Posted on January 11, 2012 by Denise Sze

Insurers Sacrifice Customers for Profit

On December 13, 2011, The Huffington Post published an article all policyholders should read and heed. It is important to know how the insurance industry is making money by delaying claims and how it has shifted from a service industry to an industry that is driven by profit. It's time for each state’s Department of Insurance to enforce their unfair business practice statutes on insurance carriers that profit by stalling and delaying the claims process to the detriment of the insured. The article is entitled, Insurance Claim Delays Deliver Massive Profits To Industry By Shorting Customers, and reports that since the mid-1990s, "a new profit-hungry model, combined with weak regulation, has upended that ancient social contract" between insurers and their customers.

According to the article, the industry shifted from service driven to profit driven when McKinsey & Company sold Allstate and other leading insurance companies a "new system to boost the bottom line." The article states that rather than adjusting claims the traditional way, which gave claim managers wide latitude to serve customers, insurers embraced a computer-driven method that produced purposefully low offers to claimants.

The article explains that this strategy "put profits above all," and insurers like Allstate have certainly gained: Allstate made $4.6 billion in profits in 2007, double its earnings in the 1990s. The stunning increase came through "driving down loss values to an average of 30 percent below the actual market cost" -- that is, paying dramatically less on claims. Apparently, the companies that take in 70 percent of total insurance profits in the United States "now abuse their obligations to their policyholders."

According to NAIC data, claim delays have long been the most frequent cause of policyholder complaints. As of November 28, 2011, the NAIC received 11,053 delay-related complaints this year alone, comprising almost a quarter of the year's total complaints. This data only reflects confirmed complaints -- the ones that state insurance commissions have investigated -- so the actual number of delayed claims is likely much higher.
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Posted on December 21, 2010 by Sergio Leal

Holiday Gift from Insurance Companies to Texas Residents? Higher Insurance Rates!

As is their custom, several major insurance companies have recently announced that they will be raising Texas insurance rates across the board. Last month, the Houston Chronicle reported that Farmers Insurance plans a 3.9 percent statewide hike that will affect about 324,000 Texas customers. Farmers stated that the increase was “in response to increasing costs of paying claims, especially weather related claims.” Farmers Insurance customers will see the increase take effect starting March 16, 2011.

On December 14, 2010, The Dallas Morning News reported that “Allstate Insurance has notified the Texas Department of Insurance that it will increase homeowner’s rates statewide by 5.4 percent to 9.7 percent next month.” The new rates are effective January 20, 2011 and will affect about 625,000 homeowners. A spokesperson for Allstate attempted to justify the increase:

It’s a reflection of the weather in Texas. Hail and wind storms have been increasing in severity over the last several years . . . The increased cost of roofing materials is also a big factor.

The article notes that Allstate last raised rates in November 2009.

These rate increases were announced just a few weeks after the National Association of Insurance Commissioners (NAIC) concluded that Texas residents are paying the highest insurance rates nationwide.

In the Dallas Morning News article referenced above, Alex Winslow of Texas Watch – a consumer watchdog group that monitors insurance issues – stated that these actions are typical:

Here we go again … It seems like every time one of the major insurance carriers raises rates, they all raise rates.

Winslow sees a pattern amongst the big insurance companies: they regularly raise their rates without justification, regardless of their impact on policyholders.

Unfortunately for Texas policyholders, these rate increases are all too common. And to make matters worse, this problem is not going away anytime soon. As long as insurance companies continue to be for-profit corporations they will continue to find ways to maximize their bottom line, be it through denying claims, underpaying claims, or by raising insurance rates.
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Posted on October 8, 2009 by Chip Merlin

Nationwide Continues its Removal From Florida Property Insurance Marketplace

The exodus of the larger national multiline carriers along coastal areas continues. Nationwide has reportedly filed a plan to non-renew 60,000 property insurance policies in Florida starting next July. Unlike State Farm, however, Nationwide Insurance Company has made arrangements with Tower Hill Insurance Group out of Gainesville, Florida, to accept all 60,000 policies.

The St. Petersburg Times reported that the Department of Insurance is supportive of the plan and that the new insurance companies taking over the policies are sufficiently strong despite recent downgrades:

Tom Zutell of the Florida Office of Insurance Regulation said the state appreciated that Nationwide arranged for a "soft landing" with Tower Hill. Customers always have the option of seeking other insurers, he said.

A.M. Best Co. recently downgraded the financial strength ratings of three property insurers associated with Tower Hill Insurance Group from B (fair) to D (poor). The ratings agency said it was concerned about the companies' hurricane exposure and whether they had sufficient reinsurance to handle claims from a severe hurricane.

State regulators, however, said they had no concern about Tower Hill's financial viability. Zutell said the company is constantly monitored, as are all insurers. He noted the company received an A (exceptional) from another ratings agency, Demotech Inc.

Yesterday, I read a proposed Nationwide policy that would cover both Windstorm and Flood. This was presented to the National Association of Insurance Commissioners at it September meeting. Nationwide's plan calls for the federal government to act as a re-insurer of the policy.

The large national multi-line insurers are lobbying for such a policy while placing market pressure on such a plan by removing themselves, or threatening to so, from coastal areas in the Gulf Coast and Atlantic Coast.

The times they are a changing.
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