A recent article at Business Week Online about Allstate Insurance Company’s aggressive tactics to deny legitimate claims is very revealing. You should read the article in its entirety, but here are some fascinating excerpts:
…a New Mexico state court rejected Allstate’s efforts to keep Berardinelli from publishing his book, which will be marketed to trial lawyers nationwide later this year. Since 2004, Allstate has been defying an order by the same court to make available public copies of some 12,500 PowerPoint slides McKinsey prepared for the insurer, which form the basis of the book. That’s quite unusual — big companies almost never ignore judicial orders. In a court filing, Allstate has characterized its actions as “respectful civil disobedience.”
What is it that Allstate so badly wants to keep under wraps? In a written response to BusinessWeek, the insurer says the McKinsey material contains proprietary business secrets. The documents also present a clear risk to the company’s reputation. The title of Berardinelli’s book is drawn from a McKinsey slide that suggests that Allstate should treat some of its claimants with “boxing gloves,” rather than with its trademark “good hands.” Collectively, the documents present a portrait of business strategies that are at odds with the insurer’s carefully cultivated public image. Rather than simply rushing to the scene of an accident and doling out cash, Allstate deploys a variety of systems set in place by McKinsey to make sure it pays the minimum necessary — and it plays hardball with those who seek more.
Another major focus was on “subjective” injuries, meaning claims for such things as emotional distress and pain and suffering, as opposed to “objective” injuries, such as broken limbs. To get a handle on these claims, the notes on the slides show, McKinsey worked with Allstate to install Colossus, a computerized claim-evaluation system sold by Computer Sciences Corp. (CSC) Colossus compares a claimant’s injuries with a database of similar cases and recommends a settlement range. Plaintiffs’ attorneys have alleged that insurers can “tune” Colossus to consistently spit out lowball offers.
Berardinelli’s notes show one McKinsey slide stating that the system has been “extremely successful in reducing severities with reductions in the range of 20% for Colossus-evaluated claims.” (“Severities” is insurance industry jargon referring to the size of claim payments.) In its written response to BusinessWeek, Allstate says that “Colossus is merely a tool used to assist in the valuation” of some bodily injury claims and that adjusters use their expertise to come up with appropriate settlements “on each individual claim.”
One of the key elements of McKinsey’s plan was reducing the number of claimants who turn to attorneys after an accident for help in collecting on their insurance. The consultants even forecast what the potential gains in this area would mean for Allstate’s stock. A 25% drop in attorneys appearing in several categories of cases could add $1.60 to Allstate’s share price, one slide states, according to Berardinelli’s notes.
The boxing gloves slide was displayed in open court in a case against Allstate in Kentucky last year. It states that by “holding the line” on cases where accident victims hire lawyers, Allstate could achieve “a new distribution of settlement times” on subjective-injury claims. “By increasing the number of early unrepresented settlements,” the slide says, Allstate could give 90% of these claims the “good hands” treatment, resolving them within about 200 days. But the slide shows the remaining 10% getting “boxing gloves” treatment, and a graph shows resolution of their claims taking as much as four years or longer.
In Berardinelli’s view, this slide reflects what he sees as the current practice at Allstate. Claimants in the “good hands” category may get swift reimbursement, but they will end up with less than they’re entitled to, he says. Those who hold out for more — and retain a lawyer to help them get it — face battering in the courts and potentially years of delay. “You can get your claims resolved promptly or fairly,” he argues, “but not both.” Allstate says some people hired lawyers because they were not familiar with the claims process.
Once the CCPR program was rolled out in 1995, the effect was quickly felt by the trial bar. “We would ordinarily settle one or two cases a month,” recalls Whitney Buchanan, a plaintiffs’ attorney in Albuquerque. But then, “Allstate simply turned off the taps.”