatory,” said Consumer Watchdog staff attorney Ben Powell. “Unfortunately the Department continues to fail to require companies to abide by the clear language of the regulation and Prop 103.”
ZestyAI also refused to demonstrate the model in a private test. In lieu of providing the model, ZestyAI agreed to provide additional information about how the model operates.
For example, ZestyAI disclosed that while the model makes use of satellite and aerial imagery of policyholders’ homes collected by unnamed “vendors” without the use of drones, these images are never provided to policyholders. Additionally, a property’s most current satellite and aerial images—updated 2-4 times per year by ZestyAI—are only incorporated into a property’s wildfire risk score upon an insurer’s request. The revelations make clear that data used by Allstate to determine homeowners’ wildfire risk may be based on outdated aerial data that cannot be verified by regulators, individual homeowners, or consumer advocates, said Consumer Watchdog.
As a result of Consumer Watchdog’s push for more disclosure, ZestyAI also provided further details about the wildfire risk factors used by the model, including how those factors were validated and selected. Nevertheless, the limited disclosures were not enough to verify the model’s fire scores treat consumers fairly, said Consumer Watchdog.
As part of the negotiations Allstate also agreed to improve its explanation to consumers about the impact their wildfire risk scores have on their premiums. Going forward, Allstate will include in its notifications to consumers the dollar amount of premium attributable to customers’ wildfire scores.
“Allstate will now include the information consumers want—the bottom-line dollar impact of their property’s wildfire risk,” Powell continued. “Although Allstate refuses to disclose its secret models to consumers, it must at least provide consumers with an explanation about how they affect their wallets. This agreement achieves that.”
California’s voter-approved insurance reform law, Proposition 103, requires that insurers open their books and prove they need to raise rates in a process subject to full transparency, in which consumer representatives have the right to review and challenge improper rates and practices. According to the Consumer Federation of America, Prop 103 has saved California motorists over $154 billion since 1989. Consumer Watchdog has saved California consumers over $6 billion over the last 22 years by challenging excessive and unfair auto, home, business, and medical malpractice rates.
For more information about Proposition 103 visit: https://consumerwatchdog.org/prop-103/
Download the settlement stipulation here.
