Steve Badger is an excellent advocate for insurance companies. While I made professional fun of our recent debate in last week’s post, Steve Badger Got Rep-A Doped by Chip Merlin!Badger posed the following questions to the audience:
- Do you think insurance companies are trying to pay less because they are competing with each other?
- Do you think insurance companies delay claims to gain leverage to pay less?
My answer was “yes”. The insurance company’s general counsel apparently disagreed.
Part of why I agreed to attend and debate Steve Badger at the conference was the audience. Insurance companies̵7; general counsel are major players in insurance company culture. As a result, they have a seat at the table when it comes to significant legal and regulatory requirements that insurers must meet. One of these is the obligations that their companies owe in good faith 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 that prove this, but the most readily available is in Rutgers insurance law professor Jay Feinman’s book Delay, deny, defend: why insurance companies don’t pay claims and what you can do about it:
which was summarized at a claims management conference in the spring of 1994: “We will win the economic game. . . . Winning becomes 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 the rules and play a new game.’
Allstate’s chairman, Jerry Choate, explained the new economics of workers’ comp claims in 1997:
In the long run, if we don’t win on the claims 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 debts. So we need to build a long-term, sustainable competitive advantage in claims. As simple as that.
Allstate based its unethical but highly profitable claims philosophy on claims management findings and suggestions from McKinsey & Company. Despite antitrust concerns, this international consulting firm advises the claims departments of many major insurance companies on how to gain a competitive advantage through behaviors that improperly underpay and delay claims for insurance customers.
For readers interested in how McKinsey is affecting insurance claims departments, I would suggest reading How Much Has McKinsey & Company Influenced National Flood Insurance Claims? and the cited posts.
Perhaps some of the general counsel in the audience will ask about the truth I shared with them. It takes courage to do so when profits depend on sharp claims settlement procedures.
Again, some insurance companies overcome these obstacles. From my experience and impressions, I will state that AMICA stands out as a personal line carrier that pays with its customer’s interest in mind. Chubb is a close second. Lexington Preferred is third.
A promise is a debt that has not been paid.
—Robert W. Service