Insurers' Secret Tactics For Cheating Customers

In a damning 18-page report, Bloomberg exposes how the insurance industry’s systematic use of sleazy scare tactics cheat vulnerable policyholders.

For instance, in the 90’s Allstate hired the McKinsey business consulting firm on how to increase profits, and several of the slides McKinsey created have shown up as evidence in lawsuits against the insurance company.

One entitled, “Good Hands or Boxing Gloves…”

…said that All State should first make a lowball offer and if the client accepts it, treat them awesomely. If the client objects or hires a lawyer, then Allstate should put on the boxing gloves and beat on them.

Another was called “Sit and Wait,” and showed an alligator. The slide said Allstate could thwart claimants by stalling paying out settlements and prolonging court proceedings. By holding onto money longer, Allstate can invest the float and often frustrate clients into shutting up.

Other tactics include:

  • Changing policies retroactively
  • Changing engineering reports (hello, Katrina!)
  • Denying fire claims based on arson when no evidence exists to that effect

These methods have spread to other insurance companies, the article reports, and the industry has run amok. Is it time for a regulatory body, like the SEC for the banking industry, to oversee the insurance industry?

Photograph: Tim and Michele Ray pose in front of their tornado damaged home in Hendersonville, Tennessee, on March 13, 2007. Photographer: John Chiasson/Bloomberg News.

Home Insurers’ Secret Tactics Cheat Fire Victims, Hike Profits [Bloomberg] (Thanks to Greg!)


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  1. Red_Eye says:

    Blah old news to me, I knew someone working through a temp agency once worked for Allstate in California (2000 or 2001 I think). Her job (and a whole floor of an office building in Rancho Cordova) was dedicated to “updating profiles”. The practice went something like, take a persons Home owners profile, if it was a single level ranch with a basement, update profile to multistory dwelling. Why? Well because a multistory dwelling paid more than a ranch with an unfinished basement. They did thousands of profiles a day. Whether this was legal or not I dunno.

  2. doormat says:

    Given that in most cases, you’re compelled to have insurance (state law, mortgage company requires it, etc) you’re a captive audience. If everyone treats their customers like crap, you really don’t have a choice now do you?

  3. spevman says:

    I work for a large commercial insurer in the Chicago Loop. There are regulatory bodies for the insurance industry; only on a state by state basis. The state departments of insurance regulate insurers in each state they are licenced to do business in. That being said, I’ve found it an incredibly antiquated and inefficient system. currently there is legislation pending in D.C. that would create an optional “national charter” for insurance companies which they could choose to report iunder instead of the state by state system in place now. I, for one, would welcome this as it would put the industry under more uniform oversight and save costs for all involved.

    I agree, if such a system worked for the banking industry, it might just work for insurance. Anyone who would like to learn about the workings of insurance reporting should visit the National Association of Insurance Commissioner’s website ( to learn more.

    I apologize if I sound like some sort of corporate shill since I’m not. I’m just a low level staffer at a large insurance company who agrees with much of the sentiments that have been levied against the industry of late. Its shameful what some companies have done/will do to get out of meeting their obligations to policyholders.

  4. DeeJayQueue says:

    I hate the fact that we keep looking toward the government to regulate these industries, like Oil and Insurance and music and TV and video and the internet, because they certainly don’t know what the hell they’re doing. The government is run by the same stodgy old farts that have no clue as the guy down the street who comes out in his underwear and robe to get the morning paper because he just doesn’t give a damn what he looks like anymore.

    The problem is that businesses have no accountability. We’ve grown so needy and dependent on their services that we have no recourse when they screw us. The government says we must have insurance, and all the insurance companies screw us, so what can we do? We all must have our high speed internet, even though it’s crippled and comparitively slow, so we let telcos do whatever they want to us in order to get it.

  5. ChrisC1234 says:

    Insurance companies are the scum of the earth… This is just further proof. It’s interesting that Allstate is the company that seems to have started some of this. After Katrina, they were the company with the worst reputation. You couldn’t turn on the radio without hearing someone complaining about them. My boss at the time also had Allstate and made the comment “They say you’re in good hands with Allstate, but all I seem to be getting is the finger.”

  6. tracilyns says:

    hey, that sounds eerily familiar. oh right. that’s exactly how allstate treated me when one of their insured drivers hit me while i on a bike. a year and half later, i finally got my money. gotta love allstate.

  7. QuantumRiff says:

    @spevman: I can agree with the fact that its easier to follow one set of rules rather than 50, but do you think these lower costs are going to be passed on to the customers, or turned into bigger profits?

    Also, its much easier to buy, er lobby, a few US congressmen rather than a few in each state…

  8. chandler in hollywood says:

    I suggest that you start contacting those old farts as they are the only ones that can create oversight and accountability.

  9. bohemian says:


    Hey, AmFam just did that to us recently. Suddenly for no reason our house is worth vastly more than last year even though the market is tanking here.

    To answer Ben’s question. You bet we need an SEC type agency to control the insurance industry. They are totally out of control and just doing whatever they feel like at this point.

    At a past job I saw first hand the kind of cold sweat the SEC can create in sleezy scheming execs that are playing fast and loose with the company books. Nothing like having the CFO, in your office nearly in tears thinking the SEC is going to come after them.

  10. silver-spork says:

    I had the same experience when a “driver” insured by Progressive hit me. Progressive didn’t argue about who was at fault, but it took me a year to get my out-of-pocket rental car expenses, which I had in writing that they would reimburse, paid.

    Their claims adjuster refused to pay until I signed their release waiver, which would have released not only all of my future rights, but my insurance company’s as well. Of course, State Farm (my insurance), was still trying to recover the $25000+ owed for this multicar accident.

    About a month after I contacted State Farm’s lawyers and told them that Progressive was trying to get me to sign away their rights, things went smoothly. The lawyer I dealt with was so happy I read the release and alerted them that they did not charge for their service. The one hour they took browbeating the claims adjuster was much less than what they would have had to do had I signed the release.

    Remember, read everything, use your insurance’s lawyers, and don’t sign anything unless you understand every word.

  11. mandarin says:

    Consulting agencies are hilarious…

  12. MyCokesBiggerThanYours says:

    Insurance is a scam in general. You pay monthly fees for your entire life and when something happens that you need help (Katrina, car accident , whatever) you can never collect a sum that replaces what you had because the value of the object is subjective.

    And on top of it all, it drives the price of goods and services up. Many of us have had the experience of when asked if insurance is paying, the price doubles.

  13. Scuba Steve says:

    Government regulation, however misguided and corrupt, is one of the most powerful tools the consumers and citizens of this country have against across the board ethics violations. No amount of Market correction is going to be more persuasive than the outright fraud these companies are committing, and we need to have our state agencies be more on the side of the consumer than the corporations.

    But here’s where the problem arises. One doesn’t grow up wanting to work for the government. And even if one did, the rampant cronyism and bureaucratic red tape is enough of a deterent that those in power are pretty secure in whatever actions they take.

    Hell, my postman just got fired for stealing something unrelated to mail.. 2 years ago, it took that long to get permission to fire him, and only because he couldn’t show up to work due to him being in jail.

  14. anatak says:

    Is it time for a regulatory body, like the SEC for the banking industry, to demand that the now infamous McKinsey documents be reviewed and released in court cases against AllState and their business practices.

  15. Sudonum says:

    “the guy down the street who comes out in his underwear and robe to get the morning paper because he just doesn’t give a damn what he looks like anymore.”

    It’s not that we don’t care what we look like anymore. It’s that we don’t care what you think of us. And I’m sure the same thing applies to Congress.

  16. Sudonum says:

    More on topic, Our house suffered wind and flood damage during Katrina. We had Allstate Insurance. We got a very quick and very generous settlement from them. I have heard anecdotal evidence from others that this was not the norm. In our case I think it had more to do with the relationship we were able to establish with our adjuster. As well as the relationship we had with out agent.

    However, moving forward there is going to have to some radical changes in the insurance industry. Be it direct federal oversight or something more radical. Problems getting and keeping homeowners coverage are now common across the nation. I think insurance companies are forgetting that they are in the risk business. Sure they had record payouts in 2005, the year of Katrina, Rita, and Wilma. But they also made record profits, $45 billion I believe. What’s wrong with this picture?

  17. humphrmi says:

    @silver-spork: I can’t agree with you more. Especially if you are insured with State Farm, they will sick the dogs on other ins companies and not let go. Even the one time I had an accident with another State Farm customer, my adjuster beat their adjuster into taking a more reasonable settlement.

  18. revmatty says:

    I’ve heard from several former insurance company claims processing people that they were required to reject a certain percentage of all claims every month, regardless of merit. The amount varied depending on what company they worked for, but it was anywhere from 10-20%. The rationale of course being that at least some of those legit claims will be paid by the insured individual because they a)don’t know any better or b)figure it’s easier to just pay it than argue with the insurance company.

    I’m still arguing with my old insurance company over claims from two years ago that should have been covered but they denied.

  19. UnStatusTheQuo says:

    I’m an attorney and Allstate will drag litigation out forever, and then sometimes on the DAY OF TRIAL in the courtroom, finally make a reasonable offer. One particular Allstate attorney that I’m friends with noted this: “We’re more of a bank than anything else. In many cases we know we have to pay out, but the longer we hold it, the more we can make on it in the meantime.”

    A few other attorneys and I were considering legal action against major insurers like them for consistently and purposefully making bad-faith offers to settle.

    Pretty sad. I guess we’re all in the wrong business.

  20. BrockBrockman says:

    Insurance is always a scam – until you really need it.

    This is one of those industries that I wish the consumer could control with the all-powerful dollar. But when you can’t find one good, decent, honest insurance company, and they’re all evil, the consumer has little power to control the market.

  21. BrockBrockman says:

    @UnStatusTheQuo: I’m not sure what state you live in, but I wouldn’t trade my career to be an insurance company “captive” – I know that in the last few years, insurance companies have cut their budgets by paying their lawyers less. The only way these lawyers can stay in business is to charge insurance companies insanely low rates for their fees, and then try to bill the hell out of the file, thereby dragging out litigation as far out as possible. It’s a disgusting business.

  22. TechnoDestructo says:

    I had a doctor base his decision for what drug I should take on whether I had insurance. (I didn’t, and the cheaper option worked just fine…but still, that’s a little worrisome.)

  23. TechnoDestructo says:


    I don’t recall that situation being listed as a “market failure” in my economics classes, but IMO, the lack of MEANINGFUL competition is just that, and calls for regulation.

  24. mac-phisto says:

    just for the record, the SEC mostly regulates investment banks. the OCC (office of the comptroller of the currency) is the federal regulatory agency of banks. & only national banks are regulated by the OCC – state banks are regulated by individual state agencies.

    i don’t know that a federal insurance agency would do more good than harm. insurance is so different from state to state that standardizing it could result in the unduly shifting of risk. being that i live in the mountains in new england, i’d be a little pissed if i have to start buying hurricane insurance to subsidize homeowners in florida.

    it seems to me that sarbanes-oxley might be a helpful vessel for change if it could be amended in such a way to extend its jurisdiction beyond company financials. i’m not a cop, but isn’t doctoring expert/police reports fraud? what about failure to pay monies owed? or how about breach of contract? the officers & executives of any company that knowingly makes business decisions that violate the law (even if it’s just a civil crime) should be facing criminal charges. it shouldn’t be selective to insurance cos.

    & if it’s a foreign company that cannot be brought to justice, we should freeze their domestic assets until justice is served.

  25. magus_melchior says:

    “… because they certainly don’t know what the hell they’re doing.”

    @DeeJayQueue: Trust me, they know what they’re doing. The problem is, they ‘d rather maximize their profits even if it costs them PR or if it breaks the law.

  26. humphrmi says:

    @mac-phisto: I work in IT and we have plenty of SOX compliance to deal with. Risk is risk, whether it’s the risk that a phisher will try to attack your computer systems, or you’re doctoring a police report or withholding payments or cooking the books. If you have a risk, you’re supposed to report it. Someday one of these companies will get bit by it. But unfortunately I don’t think that consumers can report SOX compliance issues yet.

  27. snidelywhiplash says:

    “‘You know they’ve reintroduced the death penalty for insurance company directors?’

    `Really?’ said Arthur. `No I didn’t. For what offence?’

    Trillian frowned.

    `What do you mean, offence?’

    `I see.'”

    -Douglas Adams

  28. andrewsmash says:

    @DeeJayQueue: Cause the alternative for someone having oversight with regulatory authority would be? Can’t trust the industry to regulate itself, and third-party groups like the BBB are at best only mildly-effective. My personnel choice would be the torch-wielding mob, but historically, that works better for oppressing minorities.

  29. andrewsmash says:

    Er…personal choice.

  30. mac-phisto says:

    @humphrmi: i’m also in IT (in the financial industry). unfortunately, i think the push for compliance (specifically in IT) is just b/c of the passing wind (TJX, chexsystems breaches & other associated scandals). in a couple years they’ll be looking at something else.

    i went back & reviewed the law & technically an insurance co. could be liable under sarbox – the problem (as you stated), is getting someone to start looking for it.

  31. guevera says:

    I’d already sort of decided that every insurance company in the country was scum — and this story just proves it.

    I’d like to think the federal oversight solution’s the way to go, you know, because they’ve done so well keeping telcos honest, but I think a more likely solution is to actually show up on election day.

    If you have an elected insurance commissioner, you may want to pay attention to who he or she is and how well the job’s getting done. When you’re voting for state rep don’t vote for anyone who works/has worked in the industry.

    (you do vote for state rep, right? even in off year elections? if not, don’t complain when the insurance company screws you.)

    Don’t vote for anyone who takes a dime from the industry. (institute of money in state politics: — it’ll take less time than you waste downloading porn).

    I think most of the executives and consultants mentioned in that story should be taken out and shot, but my level of outrage is somewhat muted by the 31% voter turnout in my state’s last election.

    Rant over. We now return you to your regularly scheduled consumerist already in progress.

  32. mikewal79 says:

    @tracilyns: How quick did you settle the case? If you were hit on a bicycle, you should wait at least a year or longer just to see settle the case. Sometimes symptoms to problems don’t just appear overnight. When I was in a crash, my lawyer told me to wait 18 months just to make sure there were no medical conditions related to the accident. Once you settle it is over you really can’t go back and demand more money.
    It would really suck to settle for $5,000 and then find out a year later you need a $50,000 back surgery.

  33. quail says:

    In the early 90’s a good friend of mine went to work with McKinsey right out of college. The slime tactics they and other consultant companies use disgusted her. These guys seemed to have missed their business ethics classes. (No one in business should consent to any surveys about their business or industry by the way. They’re only collecting information for your competitors.) In the end she quit, joined the Peace Corp, went to graduate school, and is much happier with her career path.

  34. mac-phisto says:

    @guevera: those are all really great points. only problem is my capital is hartford – sometimes referred to as “the insurance capital of the world”. something tells me that finding state reps that don’t take money from insurance cos. is going to be a little difficult.