What Makes Allstate the Worst Insurance Company in the USA?

,
What Makes Allstate the Worst Insurance Company in the USA?

They’re called “The Good Hands People.” You see their logo prominently displayed in NFL and college endzones during field goals and extra points: strong hands laid one on the other gently, ready to gently cradle your life, home, and auto. You listen to the mellifluous basso profundo of Dennis Haysbert asking, “Are you in good hands?” and think to yourself, “I damned well ought to be!” You maybe even get goosebumps, like the crowd in the restaurant, recognizing “Safe drivers save 40 percent.” 

All of this has built up a strong image for Allstate as a solid, reliable company that takes care of its customers. So, if this advertising were your only reference point, you’d be shocked to learn that the American Association for Justice ranks Allstate as the worst insurance company in the nation.

Why? It’s not like they can’t afford to hire good help. In 2019, Allstate paid Thomas J. Wilson, its Chair, President, and Chief Executive Officer, more than $16 million in total compensation. Several other officers of the company made in excess of $4 million. In 2019, the company had an adjusted net income of $3.48 billion.    

But despite flourishing in the market, Allstate has been penalized $145,081,244 for consumer-protection-related offenses since 2000. For example, in 2018, Allstate was forced to pay $233,963 to settle a dispute over illegal surcharges on policy renewals affecting 279 clients in Rhode Island over a five-year span. 

In 2018, Allstate paid $150,000 to settle allegations it had unnecessarily delayed payouts of life insurance proceeds to beneficiaries in several states. The company has also been forced to pay $127,625,000 in penalties for wage and hour violations against its own employees. Obviously, there is something very wrong with the corporate culture at Allstate.

As AAJ insists, “There is no greater poster child for insurance industry greed than Allstate,” having   “systematically placed profits over its own policyholders.” While the good hands are drawn open and supportive, the company “privately instructs agents to employ a hardball ‘boxing gloves’ strategy against its own policyholders.” 

AAJ traces the genesis of “Allstate’s confrontational attitude towards its own policyholders” to the hiring of the consulting firm McKinsey & Co. in the mid-1990s. Tasked with developing a business strategy that would “boost Allstate’s bottom line,” McKinsey recommended the company “focus on reducing the amount of money it paid in claims, whether or not they were valid.” In adopting McKinsey’s recommendations, “Allstate made a deliberate decision to start putting profits over policyholders.”

Lowball plus hardball strikes customers out

Allstate’s new strategy employed a “combination of lowball offers and hardball litigation.” So, if you were to file a claim, you’d expect some “good hands” person to read over the file and make a reasonable assessment of what you were owed, based on the contract you had signed. Instead, your claim would be processed by computer, using “software called Colossus” that was designed to produce “an unjustifiably low” offer of settlement. The customer then had the choice of accepting the low-ball or fighting for a reasonable payout. Those who fought were met with the boxing gloves, as the hardball strategy was unleashed.

The Allstate approach was called “the three Ds”: 

  • Deny — Tell the policyholder the claim isn’t covered, even when it clearly is. Allstate rewarded claims adjusters who deceived policyholders about the company’s duty to indemnify claims. Supervisors actually ordered claims adjusters to lie.
  • Delay — Take a “sit and wait” approach, hoping the policyholder would give up and take the lowball offer.
  • Defend — Force the client to sue and hand the claim off to the company’s deep legal bench. The company lawyers would employ the Ds themselves until the company had such a loathsome reputation for dragging out litigation, that plaintiff attorneys realized it made no economic sense for them to represent Allstate policyholders.

Cascading complaints from dissatisfied customers  

Data from the National Association of Insurance Commissioners indicate that Allstate leads most major competitors in complaints filed by policyholders. Here is a brief summary of the complaints that followed Allstate’s adoption of the McKinsey “three D” approach:

  • Maryland —  State regulators imposed the largest fine in Maryland history to raise premiums and change policies without notifying policyholders. Allstate paid $18.6 million to settle the controversy.
  • Texas —Allstate agreed to pay more than $70 million to settle the company had been overcharging homeowners throughout the state.
  • Louisiana — Following Hurricane Katrina, the Louisiana Department of Insurance received roughly 1,200 homeowners insurance complaints against Allstate, far outdistancing State Farm’s 700, even though State Farm had a greater share of the market.
  • Southern California — After a series of devastating wildfires 2003 that destroyed more than 2,000 homes in the San Diego vicinity, CA insurance regulators received an inordinate number of complaints against Allstate.

As if the behavior didn’t speak for itself, Allstate’s former CEO, Jerry Choate, conceded in 1997 that the company did not focus on increasing sales of policies to enhance profits: “the leverage is really on the claims side. If you don’t win there, I don’t care what you do on the front end. You’re not going to win.” 

Investigators were determined to get to the bottom of Allstate’s malfeasance, which showed every indication of being a corporate scheme to promote “bad faith” practices. They subpoenaed internal communications in 2004, but it wasn’t until April 2008, after Florida regulators suspended the company from writing new business, that Allstate executives finally handed 150,000 documents related to claims review practices. The McKinsey protocols then came to light.  

Documents showed that after adopting the “three Ds,” the “amount Allstate paid out in claims dropped from 79 percent of its premium income in 1996 to just 58 percent ten years later.” By denying, delaying, and defending claims, Allstate had succeeded in doubling its profits to a staggering $4.6 billion in 2007. Allstate was so flush with cash that the company began buying back its own stock to the tune of $15 billion, all while “threatening to reduce coverage of homeowners because of risk of weather-related losses.”

Policy dumping to reduce risk of payouts

One of the most underhanded tricks in the insurance industry is to dump a long-time policyholder because the company has determined the policy is no longer worth the risk. While Allstate’s corporate strategy included some efforts to retain loyal policyholders who were likely to be more coverage in the future, the company also sought to weed out policies that might result in future losses. 

This included the systematic withdrawal from entire markets, including Delaware, Connecticut, and California, and the coasts of many states, including Maryland and Virginia. Here are a few pertinent examples:

  • Louisiana — In 2007, Allstate attempted “to drop 5,000 customers just days after the expiration of an emergency rule preventing insurance companies from canceling customers hit by Katrina.” Allstate also employed a bait and switch strategy, where they offered a “coverage enhancement,” which the company termed a new policy, which was exempt from non-renewal protection. In other words, sign up for better coverage now, and we’ll dump you later.
  • Florida — In this state alone, Allstate dropped more than 400,000 homeowners starting in 2004. Most of the dropped customers were home only. The company retained its home and auto coverage, which violated state law in Florida and New York. Under pressure from regulators, Allstate had to end that practice.
  • California — Seeking to flee the homeowners market in this state, “Allstate demanded double-digit rate increases.” 

Finally, Allstate has been accused of using ambiguous language to trick consumers into believing that for wind damage when they did not. Under its “anti-concurrent-causation” clauses, Allstate would deny claims for wind and rain damage covered under the policy if a home suffered significant flood damage as well. Thus, homes suffering from catastrophic storm damage were left without any coverage. 

Yet, even with these nefarious practices, Allstate remains one of the largest and most powerful insurance companies in the nation. However, our firm remains committed to fighting for consumer rights. One potent weapon is the class action lawsuit for systematic violations of insurance regulations. 

If you have a complaint about the way Allstate does business, chances are others in your market are similarly affected. Uniting your complaints into a single action can give you the leverage needed to win. We’re ready to fight. 

Did Allstate wrongfully deny your claim? For claims over $100,000 our law firm can help with bad faith lawsuits. Call 714-907-0697 now or connect online with our experienced bad faith insurance attorneys.

Share


Steve Hochfelsen

Steve Hochfelsen is an Orange County, California business litigation lawyer & author.

To connect with Steve: 714-907-0697 or [hidden email] or online
To learn more about Steve Hochfelsen: hoclaw.com

To learn more about Steve's book Profits of Denial: Insurance Companies Adding Insult to Injury: suttonhart.com

Read Steve's free ebook: Guide to California Insurance Bad Faith Lawsuits

For media inquiries or speaking engagements: [hidden email]



Recent articles:

David Kani & Steve Hochfelsen are represented by Elite Lawyer Management, managing agents for America's best attorneys.
[hidden email]