Study: Bad Faith Claim Practices Make Allstate The Worst Insurance Company in America

The Alaska Personal Injury Law Group has previously discussed some of Allstate’s bad faith practices, for example Institutional Bad Faith 101 — How Allstate’s DOLF Program Works, and Study Finds Institutional Bad Faith at Allstate, State Farm and Other Major Insurers. A new study just released by a national consumer’s group has now found that Allstate’s institutional bad faith practices and mistreatment of policyholders make it the worst insurance company in America. The Ten Worst Insurance Companies in America.

The new study by the American Association for Justice was a comprehensive investigation of insurance companies across a wide variety of types of insurance. The investigation included review of thousands of court documents, FBI records, SEC records, records of state division of insurance complaints and investigations, and sworn testimony of former insurance adjusters. Based on that review, “One company stood out above all others. Allstate’s concerted effort to put profits over policyholders has earned its place as the worst insurance company in America.” The Ten Worst Insurance Companies in America p. 1.

Although Allstate beguiles consumers with its “good hands” advertising, the study examined Allstate internal documents that instruct claim handlers to use hardball “boxing gloves” tactics against its own policyholders. The Ten Worst Insurance Companies in America p. 3-4. The boxing gloves approach includes lowball offers and hardball litigation, backed up by Allstate’s huge financial might which it asserts against insureds who have the gall to seek the full compensation promised by Allstate’s insurance policy. Former employees describe the boxing gloves approach as the “three Ds”, which are deny, delay, and defend.

Allstate implemented this system, called Claim Core Process Redesign, (CCPR) in 1995 at the urging of consultants McKinsey Company. McKinsey are the “profits above all else” folks who brought you Enron. They proposed a makeover so that Allstate’s processes would focus on profits and enhancing shareholder value over all else, particularly over an insurer’s traditional duties of good faith and fair dealing towards its insureds. For more information about this scheme, see Allstate Finally Releases Development Documents For Its “Boxing Gloves” Claims Adjusting Program.

Why would the good hands people secretly start using boxing gloves on the insureds who put their trust in them? Money. The boxing gloves approach has been incredibly lucrative for Allstate. Allstate’s profit in 2007 alone was $4.6 billion. By comparison, Allstate’s surplus in 1994, accumulated over the entire life of Allstate, was only $6.5 billion. Since implementing CCPR, Allstate’s average net income per year has been approximately $2.25 billion.

From 2000 to 2005 Allstate paid its shareholders dividends of over $10 billion. Allstate has also accumulated enough profits that it began buying back $15 billion of its own stock. Allstate has been very successful in putting these excess profits into its own coffers and the pockets of its executives. The Ten Worst Insurance Companies in America p. 3. Unfortunately, those profits came at the expense of Allstate policyholders who bought the good hands promise but were undercompensated by the boxing gloves treatment when it was time for Allstate to keep its promise.

The profits Allstate has appropriated by underpaying claims raise interesting questions. Since rates are based on claim experience, and for thirteen years Allstate has been paying far less than it did historically and less than the industry generally, why is it continually increasing rates? Given its diminishing loss payments, what data does it use to justify higher rates? As we discussed in an earlier article, part of the problem is lack of effective oversight, including laws in some states like Alaska, that allow insurers to set rates without prior approval. Some states are beginning to see the light. For example, California rejected Allstate’s rate increases on auto insurance, saving its citizens hundreds of millions of dollars. Alaska and other states should start giving Allstate’s rates, and its bad faith claim practices, similar scrutiny.

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