Steve Badger is an excellent insurance company advocate. While I poked professional fun at our latest debate in last week’s post, Steve Badger Was Rope-A-Doped By Chip Merlin!, Badger raised the following questions to the audience:

  • Do you think insurance companies try to pay less because they are in competition with one another?
  • Do you believe that insurance companies delay claims to get leverage to pay less?

My answer was “yes.” The insurance company general counsels were obviously in disagreement.

Part of my agreeing to participate and debate Steve Badger at the conference was the audience. General counsels of insurance companies are major players in insurance company culture. As a result, they have a seat at the table regarding significant legal and regulatory requirements that insurance companies must meet. One of those is the good faith claims obligations their companies owe to their customers.

The problem with saying “no” is that many claims departments are taught to delay settlement during negotiations and follow very strict claims processes that must be met for competitive reasons.

There are many examples proving this, but the most readily available is found in Rutgers insurance law professor Jay Feinman’s book Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claim and What You Can Do About It:

as summarized at a claim management conference in the spring of 1994: ‘We will win the economics game. . . . Winning will be a zero sum game. . . . We will win [the] game in two phases:

Phase 1. Consistent execution of better plays and new game plans.

Phase 2. Change rules and play a new game.’

Allstate’s chairman, Jerry Choate, explained the new economics of claims to employees in 1997:

In the long run, if we don’t win on the claim side of this business we don’t win. Because that’s where all the leverage is. Three-quarters of every dollar that leaves this company goes to pay claims. So we have to build a long-term, sustainable competitive advantage in claims. It’s as simple as that.

Allstate based its unethical but very profitable claims philosophy on findings and claims management suggestions from McKinsey & Company. Despite antitrust concerns, this international consulting company advises many major insurance company claims departments on how to obtain a competitive advantage through behaviors that wrongfully underpay and delay claims to insurance company customers.

For readers interested in how McKinsey influences insurance company claims departments, I would suggest you read How Much Has McKinsey & Company Influenced National Flood Insurance Claims?  and the cited posts.

Maybe a few of the general counsels in the audience will inquire about the truth I shared with them. It takes courage to do so when profits are dependent upon sharp claims practices.

Again, some insurance companies overcome these obstacles. From my experience and impression, I will state that AMICA stands out as a personal lines carrier that pays with their customer’s interest in mind. Chubb is a close second. Lexington Preferred is third.

Thought For The Day

A promise made is a debt unpaid.
– Robert W. Service