How Insurers Squeeze Their Claim Department and You

Insurers provide incentives to most of their claims departments to take every opportunity to not pay claims. I know this from public documents in lawsuits involving three major insurance companies and suspect this model applies virtually every major insurer. Insurance is big business. If a corporate executive can find a way to reduce claim payout even by a little, every little bit will add up quickly. It can add up to over a hundred million dollars over a short period.


It's easier to steal a dollar from a thousand people than a thousand dollars from one person.

It an insurance company encourages denial of legitimate claims for any reason, the effect will be less money is paid out by the claims department. An insurer can keep track of monies paid out by the claims department year over year. If the claims department keeps claims payout low or actually lowers them, they can provide bonuses and other monetary incentives for the claims handlers.

If an insurer gives its claim personnel and their supervisors, and the supervisors' managers bonuses for keeping down claim payout on a year over year basis, this creates an unfair conflict of interest for the claims' handling personnel. On the one hand, they know they are supposed to pay out a reasonable amount on the claim. On the other hand, every penny they can save the company is likely to result in the claims' handling people being paid more money on yearly basis. This encourages unreasonable claims' handling and supervision. For this reason, these incentive programs are considered unreasonable and evidence of systemic bad faith within the insurance company.

Over recent years, plaintiffs' attorneys have been uncovering this kind of system-wide misconduct. Insurers have been forced to produce this information, but usually can impose an order of confidentiality that effectively strangles plaintiffs' lawyers from publishing the truth. We have public information on the Farmers Group of companies, the Travelers' Insurance Company, and AIG Insurance Company that is not subject to such orders. We have litigated and obtained private documents which were returned under court order and cannot be mentioned here. There are highly skilled and specialized experts who travel throughout the country analyzing these cases and testifying as insurance experts on this type of system wide bad faith. These experts can help the attorney and the jury to uncover the truth because they know what documents exist.

Insurers know the truth but take steps to make it difficult for the truth to be found. They can constantly change the names of their compensation programs. They can fight production of any and all records relating to compensation programs. They can refuse to answer questions. It is not easy being a lawyer who sues insurance companies. The insurance companies can afford to put up a great defense using top-notch lawyers. With perseverance and the help of a qualified expert, you may be able to show why your insurance claim was unreasonably handled. It may turn out that the claims personnel were encouraged to act unreasonably by their own superiors and by their own reasonable desire to take home more pay for their family.

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