This is a post about disaster insurance, and our own nightmare experience in dealing with the insurance company after our house burned down in the 1991 Oakland California firestorm.  Plus a book review of Feinman’s 2010 book “Delay, Deny, Defend: Why Insurance companies don’t pay claims and what you can do about it”.  If only this book had existed in 1991!  And by the way, one reason you don’t know about this is that everyone who finally settles with an insurance company signs a nondisclosure agreement, so I am not stating which company we were with. But I can say that nearly all behaved badly because we were in touch with neighbors who were members of at least 20 different insurance companies. So be sure to do research at United Policyholders and other sites mentioned below before buying insurance.

Our experience with an insurance company

I’m from Illinois where the only disasters are extremely rare tornadoes.  I knew California as the “shake and bake” state, so I bought the best insurance available with guaranteed replacement coverage and only a 5% deductible.  Guaranteed replacement means that if a table I bought for $100 would cost $1,000 to replace, that’s what I’d be paid.  If the house cost $100,000 but $500,000 to rebuild, that’s what the payout would be.  I even looked up home construction to make a guess at what it would cost to rebuild our house and paid more for the insurance than I might have.

After the fire, thanks to Ina DeLong, we formed groups by insurance company to compare how we were being treated.  DeLong told us that “insurance companies are just like the Mafia, but they don’t dress as well”.  DeLong was on “60 Minutes” after she quit an insurance company  because of how she was being asked to handle the claims from the Loma Prieta earthquake, and expected to deny or low-ball claims they should have paid.  So she spoke at all the insurance company groups to to help us, since no process is spelled out because insurance companies want to delay claims, to make it as difficult and confusing as possible.

From our own group and from neighbors in other insurance groups here were the patterns we all saw, except for the lucky few people with good insurers. There are various “buckets” of money you are trying to get. No matter what the bucket, minorities, single women, and older people tended to get less money. One bucket is living expenses for one year. The others are for outdoor structures, landscaping, the possessions inside the house, and the big one, the house itself.

We spent half a year working with a claims examiner to “rebuild” our house, nail by nail, board by board, ever countertop, sink, window, their materials (wood, marble, plastic, etc) and so on so the value could be assessed, resulting in a 2 inch thick document. You should know that we were way ahead of nearly all the other 3500 families because we had the complete plans of our home. The contractor who owned it had recently added a family room on, and had all of the the original plans.

We received a low ball offer of about half the money we were entitled to, but we accepted the offer because we wanted to get on with our lives.  Remember, we still had to pay the 9% mortgage (ouch!), and the insurance company was only paying for one year of rent, and half a year had already gone by. And it takes at least a year to design and build a new house. But you can’t start until you know how much money you have to work with.

But no money arrived. We waited a month, and then called, only to find they’d retracted the offer and forgotten to tell us. Not only that, but they had assigned us a new examiner. That person claimed they didn’t understand her predecessors detailed assessment, and we would have to start all over again. When we asked why not just keep the first examiner, we were told she’d had to leave town and go back home due to a family emergency. Subsequently, we learned that she lived right here in Oakland and was never called out of town.

Thought this was an obvious case of “bad faith” on the part of our insurer it made no difference.  We were still stuck with a 2nd examiner.  And from our and other insurance meetings, we knew of people who were already on their 3rd examiner– eventually some of them would have had 8 examiners.  So we despaired of ever getting on with our lives, of ever getting insurance money.

So we sued, which actually means arbitration, which would have cost us as much as we got for the house, since we had to hire a lawyer and a judge.  But luckily the chief counsel of American President Lines where I worked volunteered to help us.  The insurance company immediately began faxing him so much material he couldn’t do his job, so he had to pay for a lawyer!

Eventually we got the money we should have received far earlier, rebuilt and lived happily ever after. Though rebuilding is also a nightmare. Some subcontractors were wonderful, others tried to take shortcuts, like the plumber who put in plastic piping rather than the iron pipes we’d bid out. Many people spent more money than they got from the insurance company, and about half of us have had water damage that was very expensive to repair.

What to do if you ever suffer a natural disaster

Pick up tips from the book review below. And above all, look at the United Policyholders website which has dozens of tips about finding a good insurance broker, getting a claim paid state by state, shopping for home insurance and more (co-founded by Ina DeLong). Here are some examples from back in 2012 when I wrote this post: “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.”

Find out what insurance companies are available in your state, here are California’s residential insurance companies.  I don’t know where the other states lists are, but most states have a state level department of insurance. The California Department of Insurance (CDI) provides several tools to help consumers who are shopping for residential insurance. In addition to consumer information guides, you can use the Homeowners Premium Survey, the Consumer Complaint Study, and Insurance Company Profiles to gather valuable information on residential insurance companies. Also, you may want to investigate coverage through the California Fair Plan, if you are having difficulty obtaining residential property insurance.

I haven’t shopped for insurance for a while. Back when I did, I looked to see if a company had enough money to pay insurance via A.M. Best, Weiss ratings and others, some of which aren’t around, or not free anymore (maybe at the library you could get the printed version). We are with a company now that doesn’t have many customers in California and huge financial resources.

With Russia’s invasion of Ukraine causing a massive energy crisis across the EU, world peak oil production likely in 2018, higher interest rates, increasing climate change natural disaster hurricanes, floods, and more, I can’t help but wonder if a natural disaster might tip the world into a financial crash — a large earthquake near Tokyo, Los Angeles, or the San Francisco Bay area. Arkstorm filling up the central valley where a third of U.S. food is grown and causing over $1 trillion in damage.  The next pandemic. Russia using nuclear weapons. Diesel shortages preventing food and other critical supply deliveries.

Disasters won’t be recovered from, insurance will cease to exist …  meanwhile hire a lawyer first thing if you want to get your insurance company to pay up.

Alice Friedemann  www.energyskeptic.com  Author of Life After Fossil Fuels: A Reality Check on Alternative Energy; When Trucks Stop Running: Energy and the Future of Transportation”, Barriers to Making Algal Biofuels, & “Crunch! Whole Grain Artisan Chips and Crackers”.  Women in ecology  Podcasts: WGBH, Jore, Planet: Critical, Crazy Town, Collapse Chronicles, Derrick Jensen, Practical Prepping, Kunstler 253 &278, Peak Prosperity,  Index of best energyskeptic posts

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

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 is: 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, here are a few:

• Lowballing: offering low settlements to signal the insurance company is willing to fight the claim and lower the claimant’s expectations
• 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 promise to you, but in fact they have 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!