HOW INSURANCE COMPANIES RAISE PREMIUMS
Deny Claims and Refuse Insurance to Those Who Need It The Most;
DENY DELAY and DEFEND
A recent study by the American Association for Justice (formerly The Association of Trial Lawyers of America) revealed the 10 worst insurance companies in America. To identify the worst companies for consumers, researchers at the American Association for Justice undertook a comprehensive investigation of thousands of court documents, SEC and FBI records, state insurance department investigations and complaints, news accounts from across the country and the testimony and depositions of former insurance agents and adjusters.
The 10 worst companies according to this study were:
- Allstate
- Unum
- AIG
- State Farm
- Conseco
- Wellpoint
- Farmers
- UnitedHealth
- Torchmark
- Liberty Mutual
One example was Ethel Adams, a 60 year old woman left in a coma and seriously injured after a multi-vehicle crash in Washington state. Her insurance company, Farmers, decided that the other driver had acted intentionally and denied her claim contending that an intentional act is not an accident. Another example is Debra Potter, who for years was an agent for Unum selling Unum’s disability policy until she herself became disabled and had to stop working. All along, Ms. Potter thought she was helping other people protect their future but when her own time of need came, she was told her multiple sclerosis was “self reported” and her claim was denied by Unum, the very company whose policies she sold.
In cases like these and countless others, the name of the game is DENY, DELAY, DEFEND. Do anything, in fact, to avoid paying claims. For companies like Allstate, there are corporate training manuals explaining how to avoid payments, portable refrigerators awarded to adjusters who deny the most claims and pizza parties to shred documents.
On July 10, 2008 a study was released by AAJ claiming that Allstate is the nation’s worst insurance company for consumers. Allstate is just one of many companies revealing a distinct pattern of insurance industry greed as companies refuse to pay claims and employ hardball tactics against policyholders, reward executives extravagant salaries and raise premiums while hoarding excessive profits. Surprisingly, the United States insurance industry collects more than $1 trillion dollars in premiums annually and has $3.8 trillion dollars in assets, surpassing the gross domestic products of all countries but the United States and Japan. Unfortunately, dedication to the shareholders of insurance companies comes at a price. According to recent investigations and documents, Allstate, the worst offender, was forced to make public documents that indicated that it systematically placed profits over its own policyholders. This company publicly touts its “good hands” approach and privately instructs its agents to employ a hardball “boxing glove” strategy against its own policyholders. Interestingly enough, Allstate’s, as well as other insurance companies, confrontational attitude against its own policyholders was the brainchild of consulting giant McKinsey & Company in the mid-1990's according to the AAJ study. McKinsey recommended that Allstate focus on reducing the amount of money it paid out in claims whether or not they were valid. McKinsey was tasked with developing a way to boost Allstate’s bottom line. Thereafter, Allstate and other companies made a deliberate decision to start putting profits over policyholders. Most companies essentially use a combination of low ball offers and hardball litigation. When policyholders file a claim, they are often offered a justifiably low payment for their injuries generated by secretive claim evaluation software. Those that accept the lowball settlements are treated with "good hands" but may be left with less money than they need to cover their medical bills and lost wages. Those that do not settle get the "boxing gloves" or aggressive litigation strategy that aims to deny the claim at any cost. Some Allstate employees refer to this as the 3 D’s, Deny, Delay and Defend.
One particular PowerPoint slide McKinsey prepared for Allstate featured an alligator and a caption “Sit and wait” - emphasizing that delaying claims will increase the likelihood that the claimant gives up. According to a former Allstate agent, Shannon Kmatz, this would make claims “so expensive and so time consuming that lawyers would start refusing to help clients." Many insurance adjusters state that they were rewarded for keeping claim payments low, even if they had to deceive their customers. One Allstate adjuster notes “We were told to lie by our supervisors. It’s tough to look people in the eye and know you are lying."
Complaints filed against Allstate are greater than almost all of its major competitors according to data collected by NAIC. In Maryland, regulators imposed the largest fine in state history on Allstate for raising premiums and charging policies without notifying policyholders. Allstate ultimately paid $18.6 million dollars to Maryland consumers for violations. In Texas earlier this year, Allstate agreed to pay $70 million dollars after insurance regulators found that the company had been overcharging homeowners throughout the state. Allstate says that its changes in claim resolution tactics were only about efficiency. However, the company’s former CEO, Jerry Choate, admitted in 1997 that the company had reduced payments and increased profit and said “ the leverage is really on the claims side. If you don’t win there, I don’t care what you do on the front end, you are not going to win”.
Unum, one of the nation’s leading disability insurers, has long had a reputation for unfairly denying and delaying claims. Unum’s claim-handling abuses consistently have been the subject of regulator and media investigations.
The world’s biggest insurer, AIG, has a long history of claims-handling abuses for individuals and business clients. AIG executives have come under fire recently for opportunistically seeking price increases during catastrophes. Now the company has been labeled the “new Enron” because of charges of multi-billion dollar corporate fraud. In 2007, AIG’s profits were $6.2 billion dollars with assets of $1.06 trillion dollars and its CEO is expected to receive as much as $68 million dollars in salary for 2008, despite his leading AIG to record losses over his three year tenure.
Many insurance companies rely on the income that it makes from investing in its policyholders’ premiums. AIG has always focused on turning a profit on underwriting. In other words, taking in more money in premiums than it pays out in claims. To do that, the companies had to be extremely parsimonious about the claims it pays out. Former AIG claims supervisors have alleged in litigation that the company used all manner of tricks to deny or delay claims, including locking checks in a safe until claimants complained, delaying payment of attorneys’ fees until they were a year old, disposing of important correspondence during routine “pizza parties” and routinely fighting claimants for years in court over mundane claims.
For more information concerning how insurance companies continue to raise your premiums as they continue to increasingly deny claims and refuse insurance to those who need it the most, please visit the website of American Association for Justice.
