Alaska Injury Law Blog

An 18-month study by CNN has confirmed that most of the major insurers, lead by Allstate and State Farm, are engaging in institutional bad faith claim practices. The study found that insurers, including Allstate and State Farm, have not been treating their insureds fairly. Instead of fair treatment for insureds, they follow a strategy of “deny, delay, defend.” Deny the claim, do whatever they can to delay the claim, and defend the resulting lawsuit to the hilt.

The CNN findings focused on cases involving soft tissue injury and minor impact. Insurers have their own euphemisms for this type of claim, such as Allstate’s MIST, which stands for Minor Impact Soft Tissue. The personal injury attorneys at the Alaska Personal Injury Law Group do not handle MIST cases, but we have seen the same tactics employed in Alaska in cases that are neither minor impact nor soft tissue cases. We also handle bad faith cases that arise when insurers like Allstate and State Farm break the promises they made when they took the insured’s hard-earned premium dollars.

CNN’s investigation found that the insurers’ hardball approach to claims is the result of programs developed for insurers like Allstate and State Farm by The McKinsey Company. The Alaska Personal Injury Law Group and other lawyers throughout the country have been trying to get Allstate’s McKinsey documents into the hands of the public, but Allstate has been successful in obtaining orders that keep the documents hidden. As we reported earlier, insurance regulators in Florida may be the public’s best hope of seeing the McKinsey documents. CNN did confirm, however, the existence of the formal program where the good hands people at Allstate are told to use boxing gloves on the insureds who refuse to accept Allstate’s lowball offers.

As reported in earlier articles here, Allstate Insurance companies are under intense scrutiny by insurance regulators and legislators in Florida. The state officials suggest Allstate is gouging consumers with unjustified requests for rate increases as high as 42%. It is instructive to contrast the tale of woe Allstate is telling those Florida insurance officials to what Allstate tells investors. One thing Allstate told investors was that it has benefited from the lack of major hurricanes in 2006 and 2007.

The President and CEO of Allstate also touted how Allstate had reduced its hurricane exposure. This was partly by canceling hundreds of thousands of homeowners’ policies. Allstate also bought $900 million a year of reinsurance, which was a much larger amount of reinsurance than it had carried in the past. Undoubtedly that purchase ties in with concerns of Florida legislators that Allstate has wrongly failed to lower premiums after taking excessive advantage of the new Florida reinsurance program. That publicly funded program allows Allstate to shift the risk of major losses onto the citizens of Florida, many of them the same citizens who had their homeowners’ coverage cancelled by Allstate. The regulators and legislators believe Allstate has greatly reduced its hurricane risk by canceling most of its homeowners’ policies, and reduced its risk even further by foisting the risk onto the Florida reinsurance fund, so the huge rate increases Allstate requested are not justified.

The President and CEO also told investors that Allstate has done extremely well on the financial front for many years. In little more than a decade, Allstate has raised dividends an average of 11.7% annually. In that same timeframe, Allstate repurchased more than 40% of its outstanding common stock at a cost of almost $16 billion. In sum, those figures mean Allstate has returned more than $23 billion of “excess” capital to shareholders in less than twelve years. To put those outsized profits into perspective, Allstate’s market capitalization when it went public was only $19 billion. Allstate is still extremely well capitalized, even after giving $23 billion, almost $2 billion a year, to its shareholders.

As everyone knows, Florida suffered significant hurricane damage in 2004 and 2005. Since then, however, Florida has avoided major hurricane damage. Thus, Allstate has avoided significant hurricane losses over the last two years. In addition, new laws were passed in Florida to use billions of dollars of public funds to help insurers like Allstate avoid major hurricane losses . Seems like good news for property insurers like Allstate.

But despite that good news and the greatly reduced risk, Allstate’s Florida insurance companies are seeking rate increases of up to 42%. How do Allstate’s actuaries justify that huge increase in insurance rates when their risk has gone down? Global warming!

Florida regulators and legislators were shocked to discover Allstate is using a global warming model to justify these huge rate increases. The first reason they are shocked is that the global warming model is not approved by the state insurance regulators. There is a model that was approved by the Office of Insurance Regulation, but Allstate is not using it. They were also surprised that Allstate is using a short-term model that only looks at what might possibly happen in the next five years, rather than the approved model which looks at the long term history and actual trends of hurricanes. In addition, there is wide disagreement among scientists whether there is any basis to believe there will be more or worse hurricanes in the next five years. Finally, state officials are concerned because Allstate’s model is based on Allstate’s assumptions that hurricanes in the next five years will be more severe and more frequent than the historical data suggest. It’s the old “garbage in, garbage out” scenario. Make the correct assumptions and the computer will spit out whatever result you want.

Allstate continues to be investigated for bad faith claim handling practices, wrongful termination of policies and excessive rates. Regulators and the Florida legislators who grilled Allstate representatives earlier this week have discovered that Allstate terminated the homeowners’ policies of thousands of insureds who had their auto coverage with an insurer other than Allstate. Those seeking answers contend that Allstate has been less than candid. One Senator said, “I haven’t seen so much bobbin’ and weavin’ since Muhammad Ali did the rope-a-dope.” Listen here.

Why did Allstate cancel those folks, but not cancel similar Allstate insureds who also had Allstate automobile insurance? Because Allstate’s auto insurance business is far more profitable for Allstate than its property insurance business, particularly in Florida. In typical Allstate double-speak, however, Allstate claims to have done it for the convenience of the terminated insureds-that way the terminated insureds would not have to deal with two insurance companies. Allstate said, in effect, “we terminated your policy for your own good!”

Over the last couple of years, Allstate has reportedly reduced the number of homeowners’ policies it writes in Florida from over 700,000 to less than 300,000. Those insureds were supposedly cancelled because they were high risks for hurricane damage. Allstate also reduced its risk even further by buying cheap reinsurance from the fund the state created. Having culled those supposedly bad risks and shunted off a lot of the loss exposure via cheap reinsurance, Allstate still claims it needs a rate increase of 42%. Regulators and legislators want to know why.

The attorneys of the Alaska Personal Injury Law Group continue to watch closely as the insurance commissioner of Florida battles to obtain documents that show Allstate’s institutional bad faith claim handling practices. Allstate is using the same tactics of delay and obfuscation against the regulators that it typically uses in bad faith cases against Allstate in Alaska. A good example is the 12,000 McKinsey & Company documents that Allstate finally produced to the Florida insurance regulators last week, stamped as “trade secrets.”

As part of its public relations campaign, Allstate paints itself as the victim who is trying hard to find and produce the documents covered by the insurance regulators’ subpoena. The truth is that these crucial documents about Allstate’s bad faith practices were readily available all along. The McKinsey documents had been catalogued, numbered and scanned in prior bad faith cases, long before the regulators subpoenaed them. These catalogued documents were available to Allstate as paper copies and had also been copied onto computer CD-ROM or DVD. They were available to produce to the Florida insurance regulators with no more effort than a phone call.

There is no valid excuse for Allstate failing to produce the McKinsey documents to the Florida insurance regulators before the January 15 hearing for which they were subpoenaed. Allstate just wanted to hide them from the public and not be questioned about them at the hearings.