This is the nut paragraph from the first story of the brilliant Bloomberg series, “The Insurance Hoax,” which put to shame insurance reporting by other mainstream business-news outlets.
The emphasis is mine:
The 60 million U.S. homeowners who pay more than $50 billion a year in insurance premiums are often disappointed when they discover insurers won’t pay the full cost of rebuilding their damaged or destroyed homes. Property insurers systematically deny and reduce their policyholders’ claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee. The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers, court records and interviews with former employees and state regulators show. As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers—or refuse to pay at all—and then dare people to fight back.
To be sure, the insurance industry and others attacked the story as unfair and filled with factual errors. But just as surely, the insurance industry and others are wrong.
A final thought: Anyone who thinks Bloomberg’s reporting on insurance is unrelated to the current meltdown that began in the retail lending industry should consider two things:
First, we now know of course that mortgage lenders, industry-wide and on a mass scale, engaged in predatory lending practices.
“Hoax,” along with groundbreaking reporting in The New York Times and elsewhere, have begun to pull the curtain back on insurer claims-handling practices that, too, can be described as predatory.
We’re talking about a broad cultural shift across the financial services industry.
Second, the Nationwide-Nationwide deal is part of a wider story about governance and cultural problems at top levels of the financial services industry. These are also relevant to the current meltdown.
Thanks to Bloomberg for another example of informative, tough reporting.
nice one, Dean. But in regards to your claim of a recent "cultural shift," when was the insurance industry not predatory?
Posted by edward ericson on Tue 2 Dec 2008 at 07:32 AM
Bloomberg's work, along with that of others, trace a shift to the early 1990s when Allstate brought in McKenzie & Co. to restructure claims-handling. See the Bloomberg story (link above) and other material in my original review of it last year, particularly a BusinessWeek story on the matter: http://www.cjr.org/the_audit/the_insurance_hoax.php. This was an important moment for insurers and their customers.
--Dean
Posted by Dean Starkman on Tue 2 Dec 2008 at 10:22 AM
Yep, read it. It's important work. Still, I recall some crazy mid-1980s propaganda blitz by insurance companies complaining about unfounded lawsuits & etc. The reason for it--obvious even then--had everything to do with poor management by the insurance co.s (lower-than-projected investment returns, etc.) and very little to do with rapacious ambulance-chasers. In CT, where I lived, regulators folded. Among the changes were cutbacks to worker's compensation that have reverberated to this day--one change allowed a trucking company to order its driver into a vehicle with bad brakes and a gas leak inside the cab, which resulted in the driver being burned alive. Under the law, the company (and its insurer) avoided all liability. This is but one example, among many I could cite, evidencing insurance industry predation which predates Allstate's claims-handling restructure. Carry on.
Posted by ed ericson on Tue 2 Dec 2008 at 05:53 PM