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CNBC.com has an interesting "guest author blog written by Jay Feinman, author of "DELAY, DENY, DEFEND: Why Insurance Companies Don’t Pay Claims – And What You Can Do About It". He opines, essentially, that it is sad when companies lose their way.

Insurance companies, he says, sell the commodity we would typically refer to as "security". The consumer pays a fee (insurance premiums) expecting that when "something bad happens", like a house fire or an automobile accident, the company that received the fee (premiums) will pay to reimburse the loss, or, in Jay’s words, "pay for the loss that otherwise might financially ruin the consumer".

However, Jay opines, "insurance companies increasingly fail to honor their promise of security". They do this to improve their profits and they do it by delaying payment of justified claims, denying payment, and defending their actions in court, forcing claim holders to sue them for what they are owed under the policy.

This strategy is common and well-known to the legal profession. Jay refers to it as “delay, deny, defend,” and says that the strategy perverts the insurance industry’s traditional role. He states:

the claims department’s only job should be to pay what is owed, no more but no less. Delay, deny, defend turns the claims department into just another profit center….

and he opines that the insurance industry has lost their way.

He argues that, in the case of the insurance industry, three things happened in the last 20 years or so to cause a shift in how insurance companies do business. This "shift" caused the insurance industry to lose its way. Here is an excerpt from the blog and the book:

First, there were a series of external shocks that put insurance companies under financial pressure. An extended soft underwriting market forced companies to continually cut premiums to attract customers. Medical costs, a principal part of the payouts of auto insurance companies, rose dramatically. Mother Nature intervened and made things worse as hurricanes, earthquakes, and wildfires imposed losses for which companies had inadequately reserved.

Second, attitudes changed. As elsewhere in American finance, a mania for growth and profits took hold. Many companies shifted from mutual to stock ownership to tap the capital markets as a source of growth. Allstate embarked on an extreme strategy of reducing underwriting standards and expanding its base of agents to increase its market share, and as it spun off from its lifelong association with Sears, shareholder value became primary. Industry giant State Farm announced that “the big dog is off the porch” and cut rates to gain market share. GEICO began spending half a billion dollars annually on advertising to attract customers, triggering a price war fought with premium and advertising dollars.

Third, a change agent entered the picture. Allstate and other companies hired the mega-consulting firm McKinsey & Company to develop new claim strategies. At Allstate, McKinsey defined claims as a “zero-sum game,” with the policyholder and the company competing for the same dollars. Its goal was “to redefine the game . . . to . . . radically alter our whole approach to the business of claims.” Computer systems would be put in place to set the amounts policyholders would be offered, claimants would be deterred from hiring lawyers, adjusters would be rewarded for underpaying claims, and settlements would be offered on a take-it-or-litigate basis.

The blog makes me want to purchase the book, which I will do, immediately after I post this on the Injury Board website. I encourage all who are reading this to purchase this important book. As a practicing attorney, I have been well aware of these strategies in recent years, and I am old enough to remember when insurance companies did not do business in this manner. Insurance is the only product or service in America that penalizes you for using it exactly as you are supposed to use it. Think about that. Jay believes, and I agree, that the insurance industry has abandoned its basic principles of existence, a policy he believes can be catastrophic for the industry. Engaging in a concerted policy of reducing or eliminating claims payment, to the substantial detriment of premium paying policy holders, may have spurred temporary growth. However, if carriers lose consumer confidence in their products and service, they and all of America will suffer the consequences. Buy and read the book and let me know what you think.

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