This blog was originally written in September 2007 in regard to the CNN investigative report on the big-box insurance practice of delay, deny, and defend. A former client recently emailed me saying he had forwarded this often to friends, finding the facts extremely useful and informative. With many clients additionally expressing concern over dealing with insurance companies, my hope is this edited and updated repost provides additional help and insight.
In 2007, CNN’s investigation into auto accident claims proved there are several insurance companies who abuse the claims process. In 2011, the Huffington Post conducted a similar investigation on delayed claims by the same insurance companies. The result has been massive profits to the insurance industry at the expense of shorting companies.
By both denying and refusing to pay legitimate claims for medical bills and wage loss, State Farm Insurance and Allstate Insurance have forced many injured people to go to court to litigate and contest their own claims. Despite the insurance industry being bound by law to act in good faith, “claims have been converted into a money-making process,” according to Russ Roberts, a New Mexico-based management consultant and former business professor at Northwestern University.
Since 2012, Allstate’s gross profit has been holding steady, and the stocks display they are making boatloads of money averaging $4.25 billion over the last 3 years.
Additionally, over the course of this same time period, the national average for insurance rates rose an average of 3.8%.
Allstate’s 2014 gross profit: $4.63 Billion
Allstate’s 2013 gross profit: $4.45 Billion
Allstate’s 2012 gross profit: $3.66 Billion.
Corporate greed should be discouraged and watched closely. The insurance company wants to prove a point and drive claims down.
They will set subjective financial thresholds for the amount of property damage. In other words, if the property damage estimate is below this subjective amount, or if the property damage does not look “bad” in a photo, they will force you to court.
The CNN story points out it is not a question of profit for insurance companies, but how much profit.
According to Anderson Cooper, you may think all the savings from these thresholds would mean lower premiums for drivers. Well, guess again. The Insurance Information Institute says auto insurance rates have actually gone up 30% over the 10 years since this went into effect.
Roberts also relayed to Huffington Post that, by his estimate, companies that take in 70% of their total insurance profits in the United States now abuse their obligations to their policyholders. And they are certainly gaining from this process; Allstate made $4.6 billion in profits in 2007. This was double its earnings in the 1990s. They are profiting off many consumers at their most valuable, and it is not just fluke occurrences, as they would like you to believe.
Jim Mathis, a former Washington claims adjuster in Washington was asked to describe this denial strategy in the claims process to the CNN reporter:
JIM MATHIS: It really came down to three basic elements. A position of delay. A position of denying a claim. And then ultimately, of course, defending that claim that you denied.
GRIFFEN (CNN Reporter): The three D’s?
JIM MATHIS: Exactly.
GRIFFIN: Jim Mathis is a former insurance company insider who now testifies against insurance companies in court.
JIM MATHIS: And the profits are huge. Profits are good. And as long as the public allows this to occur, the insurance companies will get richer and people will not get a fair and reasonable settlement, period.