The insurance industry is obligated by law to act in good faith in regard to its customers. This is not true of many other businesses. In fact, insurers have operated for a long time as semi-public trusts due to the protective role that they play in the lives of ordinary citizens.
However, since the mid-1990s, a new profit-hungry model has been put in place in the insurance industry. This new model, involving insurance claim delays and low-ball settlement offers, along with weak regulation, has overturned this ancient social contract.
Increasing the bottom line
The change began when consulting giant McKinsey & Company got Allstate and some other leading insurance companies to accept a new system that would increase the bottom line. Whereas claims managers used to have a wide latitude in order to serve customers by adjusting claims in the traditional way, now insurers began to use a computer-driver model that made purposely low settlement offers to claimants.
The result was that people who accepted the low-ball settlement offers got service without delay. The people who refused to accept the low-ball settlement offer experienced insurance claim delays. Potentially, these people were forced to file expensive lawsuits to fight for their benefits.
Former Allstate agent Shannon Kmatz told the trial lawyers’ lobby, the American Association for Justice, that the strategy was designed to make an insurance claim “so expensive and so time-consuming that lawyers would start refusing to help clients.” The strategy was referred to by the consultants as “Good Hands or Boxing Gloves,” a play on Allstate’s advertising slogan.
Russ Roberts is a New Mexico-based management consultant and former business professor at Northwestern University. He has studied the evolution of the insurance industry from a service business to a profit-driven machine. He said, “Claims have been converted into a money-making process.”
Increase in profits
The strategy has paid off well. Allstate made $4.6 billion in profits in 2007. This is double the amount of its earnings in the 1990s. Roberts said this significant increase came about as a result of “driving down loss values to an average of 30 percent below the actual market cost.” What this means is paying dramatically less on insurance claims.
Jay Feinman is a professor of law at Rutgers University School of Law. He said, “An insurance company can make a lot of money on the small claims because if you save a few dollars on a huge number of claims, its worth more than saving a lot of dollars on a very small number of claims.”
Do insurance claim delays hurt people who have legitimate claims? According to an unpublished Harris Interactive Poll, 16 percent of surveyed adults have gone through financial hardship or know someone who has because of insurance claim delays. This same poll revealed that 59 percent of adults believe that insurance claim delays are intentional on the part of most insurance companies.
If you believe you have been a victim of insurance claim delays, it would be a good idea to get in touch with a personal injury attorney. A personal injury attorney will fight to see that you receive all of the benefits that you deserve without undue insurance claim delays.