Bad faith insurance companies like Allstate and State Farm systematically lowball claims, delay paying on them or arbitrarily change the terms of homeowners’ insurance policies in order to limit the amount of money they spend on claims. According to an article on Bloomberg.com, these practices have left thousands of homeowners in dire financial straits, while at the same time they’ve fattened the wallets of the bad faith insurance companies.
Once upon a time, insurance companies were committed to getting homeowners back on their feet when disaster struck. Families who had paid insurance premiums could be confident that their claims would be paid in timely manner. But that has all changed, and now insurance companies are more interested in raising their stock price than in taking care of their customers, thus their new nickname “Bad Faith Insurance Companies”. According to the Bloomberg article, the insurance industry started to change in 1989, after Hurricane Hugo. That storm cost the insurance industry $4.2 billion in claims. It was shortly after Hugo that the insurers started to look for ways to limit their financial responsibilities to homeowners.
In 1992, the well know insurance company Allstate hired McKinsey & Co., a consulting firm, to overhaul the way it handled home damage claims. McKinsey developed several strategies for Allstate. For instance, it recommended that Allstate initially make low offers to settle claims. If the insured accepted the offer, Allstate would live up to its “Good Hands” slogan, and assist the homeowner as much as possible. However, if the homeowner balked at accepting the first offer, McKinsey said that Allstate should trade in its “Good Hands” for “boxing gloves”, and make life as difficult for the customer as possible.
Another tactic McKinsey recommended to Allstate was known as the “alligator”. McKinsey recommended that the insurer “wait like an alligator” – delay paying claims as long as possible. Not only would desperate homeowners be more likely to accept a much-delayed lowball settlement offer, but Allstate could continue to collect interest on the insurance payment while the money was still in the company’s possession.
Other tactics highlighted in the Bloomberg article included the use of computer programs to manipulate payout formulas in a way that lowered settlements. There are even examples of insurance companies leaning on adjusters to lie to customers about the meaning of policy clauses and damage estimates. In the end, these tactics often mean that insurance companies only pay 30-60 percent of the cost of repairing or rebuilding a home.
Nowhere were these practices more apparent than in the case of Hurricane Katrina claims. In order to avoid paying claims, both Allstate and State Form used all of these tactics. One engineer who examined damaged Gulf Coast homes for insurance companies told Bloomberg that some of his reports were altered by the companies to say that homes were damaged by flood, and not by wind. Normal insurance policies do not cover flood damage, so by altering these reports, the insurance companies saved tens of thousands of dollars. In response to this despicable behavior, more than 1000 Katrina homeowners have sued their insurance companies over claims, the largest number of lawsuits ever to follow a natural disaster in the US.
Insurance companies use these tactics for one reason – they work. Last year, the insurance industry reported profits of $73 billion dollars, up nearly 50 percent from 2005. While that’s great for insurance company shareholders, it’s a raw deal for the 60 million US homeowners who pay out $50 million in insurance premiums each year.
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May 18th, 2009 at 4:32 pm
I was involved in an accident in November 8008. The other driver was sited for numerous violations. State Farm acknowledges this. But they are stone walling the deductable of 500.00 and other expenses. I sure wish I could find someone to stand up to them even though it is really a small amount. Thank you John………
September 1st, 2009 at 1:28 pm
My State Farm Agent,Henry Belloi,Hialeah Florida, whom I’d been with since 1978, refused to take my claim for back to back tropical storms and a Cat1 hurricane in 2004. After trying multiple times to file the claim with employees in the office I was told they were not allowed to speak with me and told not to take my claim. Without my knowledge or permission they also had removed discounts to the home policy for alarm, steel shutters, jewelery rider etc.
I finally filed my claim with their 800#. It took another 6 months before anyone came. By that time I told them I had a public adjuster. They told me that wasn’t necessary they intended to pay the entire claim including a new roof.
I got out of my contract with the Public Adjuster and that is when everything went south. Not only did they not pay for everything, they hired an engineer to shoot down my claim. The engineer happens to be the neighbor and golf buddy of the head of the fire and casualty office in Miami Lakes, Fl.
(Employee’s in the Miami Lakes Office told me to get an attorney because they were systematically denying single female owners, “because they don’t fight and give up easily”.
They decided that my roof had a latent defect even though I am the orginal owner of the home and have all drawings and record from inspections done by Miami Dade County Building and Zoning.
They also stated that because this was a latent defect it was “not hurricane damage.” They however applied a hurrincane deductible over $6000 dollars. I was shorted on the rest of the claim as well and not paid for wool carpeting in multiple rooms, customized furniture, draperies, wall treatments and paper, blinds etc. I have been underpaid by ten’s of thousands of dollars in designer clothing and shoes from two giant walk-in closets where the celings caved in and soaked everthing. The months of delay resulted in serious mold and health problems.
I filed a complaint with the Insurance commissioner and to my knowledge, nothing has been done. Some department of State Farm contacted me about mediation and without consulting me repeatedly schedule appoints with their mediation lawyer for times and dates that I was not available. The amount I recieved took one year from the actual damage and was $5,000 after the “hurricane Deductible of $6,000. That did not do anything to replace the
approximatley $70,000-75,000 in damages previously described or replace the roof which at that time would have been around $30,000. State Farm has denied me a roof three times: after Hurricane Andrew in 1982 and “The Storm Of The Century” in 1993 and for the multiple
storms in 2004.
I changed agents within the company to an agent named Blondell Taylor, of Miramar Florida, who assured me I would be taken care of.
No such luck! I got jerked around again for another year and this arrogant woman had her reception repeatedly tell me she was not in, even though I was standing outside her office and could clearly see her. After this I changed agents again.
This time I went to Guy Brickman’s Office just outside of Miami Lakes.
I transferred all of my policies and at first was very happy. Then I noticed that none of the multiple discounts dropped off my policy by Henry Bello Agency had been added back to my policy nor had any kind of asjustment been given. All of the 2004 claim was resumitted through this company and again fell through the cracks. Or so I was told.
Now comes Katrina and then Wilma in 2005. “This time” it took 6 months before I saw an adjuster. I called repeatly and was told wait my turn; even though all of my neighbors had seen adjusters from their companies. Unfortunately the adjuster they sent was from Chicago and by the time she got to me she had only one more day here and only adjusted for the roof.
( Now this payment was off by over ten thousand.)Because of demand and the shortage of tile and the delay in someone getting to me the prices rose drastically.
She assurred me that another local adjuster would follow up with me. By now you know that didn’t happened.
I am now living on bear concrete(I removed the carpet myself) because the mold killed my 2 dogs. I also have some serious allergy and lung problems.
It took a year and a half to get a new roof!
The damage now encompasses the entire house inside and out. I got a new roof but not the gutters. I got a new roof, but not any insulation. I had R49 insulation which I paid for myself after the 1993 storm. That was removed due to mold when the roof was installed a year and a half after Wilma.
My pool area is a wreck. A very nice custom glass brick bar was destroyed and every thing on it. The neighbor’s screen enclosure detroyed my awnings and frames, pool-pump enclosure. The deck tile,copping, diamond brite
bar etc. were caused by wind, flying debry, and the sinking of the deck due to standing water, days of rain,errosion
and sink holes in the underlying ground.
When I started this I did not intend for
it to be a book. Bottom line, 4 years later I am still being jerked around. I am hiring a public adjuster and an attorney.
It is a shame that my “Good Neighbor” I have been doing business with since the sixties and my parents before that does not value the loyalty I have shown them.
Michaele Flanagan O’Keefe
November 6th, 2009 at 7:51 am
Why are these people not going to their state insurance commission? The insurance commission regulates activities like these being described. I’ve had problems with Allstate like those described and the Maryland Insurance Administration put the fear of god in Allstate. This is one good government entity that does its job.
November 30th, 2009 at 7:49 pm
sorry this is happening to all my fellow citizens…….the government is the one to be held responsible…your congressman and senators……they like the insurance industry are rich….they got their jobs by corporate america sponsorship—period—–the million plus dollar campaigns—in the end–any legal case now taken to the supreme court will side with corporate america—-it is likely that the electronic election process is corrupt —-and guess what—–we are now all slaves to the masters——you will probably not see this because corporate america can filter communication – formerly know as free speech—–why did the people in Valdez , Alaska not get the final result of their lawsuit against Exxon for 19 years????? And then their judgement was reduced substantially by the federal courts–while Exxon and all oil companies were making 10’s of billions of dollars every 90 days in what was also corrupt gas pump prices-a process begun with Congressional passage of laws in the 90’s that allowed speculation of oil commodities….once again corporate america has taken control of everything that has importance…..and the people act individually instead of collectively and therefore are powerless…..step one is assure that the electronic voting machines are not manipulated by satellites-or other secret electronic devices before-during and after elections—-step two –put leaders in office who are not evil, greedy , and common neighbors of yours and mine……step three…..find a way to remove the supreme court justices who serve for life and were put there to protect the interest of the corporate monopolies-step four—realize only those with money-have the leisure time to devise ways to enslave the people and the economy that is made of each of our lives……..
January 5th, 2010 at 7:55 pm
“industry reported profits of $73 billion dollars, up nearly 50 percent from 2005. …it’s a raw deal for the 60 million US homeowners who pay out $50 million in insurance premiums each year.”
That doesn’t make since $50 million in premiums vis-a-vis $73 billion in profits. Insurance companies make money on things besides premiums, but shouldn’t it be in the billions?
January 9th, 2010 at 9:51 am
years ago a preacher of the word of God said that comunisum would not destroy the united states he reach in his pocket held up a dollar bill and said this is what will destroy america love for the dollar,greed,and it looks like he had a vision and a warning from God look at what is going on here now never thought i would see this in my life time and it is just the begining.