At The Cagle Firm, we have the opportunity to see how various insurance companies operate and we learn, through observation, the policies and procedures that drive them, especially when handling a claim. Every day we deal with these companies and this ongoing interaction gives us unique insight into their business practices. We see how they treat their policy holders, especially settling a claim. The value of the settlements that they try to offer their policy holders speaks volumes about the ethical line they tow. What is more telling though is the length of time that they take settle.
Insurance companies are held to a higher ethical standard that most other businesses and are bound by laws that require them to act in good faith when they are settling and paying a claim. These laws recognize that people’s lives and wellbeing are directly affected by the outcome of claims. It touches businesses, the economy, and society as a whole. A person’s life can come to a screeching halt while they wait for a claim to settle. It is because of this that the law has more stringent mandates for how the insurance companies operate and how fast and efficient they must be. At least, that is the intention.
Good Faith takes a Back Seat to Profit
Some companies slip below the radar and engage in unethical, even harmful practices. Weak regulation leaves gaping holes in the fabric of the law, allowing insurance companies to operate according to a model that focuses on profit and pushes good faith to the backburner. These practices have been in use since the mid-1990s and they destabilize the traditional contract and trust between policy holders and insurance companies.
Where the claims once served the policy holder, they soon became a source of revenue for insurance companies, but with a very shady undercurrent. The mastermind of this scheme was consulting superstar McKinsey & Company. Allstate insurance hired them in 1992 and other top insurance companies soon followed suit as McKinsey promised a profit heavy system that he promised would boost their bottom line. This plan was detailed in a mere 12,000 slides that McKinsey created.
The computer driven method tossed aside traditional claims adjusting practices in favor of intentional low-ball offers to claimants. It annihilated the humanity aspect of adjusting a claim where claims managers could work with customers in an effort to best serve them in favor of a system that no longer saw people, but dollar symbols.
The McKinsey Strategy
The scheme was reinforced with practices that rewarded compliant behavior and punished those who pushed back. In other words, if a person accepted the low-ball offer, he or she would receive prompt, even expedient service. A person who did not accept the low-ball offer was, in effect, punished by the insurance company which delayed their claims. Often the person was forced to file lawsuits which were expensive, time consuming, and emotionally taxing, just so they could receive the benefits that they deserved.
The reasoning behind this unscrupulous maneuver was to drive up the cost of claims, both monetarily and timewise, that attorneys would eventually begin refusing personal injury cases, leaving those clients (the insurance companies’ customers) essentially helpless with no access to legal representation or help in getting the compensation that was, technically, already theirs.
McKinsey’s strategy focused on profit as the ultimate end game. One of the slides in his presentation are reported to read, “Improving Allstate’s casualty economics will have a negative economic impact on some medical providers, plaintiff attorneys, and claimants. … Allstate gains — others must lose.”
Allstate definitely benefitted from this maneuver. In 2007, the company’s profits topped $46 billion. This is twice as much as it made in the 1990s. The enormous increase is directly related to Allstate’s adherence to the McKinsey method – paying substantially less on claims thanks to shady low-ball practices.
Insurance Companies Still use the McKinsey Method Today
Today, the McKinsey method is still very much alive and insurance companies (including Allstate) are still using it – although they deny it, passing off delayed claims as flukes or hiccups in the system. In truth though, the delays are intentional.
When you have an accident you file a claim with your insurance company. Sometimes they will send a claims adjuster to inspect the vehicle – who will often tell you that a) your damage is not covered, or b) it is covered and they give you a low-ball offer. Most people trust their insurance company to act in their best interest. They aren’t very savvy when it comes to the claims process so they just accept it. They have no idea that their own insurance company is duping them.
If you have been in an accident, don’t accept that claim settlement until you talk to us. Call The Cagle Law Firm today at 888-353-3619 or use our web form to contact us. Let us help you navigate the complex system and get the compensation that you truly deserve.