Good Neighbor; Good Hands

And you're screwed. Bloomberg (08.03.07), via FirstDraft:

"[Julie] Tunnell joined thousands of people in the U.S. who already knew a secret about the insurance industry: When there's a disaster, the companies homeowners count on to protect them from financial ruin routinely pay less than what policies promise."

Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits

"Insurers often pay 30-60 percent of the cost of rebuilding a damaged home -- even when carriers assure homeowners they're fully covered, thousands of complaints with state insurance departments and civil court cases show."

"Paying out less to victims of catastrophes has helped produce record profits. In the past 12 years, insurance company net income has soared -- even in the wake of Hurricane Katrina, the worst natural disaster in U.S. history."

How did this come to be? "Although the tension between insurers and their customers has long existed, it was in the 1990s that the industry began systematically looking for ways to increase profits by streamlining claims handling." So they hired a consultant, McKinsey & Co., to make some recommendations.

The idea? First, after a claim is filed, you get the carrot or the stick. "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." This is the "Boxing Glove" strategy.

At the same time, drag it out. This is known as the "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."

Is it working? Only too well. "Allstate spent 58 percent of its premium income in 2006 for claim payouts and the costs of the process compared with 79 percent in 1996, according to filings with the U.S. Securities and Exchange Commission." It's been "decreasing since Allstate hired McKinsey."

And State Farm? Hell, it's "profits have doubled since 1996 to $4.8 billion in 2006."

Ha, ha. Pretty funny. Guess the joke's on us, eh?

And the nerve of those big, bad plaintiff's lawyers (links via FirstDraft).

"The Alligator" may not be working as well as it once did. Bloomberg (01.11.07):

"State Farm yesterday was refused a delay of the trial based on alleged jury bias following media coverage of the Jan. 11 verdict.

The company said it wanted to appeal issues common to both cases and claimed in court papers that Senter made mistakes in the first case."

State Farm Must Pay Couple $2.7 Million for Katrina