Allstate Releases Claims-Handling Documents, But Keeps Some Under Wraps

National Underwriter
BY MATT BRADY

Allstate’s reluctant release of some 150,000 pages of documentation—including a consultant’s controversial recommendations on claims-handling long sought by insurance departments, courts and consumer advocates—does not satisfy Florida regulators, with the company still fighting to keep certain documents from public view.

In an action that has been stayed pending a legal appeal, Florida Insurance Commissioner Kevin McCarty suspended the company’s ability to write new business in the state until the material he subpoenaed as part of a rate inquiry is provided.

Ed Domansky, a representative for the state Office of Insurance Regulation, said the McKinsey Company’s consulting documents—which Allstate put on its Web site after fighting to keep them from being made public in three states—had been turned over to Florida months ago.

Prior reports about the material said they outlined a bare-knuckled approach to handling claims that involved denials, delays and disputes in court.

Mr. Domansky said OIR staffers were reviewing the documents to see if any additional information was included. “We don’t really know if it’s the same,” he said.

Allstate made the documents public hours after a Florida district court ruled the insurer had not complied with requests from the state, and that Commissioner McCarty had the authority to issue a suspension order stopping Allstate from writing new business.

The company was given until April 14 to file a motion for a rehearing. Without such a filing, the suspension would take effect.

Allstate’s Web link to the released material requires viewers to agree not to alter any of the documents, and to view them for informational and news media purposes only—not commerce. (The documents can be viewed at: http://media.allstate.com/categories/52/releases/4390.)

However, Allstate filed a list of documents it objects to submitting to the OIR totaling 196 pages, arguing they are privileged and involve trade secrets—this despite a provision in state law requiring companies to “make freely available” any information requested by the department, said Mr. Domansky.

He added that Mr. McCarty was “not yet satisfied” Allstate is acting in compliance with the OIR document request, and is continuing the suspension process.

Additionally, Mr. Domansky confirmed Florida regulators had been in contact with New York regulators concerning Allstate filings, although he would not comment on the substance of the conversations.

The documents, relating to a review of Allstate’s claims handling by McKinsey, show a focus on reducing claims costs by “redefining the game.” McKinsey urged Allstate to try to reduce the likelihood of a claimant seeking representation through early contact and rapport-building by claims representatives, and by a swift offer of what the insurer saw as a “fair settlement.”

The documents also included a fact sheet about attorney involvement that Allstate provided its representatives to distribute to claimants where appropriate.

Although instructions accompanying the form instruct representatives they may not attempt to dissuade a claimant from hiring an attorney, the form itself states that claims are settled more quickly without attorney involvement, and that lawyers will typically take 25-to-40 percent of any settlement.

The use of the form—titled “Do I Need an Attorney?”—has in the past drawn rebukes from various state attorneys general and bar associations.

At the same time, McKinsey urged Allstate to take a stronger stance on litigation. with slides noting “aggressive litigation yields positive results.”

Several of the documents note that the involvement of an attorney can lead to significantly higher payouts to the claimant.

The concept seemed to work for Allstate, as one document from the testing phase includes a handwritten comment saying, “In cases where we’ve been able to contact the claimant before he becomes represented, the results have been amazing.”

Presentations made to Allstate officials made note of the process as a “zero-sum game,” in which Allstate wins would mean someone else had to lose, and characterizing the approach as “exploiting the economics of the practice of law.”

McKinsey advised Allstate on segmenting claims cases into three categories—unrepresented, represented-settle and represented-try—as a “critical step” in taking advantage of the opportunities to be found in claims processing reforms.

The insurer was also told that “market values can be shaped through strategic selection of cases to proactively try in the represented-try segment.”

The other track used by Allstate to “redefine the game” for claims was to standardize the claims evaluation process, most notably through a computer program known as “Colossus.”

A report in the Sarasota Herald Tribune cited a 15-year-old memo not included in Allstate’s release that it said shows Colossus was set to produce claims 20 percent below the prior average, and that claims agents and their managers were advised to stay at or below Colossus levels.

A later report touted the success of the changes, noting an estimated $200-to-$300 million in bodily injury savings “banked” during the report year of 1995, and roughly $1 billion in savings from all other areas.

J. Robert Hunter, director of insurance for the Consumer Federation of America, said the documents showed how Allstate was “screwing consumers” through programs such as Colossus. He argued that such practices are “very widespread” among companies, even if done using different programs than Allstate’s.

Allstate representative Rich Halberg said the Florida decision was not the basis for the disclosure of the McKinsey material, but that it was factored into an ongoing “risk versus benefit” evaluation regarding making the documents public.

Among the company’s major complaints, according to Mr. Halberg, is that critics are using parts of the documents regarding a claims process review for auto casualty and applying them across all lines. “It’s not applicable,” he said, adding that “a lot of critics” were using “snippets” of the documents out of context, and calling the situation in Florida “one example of why this needed to be done.”

In fact, he said, the auto casualty documents themselves do not necessarily represent Allstate policy. “These are not our claims manuals,” he said, adding that the McKinsey reports contain “a lot of undeveloped ideas.”

Mr. Domansky refuted the assertion that the OIR was among those critics to use information from the document, out of context or otherwise. “We have respected the ‘trade secret’ label that Allstate placed on them,” he said, adding that the content of the documents “was not discussed by any OIR attorneys or the communications staff.”

Doug Heller, executive director of Santa Monica, Calif.-based Consumer Watchdog, which was formerly known as the Foundation for Taxpayer and Consumer Rights, scoffed at Allstate’s rationale for releasing the documents.

“I have no expectation that the mean-spirited tactics that have come out in bits and pieces will be less mean-spirited in a broader context,” he said.

Mr. Halberg maintained Allstate’s position that it is a regulated company whose documents are open to review by any state regulator, and that those documents have been reviewed.

However, Mr. Hunter disputed that argument, pointing out that Allstate had spent “millions” to keep the McKinsey documents and others from regulators.

Additionally, he said the process for market conduct examinations as outlined by the National Association of Insurance Commissioners is “really weak,” in that it requires the regulator involved to ask for specific documents rather than being given every file the company has.

A regulator could uncover such documents, Mr. Hunter said, “presumably if they ask the right questions, [but] how is a commissioner supposed to know which documents to ask for?”

Ultimately, Mr. Hunter said he was not surprised it took a court battle to bring the issue to a head. “These things never come out through exams. It always happens because of litigation.”

While consumer advocates such as Mr. Hunter or Mr. Heller see the documents as evidence of Allstate’s malfeasance, Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, saw the case as another instance of the insurance industry serving as a target for political gains.

“The court orders and media coverage have little to do with the facts of the situation and a lot to do with the feeling that the insurance industry in general—and Allstate in particular—have somehow wronged the entire state of Florida,” he said.

“A lot of political leaders and a good portion of the judiciary simply want the insurance industry to face some sort of punishment, and Allstate, as the second-largest personal lines insurer in the country, seems like a convenient whipping boy,” according to Mr. Lehrer.

He added that not enough facts have been brought to light to say one way or the other if Allstate had done anything wrong.

“If all of the allegations are true, it’s pretty clear that Allstate did things that were not in the best interests of its customers or, indeed, its stockholders,” he said.