Delaying Tactics Of Insurance Companies
Delaying Tactics Of Insurance Companies
It has become a standard operating procedure for insurance companies to deny, delay and refuse claims of insurers.
According to the report of the American Association of Justice entitled “Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse” , some of America’s most well-known insurance companies such as Allstate, AIG, and State Farm, among others, have endeavored to deny claims, delay payments, confuse consumers with incomprehensible insurance-speak, and retroactively refuse anyone who may cost them money.
A case in point would be the First Federal Katrina Case filed against State Farm Insurance Company by a Louisiana couple whose home was destroyed by wind damage and flooding during Hurricane Katrina in 2005. The couple contacted their State Farm homeowners’ insurance adjuster who inspected what little was left of the home and decided that the damage was primarily caused by wind first, so the couple would be covered.
Unfortunately, another State Farm adjuster visited them two months later, re-inspected their home and denied their claim stating that the damage was caused by flood waters had caused the damage, so they were not covered. Confused, the couple then hired their own adjuster who agreed with the first assessment – that the damage was caused by wind. They sued State Farm for bad faith.
It was a triumph for the couple because their case prompted the Louisiana jury to decide that homeowners who lost everything during Hurricane Katrina were entitled to insurance coverage from State Farm Insurance Company. It was the first federal trial in Louisiana against the insurer.
Some other delaying tactics used by insurance companies to delay payment include:
- Waiting for third party payment before issuing benefits to the policy holder
- Asking for unnecessary documentation before processing the claim
- Failing to provide an explanation for a delay, hoping the customer will not question the matter
- Approval of a legitimate claim but delay in the payment in the hope that the customer will run out of time in filing a claim and settle for a much lesser payment than what is due the insurer
- Confirmation of coverage. Your adjuster has been taught to “confirm coverage” based on the terms of the insurance policy. Flawed, faulty, or unfair policy interpretation is one of the more common examples of unfair tactics insurance companies will use to delay claims. This process is frequently no more than a search for reasons not to pay claims.
- Requirement for a follow-up recorded statement. While most insurance policies allow for an “examination under oath,” in most cases it is unnecessary and just an excuse for delay.
- Ongoing investigation. While the adjuster has the duty to properly investigate the claim, the adjuster also has the obligation to keep you informed of the status of your insurance claim. If your legitimate questions are met simply with “your claim remains under investigation”, assume that you have a problem.
- Referral to the Special Investigations Unit (SIU). SIU referrals are legitimately a means to investigate potential insurance fraud. Illegitimate SIU referrals represent a process designed to avoid payment of insurance claims.
- Examination Under Oath (EUO). The EUO is a formal proceeding taken under oath in front of a court reporter. Used properly, an EUO is convened when the carrier legitimately requires additional detailed information from the policyholder in order to make a coverage decision. Used illegitimately, EUO’s are set to unfairly target claims for denial. In either event, if you are called for an EUO, there is probably a problem with your claim.
These delaying and refusal strategies are practiced by many insurance companies – even though insurance industry assets have been pegged at about $3.8 trillion. This is more than the GDPs of all but two countries in the world (United States and Japan). Over the last 10 years the property and casualty industry has averaged profits of over $30 billion a year, and the life and health insurance industry has averaged another $30 billion. The CEOs of the top 10 property casualty firms earned an average $8.9 million in 2007, while CEOs at the top 10 life and health insurers earned an average $9.1 million, and CEOs across the industry lead all industries with a median cash compensation of $1.6 million according to the report of the American Association of Justice.
In one of the insurance bad faith cases filed against Allstate, the accident victim’s lawyer introduced in evidence the McKinsey reports. In the mid 1990’s, Allstate hired the McKinsey Company, a New York consulting firm, to show them how to increase their profits. McKinsey did so, but in a way that would make most policyholders cringe.
McKinsey’s advice to save the company money? Avoid paying claims, and when you do – pay less. According to reports, the McKinsey documents showed Allstate how to save nearly $700 million and increase their stock price at the same time. The most damaging part of the reports involved two analogies where McKinsey said that:
- Policyholders who accepted lower settlement offers were “in good hands” (Allstate’s slogan), but those that fought the settlement offer should get Allstate’s “boxing gloves”, and
- Allstate should take an “alligator approach” to claim payments and settlement offers – meaning that the company should just “sit and wait” in the hope of frustrating policyholders to accept less or simply go away.
This would explain why most insurance companies have an employee incentive program to adjusters who met low payment goals and rewards for employees who deny valid claims.
The bottom line is that the delaying tactics used by insurance companies translate to more money and profits for them. The more they hold on to your money by way of premiums paid, the more earnings they will get. To the detriment, of course, of you, the insured, who will have to suffer delayed payment of justified claims or denial of payment altogether. Oftentimes, policyholders and claimants are forced to litigate.
If you have experienced any of the delaying tactics of the insurance companies mentioned in this article, you need an experienced lawyer for assistance.