Tuesday, April 25, 2006

Dirty hands

Who needs gloves?

An article at Business Week Online, In Tough Hands at Allstate (sub. req.), highlights Allstate's adoption of hardball claims handling and bad faith as standard practices. Allstate is disobeying a court order to return 12,500 PowerPoint slides that were prepared by its consultant, McKinsey & Co., which is also a consultant to Farmers Insurance Group, USAA, State Farm and Fireman's Fund.

The slides reportedly outline the "cost-reduction" strategies of the "McKinsey Project", presenting "a portraint of businesss strategies that are at odds with the insurer's carefully cultivated public image. . . . 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."

After Allstate implemented the consultant's changes in 1995, claims payments for car accidents went down from 63 cents to 47 cents per dollar of premium paid by policyholders.

As David Berardinelli, the attorney who uncovered the slides explains, they "explain why McKinsey built CCPR [Allstate's Claim Core Process Redesign]." The CCPR manual is a thick, well-circulated claims manual setting forth a system to deny and delay payment of benefits. Business Week:

Allstate's "gross opportunity" if McKinsey's plan were fully implemented, according to Berardinelli's notes on one slide, was $550 million to $600 million in savings, almost all of which would come from reducing claims payments, not from cutting expenses.
While fraud was one target, another "key element of McKinsey's plan was reducing the number of claimants who turn to attorneys after an accident for help in collecting on their insurance." According to the notes, one slide predicted that "a 25% drop in attorneys appearing in several categories of cases could add $1.60 to Allstate's share price." Another depicted boxing gloves in place of the trademark "good hands" and stated:
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% get the "boxing gloves" treatment, and a graph shows resolution of their claims taking as much as four years or longer."

Summarizes Berardinelli: "You can get your claims resolved promptly or fairly, but not both."

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