Boxing Gloves and Alligators or How insurance companies iz learning and profiting....Bloomberg Reports

Bloomberg has a must read special report on how insurance companies have made record soaring profits by limiting payouts to victims of disasters and  catastrophes.

The report traces the genesis of the despicable practices back to the 1990's when insurance companies utilized uber consultant McKinsey & Co aka The Firm. The high powered, shall we say, Bastards, gave the insurance companies and unfortunately all us little people--"Boxing gloves" and "Alligators".....

In September 1992, Allstate Corp., the second-largest U.S. home insurer, sought advice on improved efficiency from McKinsey & Co., a New York-based consulting firm that has advised many of the world's biggest corporations, according to records in at least six civil court cases.         

State Farm, based in Bloomington, Illinois, and Los Angeles-based Farmers Group Inc., the third-largest home insurer in the U.S., also hired McKinsey as a consultant, court records show.         

`Boxing Gloves'         

McKinsey produced about 13,000 pages of documents, including PowerPoint slides, in the 1990s, for Northbrook, Illinois-based Allstate. The consulting firm developed methods for the company to become more profitable by paying out less in claims, according to videotaped evidence presented in Fayette Circuit Court in Lexington, Kentucky, in a civil case involving a 1997 car accident.

One slide McKinsey prepared for Allstate was entitled ``Good Hands or Boxing Gloves,'' the tape of the Kentucky court hearing shows. For 57 years, Allstate has advertised its employees as the ``Good Hands People,'' telling customers they will be well cared for in times of need.         

The McKinsey slides had a new twist on that slogan.         

When a policyholder files a claim, first make a low offer, McKinsey advised Allstate. If a client accepts the low amount, Allstate should treat the person with good hands, McKinsey said. If the customer protests or hires a lawyer, Allstate should fight back.         

``If you don't take the pittance they offer, they're going to put on the boxing gloves and they're going to batter injured victims,'' plaintiffs attorney J. Dale Golden told Judge Thomas Clark at the May 12, 2005, hearing in which the lawyer introduced the McKinsey slides.         

The Alligator         

One McKinsey slide displayed at the Kentucky hearing featured an alligator with the caption ``Sit and Wait.'' The slide says Allstate can discourage claimants by delaying settlements and stalling court proceedings.         

By postponing payments, insurance companies can hold money longer and make more on their investments -- and often wear down clients to the point of dropping a challenge. ``An alligator sits and waits,'' Golden told the judge, as they looked at the slide describing a reptile.         

McKinsey's advice helped spark a turnaround in Allstate's finances. The company's profit rose 140 percent to $4.99 billion in 2006, up from $2.08 billion in 1996. Allstate lifted its income partly by paying less to its policyholders.         

There is much more in the Bloomberg report but for more on the exposure of  the role of McKinsey & Co go here and here and  here. From the second link, we learn the McKinsey & Co assisted insurance companies dramatically reduced their payout ratios.....

At Allstate, claims paid fell from 87.2 percent of premiums charged in 1992 to 43.5 percent last year, according to the CFA's Hunter.

At State Farm the ratio dropped from 77.5 percent in 1994 to 66.6 percent in 2005 (the most recent figure available), while at Farmers it fell from 74.7 percent in 2001 to 56.9 percent.

But as the Bloomberg report points out  reducing payouts is now  standard across the insurance industry with "more audacious" practices becoming prevalent such as raising premiuims, withdrawing from storm plagued areas, use of computer technology to limit claims and just plain outright lying in denial of claims. The bottom line--their business is not to pay you.  Fair and equitable settlements are passe.The report concludes with....

As long as insurers make the rules and control the game, Tunnell and homeowners across the U.S. won't know whether their homes are fully insured, no matter what their policies say.

Comments

[Dorothy]

You know, I knew some selfish, obnoxious assholes back in school, and I often wondered where they would be able to find a job with that "I got mine, so now I'll take yours just to fuck you over" attitude they had.

Now I know. McKinsey: Assholes for hire. Have rotten, shriveled heart; will travel.

[hipparchia]

I used to believe all that crap about tort reform, and that trial lawyers were pond scum, and that if you paid your insurance premiums on time, the safety net would be there for you if you needed it.

I have quite the change of heart in the last few years.

[Interrobang]

A friend of mine was trying to lay the line on me that if "the insurance companies paid out all those claims, they'd go bankrupt." I said I didn't have figures on it, but that I seriously doubted it, and that I'd look it up. Thanks for sparing me the trouble of doing all that research.

Those bastards are crying poor-mouth all the way to the bank. They're going so broke they don't know whether to buy a BMW in every colour, or just most of them.

[Diogenes]

Funny how the most strident supporters of the unerring guidance of the
free market's "invisible hand" change their tune when the need arises. If
grotesque profits are still not enough to protect insurance companies from
ruin when they have to pay out after a big event then maybe they are just
really bad at their job of assessing risk. If that is the case, doesn't the
inexorable law of the free market demand they go out of business so that
a better, cheaper insurance company can fill their niche?

Insurance companies are essentially giant groups of gamblers. They are
betting that you will end up paying more in premiums than they will have to
pay out in claims over the life of your policy. Most of the time they are
right, but when they bet wrong they shouldn't get an out. Do these insurance
company apologists also believe that I can go to Vegas, drop the rent for next
month on red, and I shouldn't have to pay up because I'd be ruined when black
comes up?

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