Allstate's use of credit scoring algorithms to set customers' insurance premiums violates the Illinois consumer fraud law, according to a prospective class-action filed by a combine of seven law firms.
The suit, filed last week in the U.S. District Court for the Southern District of Illinois against the Northbrook, Ill.-based insurance giant, was filed on behalf of Allstate auto and home insurance customers throughout the nation.
It accuses the company of concealing "use of multiple and differing insurance scoring schemes that result in higher premiums…"
Class members, according to the suit, were "damaged by such conduct in that they were charged premiums different and higher than those charged to other Allstate insureds with similar insurance risk."
The suit asks compensatory damages, interest and legal fees. It does not include a dollar demand, but states that the amount in controversy exceeds $5 million exclusive of costs and interests.
According to the complaint, the four named plaintiffs are all Illinois residents who purchased insurance from Allstate unaware that the company used "multiple and different insurance scoring schemes."
It seeks recovery for those who held policies from Aug. 1, 1999 through Sept. 15, 2007, who were assigned "a credit-tier rating other than the most favorable credit tier."
The complaint argues that the company violated the Consumer Fraud and Deceptive Business Practices Act, which bans "unfair" business conduct, because its scoring practices "offend public policy, are immoral, unethical, oppressive, or unscrupulous, and/or cause substantial injury to consumers."
It states further that company practices are counter to law and "offend public policy prohibiting discrimination in the making and selling of insurance."
An Illinois Insurance Division spokesperson, Sue Hofer, said companies are allowed to use credit scores to create an insurance score "for purposes of pricing or setting a premium for a policyholder."
Asked if there had been any past legal challenge on the basis that the scoring process violated consumer fraud law, Ms. Hofer said, "not to my knowledge."
Allstate in response to the suit said in a statement, "Plaintiffs seek a nationwide class action with regard to Allstate's use of credit in insurance scoring. These types of nationwide class actions regarding state regulated insurance practices have been rejected by many courts.
"Allstate's use of insurance scores is regulated by state insurance departments throughout the country. Allstate is confident that its practices will be validated in this litigation."
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