Allstate Worst for Bad Faith in America

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July 9, 2008

Study: Bad Faith Claim Practices Make Allstate The Worst Insurance

Company in America

The Alaska Personal Injury Law Group has previously discussed some of

Allstate's bad faith practices, for example Institutional Bad Faith

101 -- How Allstate's DOLF Program Works, and Study Finds

Institutional Bad Faith at Allstate, State Farm and Other Major

Insurers. A new study just released by a national consumer's group

has now found that Allstate's institutional bad faith practices and

mistreatment of policyholders make it the worst insurance company in

America. The Ten Worst Insurance Companies in America.

The new study by the American Association for Justice was a

comprehensive investigation of insurance companies across a wide

variety of types of insurance. The investigation included review of

thousands of court documents, FBI records, SEC records, records of

state division of insurance complaints and investigations, and sworn

testimony of former insurance adjusters. Based on that review, " One

company stood out above all others. Allstate's concerted effort to

put profits over policyholders has earned its place as the worst

insurance company in America. " The Ten Worst Insurance Companies in

America p. 1.

Although Allstate beguiles consumers with its " good hands "

advertising, the study examined Allstate internal documents that

instruct claim handlers to use hardball " boxing gloves " tactics

against its own policyholders. The Ten Worst Insurance Companies in

America p. 3-4. The boxing gloves approach includes lowball offers

and hardball litigation, backed up by Allstate's huge financial might

which it asserts against insureds who have the gall to seek the full

compensation promised by Allstate's insurance policy. Former

employees describe the boxing gloves approach as the " three Ds " ,

which are deny, delay, and defend.

Allstate implemented this system, called Claim Core Process Redesign,

(CCPR) in 1995 at the urging of consultants McKinsey Company.

McKinsey are the " profits above all else " folks who brought you

Enron. They proposed a makeover so that Allstate's processes would

focus on profits and enhancing shareholder value over all else,

particularly over an insurer's traditional duties of good faith and

fair dealing towards its insureds. For more information about this

scheme, see Allstate Finally Releases Development Documents For

Its " Boxing Gloves " Claims Adjusting Program.

Why would the good hands people secretly start using boxing gloves on

the insureds who put their trust in them? Money. The boxing gloves

approach has been incredibly lucrative for Allstate. Allstate's

profit in 2007 alone was $4.6 billion. By comparison, Allstate's

surplus in 1994, accumulated over the entire life of Allstate, was

only $6.5 billion. Since implementing CCPR, Allstate's average net

income per year has been approximately $2.25 billion.

From 2000 to 2005 Allstate paid its shareholders dividends of over

$10 billion. Allstate has also accumulated enough profits that it

began buying back $15 billion of its own stock. Allstate has been

very successful in putting these excess profits into its own coffers

and the pockets of its executives. The Ten Worst Insurance Companies

in America p. 3. Unfortunately, those profits came at the expense of

Allstate policyholders who bought the good hands promise but were

undercompensated by the boxing gloves treatment when it was time for

Allstate to keep its promise.

The profits Allstate has appropriated by underpaying claims raise

interesting questions. Since rates are based on claim experience, and

for thirteen years Allstate has been paying far less than it did

historically and less than the industry generally, why is it

continually increasing rates? Given its diminishing loss payments,

what data does it use to justify higher rates? As we discussed in an

earlier article, part of the problem is lack of effective oversight,

including laws in some states like Alaska, that allow insurers to set

rates without prior approval. Some states are beginning to see the

light. For example, California rejected Allstate's rate increases on

auto insurance, saving its citizens hundreds of millions of dollars.

Alaska and other states should start giving Allstate's rates, and its

bad faith claim practices, similar scrutiny.