Monday, April 07, 2008

You're in a Bully's Hands with Allstate

"[C]laims organization... revolve[s] around two axes -- standardizing claims awards across the board; and stopping policyholders from hiring lawyers."

-- Allstate Insurance Co., PowerPoint training slide
The highly respected reporter Paige St. John, in Sunday's Sarasota Herald Tribune, boils down some 12,000 pages of previously-secret documents from the vaults of Allstate Insurance Co. to discover "how the nation's second-largest insurer systematically cut payments" to those covered by insurance "as a way to boost profits."

First, the company eliminated much of the discretion of on-site adjusters.

Second, using its own adaptations of computer software known as "Colossus" the company lowered authorized "average payouts for bodily injuries" by "more than 20 percent." This, we are told, was "a big step" toward reaching a consultant company's stated "goal of establishing a new fair market value" for injuries.

Third, Allstate pressured claimants "to accept quick settlements without the help of lawyers." If a policyholder was so bold as to hire a lawyer or hold out for more, Allstate would coach its own lawyers "to refuse to negotiate and to drag out litigation."

Allstate, here, is talking about hurting its own customers who have been paying premiums to the company for auto and property insurance, including hurricane wind insurance. As one lawyer with extensive knowledge of Allstate's abusive policies explains:
"When you look at it from the policyholders' point of view, here you are, your home is flattened. They come to you and offer [a low settlement] to you within the first 180 days.... [when they know] that financial pressure in that first 180 days would be at its greatest." * * *

"They won't walk away happy. They'll just walk away. A lot of them won't understand how badly they've been abused."

Internal company documents also make it clear that Florida was an early and profitable testing ground for Allstate's new strategy:
"Florida East and Florida West are getting phenomenal, never-seen-before results in terms of loss/cost management," a 1997 Allstate newsletter declared. Allstate today pays less than most other auto insurers in Florida for accident injuries, averaging $16,884 per claim in early 2007 compared with an $18,105 average for the industry.
There's no real surprise here for anyone who has ever had a close look into the small, dark heart of Allstate Insurance Company. What is surprising is how blatant the company and its industry consultant, McKinsey & Co., can be when they think no one is looking:
In PowerPoint presentations and discussion papers drawn up for Allstate executives, McKinsey used "boxing gloves" to characterize how Allstate should treat policyholders who balk at settlements. For customers who hired lawyers, McKinsey urged, "align alligators," adding these instructions: "sit and wait."
* * *
PowerPoint slides show the McKinsey consultants also advised Allstate to convince policyholders they did not need lawyers, and then to target those who disregarded that advice for denials, delays and litigation.
In effect, says former Allstate lawyer Robert Healy, who's now in private practice in Tampa, Allstate has become "a bully in the market." That would be the market for justice.

To be sure, "Allstate has been sanctioned by regulators in at least two states." And some policyholders have won "bad faith" claims "forcing it into confidential settlements and large jury verdicts."

However, explains St. John, courts too often have generously ordered verdicts to be cut to a fraction of what juries awarded. By that means, Allstate has managed to keep the lion's share of its gains from bullying customers.
Allstate's incentives to keep the system have proven larger.

Since changing the way it regards claims, the company has reported the largest profits of its 77-year history. It had a record profit of $4.9 billion in 2006. In 2007, it reported a $4.6 billion profit.
The insurance company's trove of secret documents became publicly available only after a Florida appeals court ruled that "state regulators have the right to ban Allstate from writing new policies" if it doesn't turn over evidence of internal policy-making demanded by "state investigators."

What do you want to bet that even now a few hundred million dollars of those skyrocketing profits are being used to buy lobbyists and legislators in Tallahassee, to be sure that Allstate never again is compelled to wash its dirty linen in public? Keep your eye on the current legislative session.

Dept. of Amplification

"All State Insurance Co.'s Behavior "Potentially Criminal'"

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