Delay, Deny, Defend

Jay M. Feinman.  2010. Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claim and What You Can Do About It.

Nearly all of the 3,500 families who burned down in the Oakland 1991 firestorm formed groups by insurance company to compare how we were being treated.

There are various “buckets” of money you are trying to get. The first one is living expenses for one year, and right away we could see that minorities, single women, older people, and other vulnerable families were getting less money than other families.

Then, after we spent half a year working with a claims examiner to “rebuild” our house, nail by nail, board by board, counter top by counter top, so the value could be assessed, resulting in a 2 inch high document, we were made a low ball offer, which we accepted to get on with our lives. And then this offer was retracted and we were suddenly switched to another examiner and the whole process started again from scratch. We were told this was because the new examiner didn’t understand the old examiner’s methods.

And why were we switched? Because our first examiner had had a family emergency. We called to leave a condolence message with our first examiner, and she said “What emergency?”

And this despite the fact that we were ahead of 99% of other homeowners, who had needed to hire architects to reconstruct the plans of their homes. But we had the plans — the former owner was a contractor who’d added on to our house and had them.

We knew of people who were already on their 3rd examiner (and after 2 years, we knew of people on their 8th examiner), so we knew what was coming, and despaired of ever getting on with our lives. And most importantly, of being able to cope with the end of the living expense money which only lasts for 1 year, yet meanwhile you have to pay rent PLUS your mortgage and property taxes.

Well, I won’t bore you with the rest of our story, but trust me, it gets much worse. For everyone, not just us.

This book is valuable because I can see that the insurance industry learned from the 1991 Oakland firestorm and other disasters how to screw people over even worse and with more sophistication. You simply must read this book if you hope to get any money at all for your claim!

And you should also join United Policyholders, the only group I know of dedicated to protecting people from insurance companies, and a way to try to keep up with their latest ways to keep you from collecting the insurance you deserve. Banks and Wall Street are getting all the flak now, but believe me, the insurance companies are just as evil. Though the banks are pretty bad! Look at what the banks and lenders are doing with the insurance checks if you finally manage to get one (from the July 2012 United Policyholders “What’s Up” newsletter):

If you have a mortgage, the lender is almost always listed on your home insurance as an additional insured. So if your home is significantly damaged ($5,000 or more) and your insurer sends a check for the repairs, that check will usually be made out to both you and the lender. Before you can access the funds, you need the lender’s sign-off.

Under normal circumstances, lenders want borrowers to repair and maintain their homes, and they will sign off on insurance checks so that can happen. But in today’s economy, lenders are increasingly forcing disaster victims to use their insurance benefits to pay down their loan instead of repairing or rebuilding. This has been a serious problem for wildfire survivors we’re helping in Bastrop, Texas.

To help consumers successfully negotiate lender releases, UP recently published “Texas Tips on Your Insurance Money and Your Mortgage” to supplement our popular “Getting Your Mortgage Company to Release Insurance Proceeds”. The Texas tips were written by volunteer attorneys Ken Klein (’03 Cedar Fire survivor) and Chris Files (Bastrop County Long Team Recovery Team) and published with support from the Austin Community Foundation. This topic is now part of our standard Roadmap to Recovery curriculum and will be on the agenda for our Colorado wildfire recovery program.

Back to the book review. In his introduction, jay M. Feinmnan explains why he wrote his book:
* Insurance is essential to the middle class standard of living and economic security * Therefore prompt and fair claim handling is a necessity * But it doesn’t always happen – and it’s less likely to happen now than 15 or 20 years ago. This book explains why

What actually happens: Delay, Deny, Defend.

The insurance company will delay payment, deny part or all of your payment, and fight back hard if you bring a lawsuit against them. Insurance is a promise with severe consequences if the promise isn’t kept.

Why

The less the insurance company pays out in claims, the more money it makes.

United States statistics * A trillion-dollar industry * 2,700 property/casualty insurance companies * Collect $440 billion in premiums * Pay out $250 billion in claims * Wow – that’s $190 Billion in profits! They keep 43 cents of every premium dollar!

Pure Loss Ratio

This is the term for the amount paid out – 56 cents for every dollar received. Of course there are salaries and expenses of many kinds, clearly not all of a dollar can be paid out.

When I worked for EDS on the Medicare account, the claims processor, Blue Shield, kept 1 penny for every 99 cents paid out in Medicare claims. It should be total illegal to keep more than 15% of the premiums!

The insurance companies say that in the end, after paying salaries, stockholders, rent, and so on, that they get 5 cents of every dollar. But remember, they’re not just sitting on it, they’re investing it, so much so that they’ve been described as “investment companies that raise the money for their investments by selling insurance”. There’s a time lag between taking premiums and paying out claims. The money earned in the meantime is a huge source of profits. So even if the insurance company only breaks even after paying out claims and expenses, they still come out ahead on their investments.

When did insurance companies start keeping so much of the money?

In the 1990s had a flashbulb go off in their heads: the less paid out in claims, the more profits. At that point, the claims department became a profit center instead of keeping their promises to the insured. Back in 1987, 67 cents was paid out, 10 cents more than today.

Key in this happening was when Allstate hired consulting firm McKinsey & Company to study new ways of dealing with claims. McKinsey came up with a strategy of rigged computer systems to set the amounts offered to policyholders, strategies to keep claimants from hiring lawyers to help them, and settlements offered on a take-it-or-litigate basis. McKinsey told Allstate to go from “Good Hands” to “Boxing Gloves”.

Mutual insurance companies are owned by their policyholders, not stockholders, so they share in the company’s profits via payment of dividends on their policies, which reduces their premiums. But in the 1980s and 1990s, companies became “demutualized” and owned by shareholders, who demanded profits.

The new computer systems

Adjusters found the new computer systems to offer amounts that were unfair and unreasonable. Some became whistle blowers and revealed what was happening. Insurance companies tried to silence them and those who wouldn’t give in to the pressure were an important source of information for this book.

Processing claims without delay is required by law Yet since delay helps companies bottom line – the longer they hang onto the money, the more it earns in their investments. Delay also increases the likelihood a claimant will tale less than what they deserve to get on with their lives.

How the delays and denials are done is one of the reasons you should buy this book Seeing what happened to other people may help you see if you’re being treated the same way. Chapter 2 “How insurance doesn’t work” has examples of medical and home burglary, etc.

There must be 50 ways to Deny Claims

* Lowballing: offering low settlemtns to signal the insurance company is willing to fight the claim and lower the claimant’s expections * Stonewalling: refusing to negotiate a settlement because the claimant has limited resources and increasing medical and legal bills. * Tell the claimant their insurance doesn’t cover the loss * Keep denying liability even if sued * If there aren’t any facts to deny a claim, find some

Why do insurance companies want tort reform?

Insurance companies claim there are to many frivolous lawsuits from greedy plaintiffs and lawyers. Well hello, the reason there’s a lot of litigation is because insurance companies have forced claimants to sue them by delaying and denying claims. How else can people get insurance companies to pay them what they’re owed? And no one has any idea how many claims should be lawsuits. Many don’t realize an event is covered, or that they’ve been lowballed. And if she does realize she’s been wronged, she may not know she should call the state insurance department. If she thinks of a lawsuit, chances are she’ll decide it’s too expensive or time consuming and that she’s not likely to win. And insurance companies try very hard to discourage claimants from hiring a lawyer.

How do insurance companies keep their lack of paying claims hidden?

They prevent information from a lawsuit ever reaching the public by offering a settlement only if the material in the case is kept confidential. So the information of many lawsuits is kept sealed. So it’s hard to have a class action lawsuit, or win a case based on how another one turned out, when you can’t even find out such cases existed. So a pattern of violations of fair claims practices can’t be brought to light.

Don’t you think it’s odd there aren’t any insurance companies advertising how few customer complaints they have, how few claims have been filed against them, statistics on how long it takes to process claims, how many are denied, how many policy holders sue the company and the result of those lawsuits? Why don’t state insurance commissioners require this? And actually there are some states that do require this, but the information is kept secret.

The McKinsey & Company reports were considered by many to be the smoking gun describing how the claims process shifted from a service to a profit center, and for 7 years Allstate fought to keep them hidden. Even after being receiving fines of $2.4 million, Allstate refused to release this information. Finally Florida insurance commissioner Kevin McCarty used his regulatory powers to demand Allstate produce these documents. Allstate refused, so McCarty suspended Allstate from selling new insurance policies in Florida. Only when the courts upheld McCarty did Allstate post 150,000 pages of material they’d done their best to keep hidden.

What do they spend money on

Advertising that they’ll fulfill their promis to you Lawyers to fight back when you sue them

No way to compare companies

There’s way more information on buying a blender than there is on insurance companies. The statistics on which companies are more likely to pay claims is not available. State insurance commissioners do not collect, let alone analyze and publish figures on the payment and denial of claims.

Miscellaneous outrages Unum, the largest provider of disability and long-term care insurance in the USA was notorious for failing to pay claims. Employees who saved the most money denying claims got the company’s Hungry Vulture Award.

There are way too many to list here, but the book is full of them.

Now go buy the book

The devil is in the details, I can’t do justice to the complexities, nuances, and myriad ways delay, deny, and defend are done. You need to know because often people don’t realize they’ve been wronged, and if they do, what to do about it.

You’ll also understand a lot better how to shop for insurance, what to look for, some good companies, what insurance companies to avoid and where to look for this information in more detail.

Finally, get a lawyer if it’s a large claim. After what we went through after we lost our home in the 1991 Oakland firestorm, I realize we should have done this. It was only when the chief legal counsel of my Fortune 500 corporation offered to help us for free that we made any headway (that and my husband being on TV with the California State Insurance Commissioner John Garamendi, who after Jeffery told our story, said “If that doesn’t put your insurance company out of business, I don’t know what will”.

So don’t be afraid to speak out, insurance companies hate bad publicity!

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