Insurance Claims Practices Raise Concerns

Sacramento Bee, Chuck McFadden and Bargara McFadden: From the Ashes: Rules for recovering, Tuesday, July 3, 2007.  Advice following the Angora Fire in South Lake Tahoe.

  "We were among the thousands of Oakland Hills homeowners who faced that question in October 1991, after a firestorm destroyed nearly 3,000 homes, including ours. From that, we learned several lessons that maybe useful to those who are starting to pick up the pieces. 

Insurance companies are not your friends. They spend millions on reassuring commercials to make you think they are, but they are not. They don't have to be your enemy, either, but realize the money they pay you doesn't help their bottom line. Sure, that's obvious, but it may be hard to remember faced with a sympathetic claims adjuster who presents you with a large initial check to begin the settlement process.  What will the company pay for a rental home while yours is being rebuilt? What about furniture rental?"  What is "replacement" value? You want what you are entitled to, and the company wants to minimize losses. It is not a win-win situation.

Attorney General files lawsuit against six large insurance companies alleging price-fixing (January 2008):

Attorney General Charles Foti filed a lawsuit in Orleans Parish Civil District Court late Wednesday alleging collusion, price-fixing and anti-trust violations by six major insurance companies - including Allstate and State Farm - as well as the firms that manufacture their claims-processing software, and the companies that offer them advice or collect their data.

Charles Foti says that these groups conspired to manipulate commerce for their own enrichment "by rigging the value of policyholder claims and raiding the premiums held in trust by their companies" and that companies "coerced their policyholders into settling their claims of damages for less than their value by editing engineering reports, by delaying payment and by forcing policyholders to litigate claims to receive full value."

By using claims processing software manufactured by Marshall & Swift/Boeckh and Xactware, the industry has been able to standardize its tactics for low-balling claims, and create a "tainted" database of claims settlements figures which the industry uses to further depress estimates for what people need to repair their homes, according to the lawsuit.. Meanwhile, all of this data is centralized by Xactware's parent company, Insurance Services Office, better known as ISO, allowing companies to collude.

By using these outside vendors to unify "power and control," insurers systematically reduced the percentage of premium dollars that companies return to policyholders in the form of claims payments "under a shroud of secrecy." While the industry has historically paid 70 cents on every premium dollar collected back to policyholders in claims payments, in Katrina, they paid 50 cents for every premium dollar, the suit says.” 

Following the storms that caused major property damage in Northern California, Homeowners and others who have a contract of insurance should be aware of the current claims practices in settling claims.  The full articles are attached.  Caveat Emptor!

Download rules_for_recovery.pdf

Download attorney_general_files_lawsuit_against_six_large_insurance_companies.doc