Years ago, an advocacy group called The American Association For Justice (AAJ), reviewed thousands of court documents, complaints, and materials from litigation, and records from the SEC and FBI to determine just who was the worst insurance company in America. Their report shed some very disturbing truths about an industry that runs phenomenal ad campaigns to convince the public they are on your side.
What the advocacy group discovered is that three of the worst ranked auto insurers had developed certain profit strategies at the direction of consulting company McKinsey & Co.—and it proved to be very profitable. Allstate, State Farm, and Farmers all hired McKinsey and were given strategies that put profits over policyholders. While the report has not been updated, we can tell you, from our perspective, not much has changed. We hear about and experience the same ruthless tactics.
As part of the McKinsey strategy, Allstate employees were directed to force injured victims to accept low ball offers otherwise the party would face the “boxing glove” strategy. This is where the company beats up on the injured party with deny and delay tactics until you accept the low offer. In fact, if a lawsuit was filed, the Allstate representative was directed to do everything possible to fight the case and pay nothing. For this reason, it became even more difficult for Allstate policy holders to get legal counsel willing to represent them in court. Their strategy was successful. Prior to McKinsey’s “help,” Allstate paid out claims at nearly 63 percent of premium income but, within 10 years of the new strategy, paid only 47 percent. At the same time, it doubled its profits. It had so much extra profit that the company began buying back $15 billion of its own stock.
In a separate investigation on homeowners’ claims, AAJ reported that Allstate agents were told by supervisors to lie and blame house fires on arson so they could avoid paying on the claim. It was Allstate whistleblowers who were able to help investigators determine the McKinsey strategy formulated for Allstate. While Allstate is routinely sued for unfair tactics, not much has changed. CEO Thomas Wilson has made clear, “our obligation is to earn a return for our shareholders.” Mr. Wilson is paid approximately 17 million a year in salary to make sure shareholders are happy even at the expense of policyholders.
Not too far behind Allstate on the naughty list is State Farm. They also hired McKinsey & Co. to create a strategy that reduced pay outs to policyholders and would increase profits for shareholders. As it turns out, McKinsey is pretty good at what it does. They created an equally lucrative and offensive strategy for State Farm. In fact, the AAJ noted that State Farm has become notorious for its deny and delay tactics.
While the AAJ report highlighted more of State Farm’s homeowners disasters, it is reminiscent of what we see when handling auto claims. One particularly egregious example of “avoid paying at all cost” was an investigation into the handling of claims following the Northridge earthquake. State Farm employees testified that company officials forged signatures on earthquake waivers to avoid paying claims. When the company was sued, they withheld this evidence. This is precisely the reason we always ask for proof of PIP rejection by the policy holder. In the State of Washington, if the insurance company can’t produce your signature rejecting Personal Injury Protection, you are deemed to have it—a very important benefit in a personal injury case.
While we agree with AAJ’s evaluation of unpleasant insurance tactics, the order of the list might need to be changed. Currently, we find Farmers to be a tie for #1 worst company as voted by our staff and lawyers. It’s hard to keep the blood pressure down with some of the tactics used in the initial phone calls. However, we generally push our way to a new adjuster or move to file suit fairly quickly on these claims. Life is too short to deal with deny and delay games.
One of our favorite examples from the AAJ’s report was the case of Ethel Adams, a 60 year old woman who was involved in a multi-vehicle accident that left her in a coma for 9 days. She was eventually confined to a wheelchair. Farmers response to her claim was that the at-fault driver had a moment of “road rage” so his intentional behavior could not be an “accident” under the policy. Therefore, there was no insurance coverage for her injuries. Farmers received severe negative attention from policyholders on this story but, eventually, it was a threat from the Washington State Insurance Commissioner to take legal action against Farmers that made them change their tune. Wouldn’t it be nice if all injured parties had the weight of the Insurance Commissioner on their case?
AREN’T THEY JUST TRYING TO KEEP RATES LOW?
The storyline most often told by insurance companies is that, “if people make claims, your premiums will go up.” First, you have insurance to help in times of loss and injury. Getting help when you need it is the reason you pay those very calculated premiums. And, make no mistake, those calculations leave insurance companies with plenty of reserves on hand in times of emergency. Those reserves also make shareholders a tremendous profit.
According to the Insurance Information Institute, the total assets for the US insurance industry is nearly 10 trillion dollars. For frame of reference, that is about half of the United States GDP. Let’s just say that the insurance industry is in no way suffering for profits or in need of raising your rates $200 so they can make a profit. Do not fall for the guilt trip that getting paid for your injuries somehow increases your neighbor’s rate. That is the choice of the profit-driven insurance machine.
If you have one of these companies, it doesn’t mean you need to switch. It just means that you may or may not deal with problems listed by the AAJ. We would like our clients or potential clients to be aware that certain companies come with baggage. Their business philosophies will impact your coverage as an insured and as an injured party. If you are already injured, we can’t undo the companies involved. However, if you want peace of mind that you won’t be exposed to an excess judgment if you hurt someone or be stuck with medical bills if an uninsured person hurts you, try to discuss these issues with your insurance broker. If you want our input on how companies are as far as personal injury cases, we are happy to elaborate. Feel free to call anytime.
We hope you have a safe and healthy New Year.