First of all,area damage do works for fire ally activation (see this Inna mystic ally rework bug)
When I was taking this test, I noticed that the frequency of area damage was much lower than 20%.
Then I got the sample capacity equal to 400,and i only seen area damage 11 times.
It’s obvious that the probability cannot be 20% here,maybe 2% or 4%.
It seems that there has same problem in 2.7.0.
About the details:
make sure there is only two targets stay together,got 100% critical hit chance and 50% area damage,activate fire ally,check for area damage after the ally exploded (area damage number always be white ).then repeat 100 times,4 direct damage once(2 targets and twice explosion ,damage number be yellow),finally got 11/400.
By the way,area damage never works on earth ally activation.