Author throws punch at Allstate
Tough tactics alleged if payouts resisted
By Becky Yerak
Tribune staff reporter
Published May 3, 2006
Allstate Corp., fresh from fending off criticism about its response to policyholders affected by Hurricane Katrina, faces another potential storm, this one from an author who claims the insurer is forcing policyholders to accept prompt but lower payouts or risk time-consuming and expensive litigation.
The alleged hard-nosed tactics are laid out in the book \”From Good Hands to Boxing Gloves,\” due out this summer. The book claims that the nation\’s second-largest home and auto insurer treats some policyholders with \”boxing gloves\” during their time of financial and personal duress, rather than the reassuringly familiar \”good hands\” highlighted in its advertising.
In the process, the author claims, Allstate, which just celebrated its 75-year anniversary, has flouted what were once long-held industry principles that an insurer act as a fiduciary for a claims fund and not siphon off excessive profits until a policy period has passed and legitimate payouts are made.
The toughened-up practices have paid off, at least financially, generating more than $15 billion in excess profits for Allstate since 1995, according to author David Berardinelli, a New Mexico lawyer who has sued Allstate more than a dozen times since 1997 over the company\’s alleged mistreatment of customers.
The title of Berardinelli\’s book, aimed at trial lawyers, was inspired by a controversial PowerPoint slide that McKinsey & Co., a key player in the saga, worked up for publicly traded Allstate as they began developing more consistent claims protocols in the early 1990s.
For its part, Allstate defends its claims practices, which were rolled out in 1995 and have been upheld more than half a dozen times in state and federal courts.
\”There has been case after case after case where it has been tried and litigated, and found to be fair and appropriate,\” Allstate spokesman Michael Trevino said.
Allstate says its claims system in fact helps policyholders because it does a better job of identifying illegitimate claims.
Still, since 2004 the company has admittedly defied a judge\’s order in a case involving Berardinelli to publicly make available McKinsey\’s PowerPoint presentation.
Allstate, which calls its actions \”respectful civil disobedience,\” says the slides contain trade secrets.
\”We\’ve invested time and energy to develop claims processes to position Allstate much more effectively against our competitors,\” Trevino said. \”To make that freely available to our competitors puts us at a competitive disadvantage.\”
Doug Heller, executive director of the watchdog group Foundation for Taxpayer & Consumer Rights, agrees with Berardinelli, saying that it is counterintuitive for an insurance company to treat its claims division as a profit center.
\”Insurance companies are supposed to make money by building a customer base, investing the premiums safely and doing a good job of underwriting so they have enough money to pay claims and maintain profits,\” Heller said.
They\’re not supposed to squeeze \”more money out of the claims process by lowballing customers,\” who are in a vulnerable state to begin with because they have just had an accident, he said.
\”Unlike the insurance industry\’s propaganda where they say they are trying to ferret out fraud, the reality is that 99.9 percent of the people who file a claim have just undergone something ranging from unpleasant to traumatic, and they don\’t want a fight,\” Heller said. \”People who are traumatized and financially in a jam are easily preyed upon.\”
Some insurance industry observers suggest Berardinelli is making overgeneralizations about Allstate\’s practices.
Donald Light, a senior analyst at Celent, a financial research and consulting firm, said it is unusual that Allstate would defy a direct court order to hand over the McKinsey documents. But he said there is nothing wrong, per se, in paying off some claimants in short order while contesting others.
\”Those are legal, ethical and fair practices in the abstract,\” Light said. \”Every insurance company should be doing the things that Allstate is accused of doing, to be fair to its owners and its other policyholders,\” he added. \”The real question is has it been applying it in an unfair or unethical way.\”
Another industry observer said insurance companies\’ protocols are rarely, if ever, intentionally aimed at paying less than what is owed. At the same time, he said, lawyers make a living by looking for weaknesses in the protocols.
\”Insurers, especially big ones such as Allstate, are excellent targets for lawsuits, and couldn\’t survive for 10 minutes if they had truly inappropriate procedures,\” said Brian Sullivan, editor of Risk Information Inc., which publishes Auto Insurance Report and Property Insurance Report.
\”When a lawyer holds a seminar or writes a book about how to maximize insurance company claims, it is almost always because they don\’t have enough clients to make money as a lawyer,\” Sullivan said. \”If the lawyer has found a true problem, Allstate has already fixed it, to protect themselves from claims and lawsuits. It\’s what they do for a living.\”
In his long-running battle with Allstate Berardinelli was allowed to get a restricted viewing of the McKinsey PowerPoint documents. They formed the basis first for a 16-page August 2005 article that he wrote for New Mexico Trial Lawyer and is now expanding into a book.
He declined to make an advance copy of his book available, but his August 2005 article traced how Allstate began taking a more adversarial stance against policyholders.
The change can be traced to 1992, when Allstate retained McKinsey to redesign its claims-handling systems, Berardinelli wrote. The consulting firm worked with the insurer until 1997.
\”Our goal is to redefine the game . . . to . . . radically alter our whole approach to the business of claims,\” according to the 1995 implementation and training manual for McKinsey\’s plan.
McKinsey had recommended that Allstate adopt a \”zero-sum game,\” akin to a poker game in which players compete for the money of other players. As an insurer, Allstate would essentially compete with policyholders for profits in the pool of funds that had accumulated to pay off claims, Berardinelli said in his article.
McKinsey, which declined to comment for this story, found that most policyholders would want to avoid the expense and delay of going to court, Berardinelli wrote.
\”Instead of a system designed to deliver prompt and fair payment of claims, McKinsey designed its system to deliver either prompt payment or fair payment,\” but not both, he wrote.
Allstate could give \”good hands\” service to 90 percent of the claims, settling them within 180 days, Berardinelli wrote, citing a McKinsey slide.
The rest would receive the \”boxing gloves\” treatment, with some claims taking more than four years to settle, he said.
\”The message of McKinsey\’s ‘Good Hands to Boxing Gloves\’ slide is forcefully frank,\” Berardinelli wrote. \”Policyholders who voluntarily accept lower loss payouts will receive the ‘good hands\’ treatment, i.e., prompt payment.
\”On the other hand, policyholders who resist lower loss payouts will receive the ‘boxing gloves\’ treatment, i.e., aggressive litigation tactics deliberately designed to make litigating claim values with Allstate time-consuming and so prohibitively expensive that any possible victory by the policyholder will be a purely Pyrrhic proposition.\”
In early testing, McKinsey found its new plan was not achieving the desired results because too many Allstate adjusters were clinging to the old way of doing business, he said.
So McKinsey adopted a new employee job performance measure that \”would effectively force adjusters to see policyholders who resist . . . as an obstacle to achieving good job performance evaluations, making it natural for [the adjusters] to adopt McKinsey\’s ‘boxing gloves\’ approach,\” Berardinelli wrote.
\”The ability, or even the willingness, to compromise would be replaced by take-it-or-leave-it negotiating tactics.\”
Subject: RE: Big Shock – Allstate Knowingly Underpays Claims Info
Posted On: April 17, 2006, 5:27 pm CDT
Posted By: Roger Poe
Comment:From Previous Insurance Journal Article 4-17-2006
A bigger shock is market conduct reality proof industry insiders / contractors have from \”adjusters\”, that show\’s exactly how some insurers are intentionally and deceptively underpaying claims;
Too, highly knowledgable and experienced catastrophe adjusters DO KNOW about Allstate claim settlement conduct.
Consider the following testimony (from a catastrophe adjusters site) by an ex- Allstate claim management insider that seems to clearly indicate that Allstate has \’conspired\’ to underpay claims in Texas…and loves our money.
__________
I just recieved my adjusters liscence, from The Great State of Texas. I have 22 years in construction (framing, roofing, sales & concrete). I am an excellent estimator, and can build anything from a dawg house to a church.
I am having a hard time finding a job in the adjusting field. I know what my angle is now. Imagine having an adjusters liscence, and being a contractor. I am calling Allstate tommorow. You have to change with the times.
I would not advise calling Allstate if you wish to keep your integrity intact.
After almost 7 years with them and having held a variety of positions, including the sole Quality Evaluator for the entire southern half of Texas, I finally became fed up with their approach to requiring every adjuster to KNOWINGLY underpay every claim and left them this past July.
The head of Allstate in Texas – Gary Briggs – had the nerve to stand up in front of an agent\’s meeting last spring and say (QUOTE) \”I love the new HOA+ policy! It doesn\’t cover anything and WE STILL GET TO KEEP THEIR MONEY!\”
I used to tell people whose claim I was handling that \”the good hands of Allstate were right here\” as I held my hands out for them. I could no longer do that in good faith and look myself in the mirror so I left.
One of these days the Texas DOI is going to catch up with their property handling practices and then it will all hit the fan!
Good luck with anyone else!
Kevin Hromas Country: USA | Posts: 75
__________
Copy and paste the following link into your browsers\’ address line to verify the above testimony.
Obviously underpaying claims will help improve a company\’s loss ratio factor desired by them. (Premium dollars collected minus under-assessing property damage and undisclosed construction procedures, and underpaying claim values = the potential for higher year-end contingent profits.
All accomplished right under (most of)their trusting clients noses…
You may also want to check into the 2 Billion dollar hurricane Isabel FEMA – NFIP – WYO lawsuit against certain trusted insurers, Allstate included, and their claims adjusting associates and agents at;
In 1969 when hurricane Camille hit, the same thing happened to the insurance companies in Mississippi. They were sued for the storm surge that destroyed their houses, because the hurricane is what caused the storm surge. All the insurance companies were sued this time because they never changed the wording in there policy. Two, agents told customers they were not in a flood zone and did not need flood insurance. Three, the hurricane deductible endorsement states we cover an insured loss or any object(s) driven by a windstorm. Can you taste, feel, smell, hear, and see water. If you can water is an object. Therefore, you can replace water or any other object in the place of object. This states this changes your policy not only once but twice.
Wow, I would have thought you would have been all over this one by now. You\’re slipping Mr. Poe!
Author throws punch at Allstate
Tough tactics alleged if payouts resisted
By Becky Yerak
Tribune staff reporter
Published May 3, 2006
Allstate Corp., fresh from fending off criticism about its response to policyholders affected by Hurricane Katrina, faces another potential storm, this one from an author who claims the insurer is forcing policyholders to accept prompt but lower payouts or risk time-consuming and expensive litigation.
The alleged hard-nosed tactics are laid out in the book \”From Good Hands to Boxing Gloves,\” due out this summer. The book claims that the nation\’s second-largest home and auto insurer treats some policyholders with \”boxing gloves\” during their time of financial and personal duress, rather than the reassuringly familiar \”good hands\” highlighted in its advertising.
In the process, the author claims, Allstate, which just celebrated its 75-year anniversary, has flouted what were once long-held industry principles that an insurer act as a fiduciary for a claims fund and not siphon off excessive profits until a policy period has passed and legitimate payouts are made.
The toughened-up practices have paid off, at least financially, generating more than $15 billion in excess profits for Allstate since 1995, according to author David Berardinelli, a New Mexico lawyer who has sued Allstate more than a dozen times since 1997 over the company\’s alleged mistreatment of customers.
The title of Berardinelli\’s book, aimed at trial lawyers, was inspired by a controversial PowerPoint slide that McKinsey & Co., a key player in the saga, worked up for publicly traded Allstate as they began developing more consistent claims protocols in the early 1990s.
For its part, Allstate defends its claims practices, which were rolled out in 1995 and have been upheld more than half a dozen times in state and federal courts.
\”There has been case after case after case where it has been tried and litigated, and found to be fair and appropriate,\” Allstate spokesman Michael Trevino said.
Allstate says its claims system in fact helps policyholders because it does a better job of identifying illegitimate claims.
Still, since 2004 the company has admittedly defied a judge\’s order in a case involving Berardinelli to publicly make available McKinsey\’s PowerPoint presentation.
Allstate, which calls its actions \”respectful civil disobedience,\” says the slides contain trade secrets.
\”We\’ve invested time and energy to develop claims processes to position Allstate much more effectively against our competitors,\” Trevino said. \”To make that freely available to our competitors puts us at a competitive disadvantage.\”
Doug Heller, executive director of the watchdog group Foundation for Taxpayer & Consumer Rights, agrees with Berardinelli, saying that it is counterintuitive for an insurance company to treat its claims division as a profit center.
\”Insurance companies are supposed to make money by building a customer base, investing the premiums safely and doing a good job of underwriting so they have enough money to pay claims and maintain profits,\” Heller said.
They\’re not supposed to squeeze \”more money out of the claims process by lowballing customers,\” who are in a vulnerable state to begin with because they have just had an accident, he said.
\”Unlike the insurance industry\’s propaganda where they say they are trying to ferret out fraud, the reality is that 99.9 percent of the people who file a claim have just undergone something ranging from unpleasant to traumatic, and they don\’t want a fight,\” Heller said. \”People who are traumatized and financially in a jam are easily preyed upon.\”
Some insurance industry observers suggest Berardinelli is making overgeneralizations about Allstate\’s practices.
Donald Light, a senior analyst at Celent, a financial research and consulting firm, said it is unusual that Allstate would defy a direct court order to hand over the McKinsey documents. But he said there is nothing wrong, per se, in paying off some claimants in short order while contesting others.
\”Those are legal, ethical and fair practices in the abstract,\” Light said. \”Every insurance company should be doing the things that Allstate is accused of doing, to be fair to its owners and its other policyholders,\” he added. \”The real question is has it been applying it in an unfair or unethical way.\”
Another industry observer said insurance companies\’ protocols are rarely, if ever, intentionally aimed at paying less than what is owed. At the same time, he said, lawyers make a living by looking for weaknesses in the protocols.
\”Insurers, especially big ones such as Allstate, are excellent targets for lawsuits, and couldn\’t survive for 10 minutes if they had truly inappropriate procedures,\” said Brian Sullivan, editor of Risk Information Inc., which publishes Auto Insurance Report and Property Insurance Report.
\”When a lawyer holds a seminar or writes a book about how to maximize insurance company claims, it is almost always because they don\’t have enough clients to make money as a lawyer,\” Sullivan said. \”If the lawyer has found a true problem, Allstate has already fixed it, to protect themselves from claims and lawsuits. It\’s what they do for a living.\”
In his long-running battle with Allstate Berardinelli was allowed to get a restricted viewing of the McKinsey PowerPoint documents. They formed the basis first for a 16-page August 2005 article that he wrote for New Mexico Trial Lawyer and is now expanding into a book.
He declined to make an advance copy of his book available, but his August 2005 article traced how Allstate began taking a more adversarial stance against policyholders.
The change can be traced to 1992, when Allstate retained McKinsey to redesign its claims-handling systems, Berardinelli wrote. The consulting firm worked with the insurer until 1997.
\”Our goal is to redefine the game . . . to . . . radically alter our whole approach to the business of claims,\” according to the 1995 implementation and training manual for McKinsey\’s plan.
McKinsey had recommended that Allstate adopt a \”zero-sum game,\” akin to a poker game in which players compete for the money of other players. As an insurer, Allstate would essentially compete with policyholders for profits in the pool of funds that had accumulated to pay off claims, Berardinelli said in his article.
McKinsey, which declined to comment for this story, found that most policyholders would want to avoid the expense and delay of going to court, Berardinelli wrote.
\”Instead of a system designed to deliver prompt and fair payment of claims, McKinsey designed its system to deliver either prompt payment or fair payment,\” but not both, he wrote.
Allstate could give \”good hands\” service to 90 percent of the claims, settling them within 180 days, Berardinelli wrote, citing a McKinsey slide.
The rest would receive the \”boxing gloves\” treatment, with some claims taking more than four years to settle, he said.
\”The message of McKinsey\’s ‘Good Hands to Boxing Gloves\’ slide is forcefully frank,\” Berardinelli wrote. \”Policyholders who voluntarily accept lower loss payouts will receive the ‘good hands\’ treatment, i.e., prompt payment.
\”On the other hand, policyholders who resist lower loss payouts will receive the ‘boxing gloves\’ treatment, i.e., aggressive litigation tactics deliberately designed to make litigating claim values with Allstate time-consuming and so prohibitively expensive that any possible victory by the policyholder will be a purely Pyrrhic proposition.\”
In early testing, McKinsey found its new plan was not achieving the desired results because too many Allstate adjusters were clinging to the old way of doing business, he said.
So McKinsey adopted a new employee job performance measure that \”would effectively force adjusters to see policyholders who resist . . . as an obstacle to achieving good job performance evaluations, making it natural for [the adjusters] to adopt McKinsey\’s ‘boxing gloves\’ approach,\” Berardinelli wrote.
\”The ability, or even the willingness, to compromise would be replaced by take-it-or-leave-it negotiating tactics.\”
———-
byerak@tribune.com
Subject: RE: Big Shock – Allstate Knowingly Underpays Claims Info
Posted On: April 17, 2006, 5:27 pm CDT
Posted By: Roger Poe
Comment:From Previous Insurance Journal Article 4-17-2006
A bigger shock is market conduct reality proof industry insiders / contractors have from \”adjusters\”, that show\’s exactly how some insurers are intentionally and deceptively underpaying claims;
Too, highly knowledgable and experienced catastrophe adjusters DO KNOW about Allstate claim settlement conduct.
Consider the following testimony (from a catastrophe adjusters site) by an ex- Allstate claim management insider that seems to clearly indicate that Allstate has \’conspired\’ to underpay claims in Texas…and loves our money.
__________
The link is provided after the testimony;
Brooks Todd Posted – 12/18/2003 : 19:10:52
——————————————
I just recieved my adjusters liscence, from The Great State of Texas. I have 22 years in construction (framing, roofing, sales & concrete). I am an excellent estimator, and can build anything from a dawg house to a church.
I am having a hard time finding a job in the adjusting field. I know what my angle is now. Imagine having an adjusters liscence, and being a contractor. I am calling Allstate tommorow. You have to change with the times.
Brooks
khromas Posted – 12/18/2003 : 23:06:22
——————————————
Brooks,
I would not advise calling Allstate if you wish to keep your integrity intact.
After almost 7 years with them and having held a variety of positions, including the sole Quality Evaluator for the entire southern half of Texas, I finally became fed up with their approach to requiring every adjuster to KNOWINGLY underpay every claim and left them this past July.
The head of Allstate in Texas – Gary Briggs – had the nerve to stand up in front of an agent\’s meeting last spring and say (QUOTE) \”I love the new HOA+ policy! It doesn\’t cover anything and WE STILL GET TO KEEP THEIR MONEY!\”
I used to tell people whose claim I was handling that \”the good hands of Allstate were right here\” as I held my hands out for them. I could no longer do that in good faith and look myself in the mirror so I left.
One of these days the Texas DOI is going to catch up with their property handling practices and then it will all hit the fan!
Good luck with anyone else!
Kevin Hromas Country: USA | Posts: 75
__________
Copy and paste the following link into your browsers\’ address line to verify the above testimony.
http://72.14.203.104/search?q=cache:LH8RbB9s00UJ:www.catadjuster.org/forum/m_899/mpage_10/key_/tm.htm+gary+briggs+allstate+intentionally+underpay+claims&hl=en&gl=us&ct=clnk&cd=2
__________
Obviously underpaying claims will help improve a company\’s loss ratio factor desired by them. (Premium dollars collected minus under-assessing property damage and undisclosed construction procedures, and underpaying claim values = the potential for higher year-end contingent profits.
All accomplished right under (most of)their trusting clients noses…
You may also want to check into the 2 Billion dollar hurricane Isabel FEMA – NFIP – WYO lawsuit against certain trusted insurers, Allstate included, and their claims adjusting associates and agents at;
http://www.femainfo.us
http://www.femainfo.us/legal_actions_fraud_suit.shtml
rogerpoegc@yahoo.com
In 1969 when hurricane Camille hit, the same thing happened to the insurance companies in Mississippi. They were sued for the storm surge that destroyed their houses, because the hurricane is what caused the storm surge. All the insurance companies were sued this time because they never changed the wording in there policy. Two, agents told customers they were not in a flood zone and did not need flood insurance. Three, the hurricane deductible endorsement states we cover an insured loss or any object(s) driven by a windstorm. Can you taste, feel, smell, hear, and see water. If you can water is an object. Therefore, you can replace water or any other object in the place of object. This states this changes your policy not only once but twice.