Insurance advertisements have never been more entertaining. While perusing the net for information regarding Safeco and Liberty Mutual, I came across a number of insurance company television advertisements. We often use ad firms to find and pull the ads of some of our opponent insurers. It can be done cheaply through YouTube.
Continue Reading...Allstate Insurance Company lost a bench trial involving the claims practices employed in its Claims Core Process Redesign program first implemented in the 1990’s. The findings by the trial court are significant because the Court indicated that those claims practices violate standards which are routinely violative of unfair trade and claims practices in most of the states. The findings indicate these were done as a general business practice.
Continue Reading...Suppose you knew that your insurance company had started a new claims practice program called “Quantum Leap” to increase corporate practices by making certain no claim was overpaid—would you buy that insurance? Would you feel peace of mine if you knew that secret program was in place and had such a claims philosophy?
Continue Reading...I was thinking about the question of property insurance trade associations and lobbying while reading today’s St. Petersburg Times article, At what Cost Care? The article was a question and answer discussion with Wendell Potter, who was a public relations executive for two major health insurers. Potter has given an inside view into the political and social power of the health insurance industry in a manner most Americans probably deplore. I wonder if property insurers are different? I doubt it.
Continue Reading..."How did you come up with that amount for my (or my client's) claim?" I was thinking of that question while taking the deposition of an Allstate corporate representative in an Indiana claims practice case, and how an insurance adjuster should honestly answer it. It is the same question millions of other policyholders, public adjusters, and attorneys ask insurance company representatives every day.
Continue Reading...An attorney from another law firm asked me whether an insurer is obligated to investigate facts supporting coverage in a property insurance coverage dispute. It is common for colleagues to share information and help when they can. It seems that the more one shares, the more one receives --usually with compound interest.
Continue Reading...Why are major insurance companies selling insurance with "feel good" messages rather than explaining how many different types of accidents and catastrophes they will not cover? If they were honest, wouldn't they explain to customers what is not covered before the purchase? Sandy Burnette wrote a comment to "Is the State Farm Policy Really Worth Anything?" As I indicated in yesterday's "Some Public Adjuster and Insurance Attorney Concerns and My Blogging Mistakes," he made a valid criticism which I corrected and appreciate him calling to my attention.
Continue Reading...David Berardinelli made a presentation at NAPIA's Convention on Friday. His topic, "From 'Good Hands' to Boxing Gloves: How Allstate Changed Casualty Insurance in America," was an excellent and updated version of a speech I have seen before. Many of his points are important to understanding why the claims culture has changed so much over the past twenty years. Sadly, part of the story he tells reflects the greed of some executives in the financial industry.
Continue Reading...What is the value of insurance if it does not pay for insured losses? Imagine if you had a significant accidental water damage to your home or business, do you know whether your insurance company has your back? Will it really be there to help you? Don’t count on it. Today, modern insurance companies are re-writing their insurance policies to limit what is covered and excluding many losses that used to be covered under all-risk policies. State Farm, as an insurance industry leader, is leading the charge of making an insurance product that no consumer should trust as providing the amount of coverage the insurance product afforded 25 years ago. It is always important to remember that Policyholders Buy Insurance for Peace of Mind and Not Economic Advantage and that concept is being defeated as carriers try to gain economic advantage by changing small print in the policy that may have significant consequences discovered by the policyholder only after disaster happens. To be Fair And Balanced with State Farm, I could have substituted Allstate, Nationwide and USAA into the title.
Continue Reading...Motivated claims adjusters need to study, improve, and be noticed for their skills and dedication. The May edition of Claims Magazine featured two stories I found interesting for different reasons. One article every adjuster should read is "Designation Envy-Why CPCU Should Matter to You." The other article, "Emerging Transformed-New Challenges Create Opportunities for Independents," should be read by claims practice attorneys and experts because it provides a glimpse into claims cultures designed to reduce amounts paid to policyholders.
Continue Reading...Recently, Allstate has accused other insurers of investing in credit default swaps. Does Allstate have knowledge of insurers engaging in this illegal activity? Or are these allegations a facade for the new federal oversight that would place Allstate under control of the federal government. My view on this topic is pointed:
Allstate and other major insurers are seeking federal charter to avoid state consumer protection laws and to gain an economic advantage over other property and casualty insurers. The federal legislation offers no specified safeguards for consumers, and provides for the same inept federal regulation that allowed the collapse of our financial system.
Continue Reading...If you love dealing with your group health insurance bills and claims, you will be overjoyed with the new legislation proposed in Congress allowing property insurance companies to apply for a Federal Charter. This proposed legislation is the most unfair and anti-consumer federal legislation filed in recent years.
Continue Reading...I am back from my epic 50th Birthday Celebration. I will have plenty to write from the experience. There is a lot to learn about life from a trip to Italy. If you have not visited, you must, and do not wait to put it on a "bucket list."
Do you ever take time to think about how another views your thoughts and philosophies? When you have two nine hour flights, you have some time to ponder these ideas.
In the insurance claims environment, there is a picture I have used in a presentation, Why Can't We All Just Get Along? to show how opposing individuals often react to each other:
Free enterprise is great until your competitors beat you. Dominant competitors may find it advantageous to combine interests to prevent new players from entering markets, destroying profit margins, and taking market share. It is amazing that there has not been more investigation and calls for transparency into the major personal lines insurance companies’ discussions and agreements which may reveal such a conspiracy. While anti-trust exemptions exist for insurance companies regarding sharing of loss data for rate making and other rate or form issues, there are no anti-trust exemptions for agreements that otherwise restrain trade and competition through collusion.
Continue Reading...State Farm is hard to figure out. They say one thing and often do another. When you finally get to the decision makers, there is usually some logic to why they do things despite disagreement from consumers or regulators. State Farm's announcement that it was leaving the Florida property market really has me wondering--"what's up?" From what I read and hear, I am not the only one.
Continue Reading...A financially strong and profitable insurance industry is in everyone's best interest. When insurance is profitable, companies sell more of their products, usually at more affordable rates. Consumers and insurers win. A tongue in cheek example of this is found in my line of work. Our firm wants insurance companies to sell as much of their product as they can. Affordable insurance with broad coverages sold to everyone gives insurance claims departments more opportunity to do what is in their short term economic interest---delay and deny payment of claims.
Continue Reading...National media articles have highlighted Ed Liddy's appointment as the head of AIG during its unwinding. His task is a large one. A BestWeek article presents Liddy as a champion corporate strategist. The article quoted one person as saying Liddy was extremely "ethical." He may be, but my perception of Ed Liddy was shaped by his role in developing Core Claim Practice Redesign while at Allstate. No customer or consumer advocate could call those claims practices as "ethical." Sears, Roebuck & Company sold a tire with the brand name, "Allstate." It started an insurance subsidiary with the same name selling automobile insurance. Many probably remember Allstate insurance agents in Sears stores. In the late 1980's Sears divested itself of Allstate through a public offering. Liddy was an executive of Sears at that time and went to Allstate at the time of its spin-off. Allstate hired McKinsey & Company, a corporate consulting group, to reevaluate every aspect of its Core business activities from sales through claims. What the MBA's working at Mckinsey knew about claims ethics was probably nothing. This is evident in the vast amount of Core Claims Practice Redesign materials recently made public as a result of the Florida Office of Insurance Regulation's examination of Allstate. It does not take a rocket scientist to figure out that if an insurer takes premiums from customers and then places obstacles to prompt and full payment of claims, the insurer will make a whole lot more money than by promptly paying. Those smart McKinsey MBA's figured that out as well. They devised an elaborate "new" way for Allstate to make its claims department more "profitable" by paying less on claims. Indeed, Allstate's internal records show that it knew it would gain a competitive advantage if it changed its claims philosophy. The hard line was drilled down to the claims organization. Allstate became a litigation and non-payment machine. Some veteran claims adjusters at Allstate questioned the new processes. Allstate executives prepared PowerPoint slides depicting these employees, and made it clear to management that these questioning employees needed to be terminated. As Allstate rolled its new initiatives, all claims personnel knew it would be the new claims way or the highway. ED Liddy was instrumental in Allstate's change in claims ethics. Ed Liddy may be the darling of corporate boardrooms, but he is not a champion for any policyholder.
The American Association for Justice conducted a study and concluded that Allstate Insurance is the worst insurer in America. (Click here to see a complete copy of the study) The report speaks for itself, but it truly details some outrageous behavior and a claims culture that clearly favors Allstate's pocketbook over beneficiaries. I am often asked to comment about which insurance company should claim this infamous award. The answer to that question is very, very difficult. I often find that a rogue adjuster can leave a trail of bad faith cases ripe with examples of disgusting behavior. Often, an entire claims office or region of an insurer has a claims culture dictated by an overzealous company person trying to prove management value by underpaying claims. Sometimes, directives from the very highest levels of insurance company management require otherwise honest and good people to take unreasonable positions and attitudes regarding payment of claims. I hope the senior management of the insurers making this list will not get their public relation spin doctors on overdrive, but instead reflect on the examples cited in the study. They should be doing everything possible to correct the problems they are causing rather than react with the all too often smear campaign by their lobbyists, public relations departments, and trade associations. Good insurance companies should not tolerate this type of behavior either. Companies gaining an economic advantage through unethical claims conduct should not be allowed to participate in the market. Everybody has to play fairly and honestly by the rules or simply not be allowed in the game.
Best is reporting that State Farm continues to retreat from the insurance business in Mississippi. The headline suggests that State Farm merely canceled policies, but the article reveals that State Farm canceled 900 policies, and changed the terms of 5,000 more customers by refusing to insure for wind peril.
As I have explained, our largest insurance carriers are getting out of the risk business. Allstate, State Farm and Nationwide are following a business strategy that reduces their financial risk to catastrophic loss. They want to be in the business of "for sure" profits, which is more commonly found in the automobile and life insurance industries.
These insurers are getting out of a business they once fought to dominate. Like casinos in Las Vegas, they want the odds only in their favor and will change the rules to make this happen. Blackjack was the only game against the casino where careful play could provide an advantage to the player. The casinos have changed those rules, just like the insurance industry is doing to its customers.
State Farm only wants to insure structures where the rates and percentages are so far in its favor, it can never lose. By excluding wind and flood peril from coverage, State Farm truly covers only the very remote peril of fire in its customers' policies. This results because all other ensuing losses can arguably be denied under the anti-concurrent causation language found in their policies.
The implication is that consumers are going to have to help "start up" competitors and have some governmental backup until the private insurance market can develop these new entrants. Regulations should be considered which provide rate incentive for these entrants and penalize the old line carriers for depopulating its pool of customers through the cherry-picking of risks. The old line carriers are simply killing society's ability to have an orderly insurance market.
Could you imagine if the health insurance industry started to cancel policies for people over sixty and women between the ages of 18 and 38? What if we allowed health carriers to cancel or non-renew your policy if you were 15 pounds overweight or had a history of cancer in your family? This is what we are allowing the property and casualty industry to do. We simply have to stop it.
Capitalism and economic venture are alive and well in the Florida insurance market. The Florida Underwriter reported this month that over 1.7 million policies have been written by new insurance companies since the 2004 hurricane season. As Allstate, State Farm and Nationwide retreat from the Florida property insurance market, these new insurance companies are accepting risks that would otherwise end up with Citizens Property Insurance Corporation.
My initial reaction has been that this is a good development. We need an infusion of new companies to take the place of the older established insurers that seem determined to leave the insurance business in an effort to safeguard all the surplus they previously made.
The new economic premise of Enterprise Risk Management has led old lines carriers to get out of the alleged "risky" Florida insurance business to preserve the profits they made and enter other financial arenas--such as banking, life insurance, and pure investment. It is refreshing to see new private insurers take the place of old line carriers in the property insurance market.
This has not occurred without some governmental help and a fortuitous influx of money into the re-insurance markets. The Florida Legislature passed legislation which allowed up to $25 million in matching funds to loan any insurer who was willing to write business in Florida. At the same time, the re-insurance market has greater capacity to write business and the market has "softened" to afford lower rates to these newer carriers. The bottom line is an influx of new carriers entering Florida and writing insurance policies where the old line carriers dare not go.
Florida is still far from being economically insulated should a major storm hit the state. It is a Hurricane Katrina away from financial catastrophe. Still, it is encouraging to see these new companies enter the market. Hopefully, they will enjoy a number of profitable years to build their surplus ("surplus" is the net worth of an insurer) before faced with any widespread catastrophic losses.
Allstate Insurance Company has reportedly canceled or non-renewed more than 500,000 Florida property insurance policies over the last five years. The decision to cut those policies was made by Allstate management. Where were the insurance industry spin and propaganda people--often referred to as "spokespersons" of various insurance industry trade associations--to say that the victims of that decision were Allstate agents?
The decision to raise the remaining Allstate policy rates an average of over 40%, after promising much lower rates to Florida government officials, was made by Allstate management. Where were those insurance industry spokespeople to explain why Allstate management could lie to the Florida government?
The decision not to provide witnesses under oath to the Department of Insurance Regulation regarding honest compliance and to not provide the relevant documents required to answer questions was made by Allstate management and its lawyers. Where were the spokespersons regarding that illegal conduct?
Instead, the propagandists were actually successful in diverting attention away from Allstate's improper and illegal behavior by suggesting that Allstate agents were the victims of the order suspending Allstate's ability to write policies in Florida. The insurance industry leaders and spokespeople never mentioned how wrongful Allstate's conduct was or that Allstate could have avoided the suspension entirely by simply being an honest and good corporate citizen. They certainly did not want to mention that those "victims" voluntarily agree to work for a company that has slashed their income by ordering policies canceled.
It is no wonder that the current Chair of the Florida Insurance Council is George Grawe. Grawe is an in-house Allstate lawyer.
It's about time. For a decade, Allstate has refused to comply with discovery and court rules regarding its internal documents which demonstrate who, how and why Allstate redesigned everything in its claims program to simply pay less on claims.
The Florida First District Court of Appeal issued an opinion which condemns many of the tactics Allstate and its attorneys have long used to thumb its nose at judges. Anybody with the right to view the internal information explaining why Allstate has been changing its culture since it was spun off from Sears in the early 1990's has been stonewalled and shut down. Indeed, a recent creative lawsuit has been filed in Montana against Allstate for abusing the legal process through such tactics. (Simonsen v. Allstate)
The Tampa Tribune and St. Petersburg Times have been closely covering this story since it started last fall. They noted that the Office of Insurance Regulation was trying to find out why Allstate broke a promise of lower rates in return for Florida selling it undermarket reinsurance and taking on a greater share of the Cat Fund obligation in the event of a hurricane. Well, Allstate went into what many of my attorneys so often see in civil proceedings---a complete shut down and refusal to tell the truth.
An example noted by the Florida Appellate Court was when Allstate produced a witness that was supposed to have knowledge and documents to show which trade organizations Allstate belonged to. Simple enough. The witness acknowledged his purpose but did not have any documents. Huh? That's right. Furthermore, Allstate has its attorneys do this all the time throughout the country in bad faith cases.
Allstate has been a bad corporate citizen for a long time. They consistently refuse to tell the truth and it is about time courts damn this type of behavior. Everybody has to play by the rules--even multi-billion dollar corporations.
The article in today's Tampa Tribune regarding a Federal Wind Insurance debate comes as no surprise. Amazing how big Insurance is adopting Enterprise Risk Theory to further its interest. Since large corporations in the insurance field are not so much interested in how they make money, just that they make as much as safely possible, it is no wonder they are making the case for Federal wind coverage.
Just so everyone understands what is happening, large insurance companies following Hurricane Andrew became fascinated with an actuarial model that better suited "safe" return of capital. This economic theory has been described as Enterprise Risk Theory, where the tolerance of risk to the corporation is measured against the business model. I will write on this more later because one blog is simply too short for an in depth analysis. The main concept to remember is that risks of large losses have to be minimized if the corporation cannot, for any reason, "stomach" the large variances.
So what do the oligopoly of State Farm, Allstate and Nationwide do regarding the wind risk along coastal states? They leave, raise rates and then start a national debate about government taking on the risk that they do not, but do not want new competitors replacing them. What "free enterprise" champions they are!!
Policyholders want one stop shopping for their insurance. They also want to know that they will be able to get insurance, so there exists some strong argument for the coverage. However, it is amazing that an industry built on spreading risks, and making money from it, transfers the variable catastrophic risks to the government---which is really the people---whenever it is to their advantage.
In the long term, we have to promote new entrants into the insurance market willing to accept these risks. We must also continually implement public policy, laws and codes that lower the severity of loss by catastrophic damage. The one thing we should be hesitant about is expecting government to act as well as a private insurance company. Government is not private enterprise.
Allstate Insurance Companies are being called before the Florida Senate Select Committee to testify today and tomorrow regarding a number of issues, especially its rate filings. I have publicy applauded this inquiry and those interested can read the Committee's filings on the internet.
The issues are a little broader than just rates. The letter to Allstate from Senators Atwater and Geller list claims history and profitability factoring. I expect that the Core Claims Process Re-Design documents and processes will again be a matter of inquiry.
The hearing should be interesting because something like this has never occurred. Public inquiry with extensive press coverage regarding an insurance company's honesty of its operations is something that should have occurred long ago.
Tuesday was a rather interesting day. Our firm helped win a $4.6 million dollar judgment for a panhandle Condominium Association last year. Citizens Property Insurance Corporation did not pay, as usual, but appealed. I argued the case [Citizens Property Ins. Corp. vs. East Pass Towers II Condominium, No. 1D07-2727 (Fla. Dist. Ct. App. oral argument Jan. 22, 2008)] for our client in Tallahassee, met with the Association representatives, and then made my way up the hill to the State Capitol where the Select Committee on Property Insurance Accountability was meeting.
One of firm's lobbyists briefed me on the schedule and introduced me to some of the panel members I had not previously met. We wondered if the media attention and articles (Tom Zucco, No Auto for Allstate, St. Petersburg Times, January 17, 2008, at A1; Jerome R. Stockfisch, State Bans Allstate From writing any New Policies, January 17, 2008, Tampa Tribune) following last week's 0ffice of Insurance Regulation hearing would cause more attention to be focused on these proceedings. Given the media in attendance and the articles in this morning's papers (Jerome R. Stockfisch, Panel Begins Insurance Investigation, Tampa Tribune, January 23, 2008; Michael Sasso, Secretive Allstate File Could Show 'Bad Faith', Tampa Tribune, January 23, 2008), we are certain there is great interest regarding these investigations that would provide some transparency to the insurance industry's tactics to raise rates and lower claims payments.
The panel consists of Florida Senators. While it is in vogue to criticize our politicians, most are truly trying to make laws and policy that make our lives better. With the public outcry regarding extraordinary increases of insurance rates following the 2004 and 2005 hurricane seasons, they worked to find a solution to ease the burden of rate increases and policy considerations. The plan was for Florida to assume a greater risk in the event of a catastrophe and sell re-insurance to the insurance industry at lower than market rates to help lower premiums and provide capacity so cancellations would decrease.
The average residential premium was expected to decrease approximately 19%. Instead, many carriers sought increases. Allstate sought a 46% rate increase. This "duping" of the legislature and insurance regulators is what created the current investigations by the Office of Insurance Regulation and this select committee.
J. Robert Hunter has long studied and criticized many activities of the insurance industry. He is an actuary by trade, a former insurance commissioner, and serves as the Insurance Director for the Consumer Federation. Florida Insurance Commissioner Tom McCarty asked Hunter to testify about the "duping" and alleged misinformation generated by insurance industry trade associations.
Hunter provided a lengthy report: "Property/Casualty Insurance in 2008: Overpriced Insurance and Underpaid Claims Result in Unjustified Profits, Padded Reserves, and Excessive Capitalization", J. Robert Hunter, January 10, 2008. He detailed and provided evidence that the insurance industry has made significant profits and continues to do so despite providing alleged propaganda trying to demonstrate otherwise.
My impression of his testimony is that insurance company executives try to hide true profits being made to keep rates as high as possible. Hunter essentially indicated that insurance company management lied in its filings and practices. At one point, he called the activities possibly "illegal" when Senators were questioning if criminal activity occurred.
From experience, most honest people and corporate representatives openly discuss and show documents when authorities demand answers and proof of activities. Dishonest people and entities hide and try to avoid directly answering the same because guilt would be admitted. Anybody watching Allstate answering and avoiding production of requested information last week during the Office of Insurance Regulation hearing has to have an impression that Allstate is hiding something really bad.
In his report, Hunter specifically indicated that the Consumer Federation of America recommends that consumers avoid Allstate, if possible, because it has a history of anti-consumer behavior. Id. at 29.
As all this was being played out, I noticed the room was also full of insurance company attorneys and lobbyists. Most policyholders would be amazed to learn how much their own insurance companies spend in lobbying dollars to make and encourage anti-consumer efforts. The irony is that the policyholder's premiums are used to finance these activities. Modern insurance companies have the policyholder's money financing an army of attorneys to protect the insurance company with little regard to the policyholder's interest.
Accordingly, the efforts by those such as Robert Hunter, the Florida Senate, and the Office of Insurance Regulation should be applauded. It is high time that insurance executives are called to testify and provide documents demanded by regulators. If they have nothing to hide, they should be happy to provide truthful and complete disclosure. From past experience, nobody should be holding their breath that this will happen anytime soon.
The Tampa Tribune reported Friday that the Florida Department of Insurance is seeking McKinsey & Company consulting reports which are allegedly tied to an Allstate plan to underpay claimants. These documents are at the heart of contention in a Colorado case where Allstate is being fined for not providing them, and also in a Missouri Department of Insurance investigation where Allstate is being fined $25,000 per day for refusing to cooperate with the state regulator's investigation. I am seeking similar documents in an Indiana case in which Allstate has been already sanctioned and ordered to provide them.
For over a decade, I have criticized Allstate's reliance on a claims program which appears to unethically calculate the value of an individual's bodily injury claim and not honestly disclose how Allstate arrived at its determination. The situation is analogous to an Emergency Hospital charging you too much and then not providing the details of the bill nor an honest explanation as to how it arrived at its numbers. Allstate has understandably been reluctant to disclose its claims practice and expose itself to the Civil and Regulatory penalties that should accompany such a breach of the public trust and its knowing failure to act in good faith. In case after case, Allstate simply refuses to fully comply with legal requests for the internal memoranda or ties up compliance through delay and stonewalling.
The amazing aspect of the Department of Insurance request is that it has come so late after Allstate's claims processes were changed. The McKinsey
documents were primarily generated over a decade ago, and I obtained them when I chaired a Bad Faith Litigation Group. See, Mark Ballard, Allstate's Master Plan?, Nat'l Law Rev., November 9, 1998, at A1, (col.2). One of my colleagues, David Berardinelli, wrote a book on this topic: From "Good Hands" to Boxing Gloves - How Allstate Changed Casualty Insurance in America. We suspect the most revealing documents are contained in management emails regarding the performance and profits of Allstate's claims programs. In our experience, internal emails by management are more revealing than reports generated for display to many employees. The Department should seek these in addition to the McKinsey documents.
It is refreshing that regulators are finally seeking transparency of Allstate's claims practice. Still, one has to wonder why it has taken so long and if the Department is looking in all the right places. They should visit our law office to obtain some of what they are seeking; we've had some, but not close to all, of these documents for 10 years.
Based on past experience, Allstate will not be in a hurry to provide anything which would expose how it treats its customers and which could expose it to further penalty or criticism. It is unlikely Allstate will voluntarily allow a third party to challenge its claim that "you're in good hands with Allstate."
Allstate and other insurers are notorious for not complying with discovery seeking internal corporate documents which would expose corporate culture in bad faith cases. From the news yesterday and today, it appears the Florida Department of Financial Services has learned the same lesson most policyholder attorneys have known for quite some time.
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