The insurance industry (and the banks) worldwide have trillions of dollars in assets, enjoy huge average profits and pay their CEOs more than any other industry. Yet the insurance industry and its companies still continue to engage in dishonest tactics and unethical behaviour to ensure they boost their bottom line wherever possible.
These bad faith practises came to light in the 1990s when an American insurance company, Allstate, reportedly hired the McKinsey Company, a New York consulting firm to show the insurer how they could increase their profits. McKinsey reputedly told them to avoid paying claims, and when they do pay – pay less. Allegedly Allstate saved USD 700 million and increased their stock price at the same time after taking McKinsey’s advice. Allstate was fined USD 25,000 for every day they refused to furnish the report to the U.S. courts culminating in a USD 2.4 million fine.
The most damaging part of the reports involved two analogies where McKinsey said that,
1) policyholders who accepted lower settlement offers were “in good hands” (Allstate’s slogan), but those that fought the settlement offer should get Allstate’s “boxing gloves”, and
2) Allstate should take an “alligator approach” to claim payments and settlement offers – meaning that the company should just “sit and wait” in the hope of frustrating policyholders to accept less or simply go away.
Does any of this sound familiar? Do you really think that it takes more than five and half years to settle an insurance claim?
In delaying a claim, insurance companies place significant financial pressure on the policyholder, particularly if that policyholder is having to pay mortgage and rates on a uninhabitable home plus temporary rental accommodation. The pressure is enough to force many policyholders to accept a much smaller claim settlement amount. This has certainly been happening in Christchurch. People become so desperate that they are inclined to take much less than they are entitled to, simply to extricate themselves from their difficult financial circumstances. Accommodation allowances under insurance policies have not been anywhere sufficient enough to sustain the years of waiting.
By denying or diminishing claims, insurance companies force policyholders to seek legal representation at their own expense. Unfortunately for many this is not an option simply because of the price of justice- the costs of a lawyer being NZD 300.00 an hour plus. So, in the absence of good legal representation, policyholders are once again forced into accepting “lowball” settlement amounts from insurers.
In defending a claim, insurance companies usually take the position of forcing the policyholder first into their ‘internal disputes process/department’. This is not an unbiased process, and again delays the settlement process. In addition, in times of Natural Disasters insurance companies will often not have the available people power to do the file justice – it becomes no more than time-delaying lip service. This process can add months
to any settlement. The next step for the policyholder is to file a lawsuit (likely to be in the High Court because the District Court has a financial threshold of NZD 200,000 plus GST) which will cost the policyholder many thousands of dollars. This too has the potential to add years to the eventual settlement date…even if you are able to find legal representation and pay for it.
These dishonest tactics have been amazingly successful. Industry profits have risen considerably over the past years. Arguably the current economic global turmoil and the increasing incidence of bad weather events which has affected the insurance industry has only made the outlook bleaker for us – the consumers. Insurance companies are more than likely to continue to demand huge premium increases and find as many reasons as possible to refute and diminish our valid claims.
Welcome to the world of insurance! There are still thousands of Cantabrians who have yet to resolve their insurance claims some five and a half years after the earthquakes. Most of our best known insurance companies—the same ones that spend millions on ‘sympathetic’ advertising in an attempt to earn your trust—have also gone to great lengths to diminish claims, delay payments, baffle with incomprehensible insurance-speak, and retroactively refuse anyone who may cost them money.
Read more about the experience of tens of thousands of Cantabrians in The Insurance Aftershock: The Christchurch Fiasco 2010-2016.