Five Sneaky Tactics Auto Insurers Don’t Want You To Know
Frustrated With Insurance Companies? You Are Not Alone
You’ve probably heard a few horror stories about insurance companies being difficult with their policyholders.
A colleague constantly complaining about her insurance in the coffee break room at your office.
A friend always being put on hold on the phone, and grumbling about the automated phone tree that leads to nowhere.
You may have even fought with them over the phone yourself at least once in your life.
Are these exceptions to the rule?
Generally, no. These aren’t just a few aberrations in the mysterious world of insurance. Many insurers intentionally make it difficult for people to file claims — let alone get the coverage they had been paying for all along.
And it gets worse.
Profits Over Policyholders
An investigation of the insurance industry by the American Association for Justice (AAJ) showed that insurance companies find any excuse to deny a policyholder’s claim — no matter how outrageous the excuse.
Insurers are all about making and keeping as much cash as possible. In recent years, the entire insurance industry holds about $4 trillion in assets, earns $1 trillion annually in premiums and makes $30 billion a year in profits.
A deeper look unmasked two faces of each insurance company — a public face and a private face. The public face would market to consumers with slogans such as AllState’s “you’re in good hands” or State Farm’s “like a good neighbor, State Farm is there”.
The private face shows a much more ruthless side of insurance companies. An undercurrent of hostility to policyholders pervades the culture of insurance companies, from the CEO all the way down to the entry-level claims adjuster.
Even AllState’s CEO, Tom Wilson, bluntly admitted as such by saying: “Our obligation is to earn a return for our shareholders.” A glaring omission in this tone-deaf statement is AllState’s legal obligation to policyholders.
Former Employees Speak Out Against Insurance Companies
On the condition of anonymity, former insurance employees have spoken out against the culture of the insurance industry.
One of the most scandalous revelations from these former employees was the fact that they were encouraged to deny, delay, and defend — even if it meant lying or committing forgery. For instance, if a claims adjuster allowed the lowest payout amounts and had the highest number of denials, he would get rewarded with gifts and perks.
Exactly how do they deny, delay, and defend?
Here are five dirty tactics, with examples, insurance companies use to keep money in their pockets when it was rightfully — and legally — owed to their policyholders.
Five Ways Insurance Companies Reject Valid Claims
1. Conjure any excuse to deny the claim
Insurance companies, like Farmers Insurance, employ a “boxing gloves” strategy against policyholders — despite their slick marketing to attract new signups. Adjusters are trained to say “sorry, no more” with a smile. They throw pizza parties and hand out gift certificates for adjusters who deny the most claims.
Take Ethel Adams, for example.
She was badly injured in a multi-vehicle pile up in Washington State. She was in a coma for 9 days and confined to a wheelchair afterward. Her five- to six-figure medical bills continued to pile up as she filed a claim with Farmers.
As someone who faithfully paid her premiums all her life, she got the coverage when she needed it the most, right?
Shockingly, Farmers denied her claim.
Their reasoning? According to Farmers, the driver who caused the accident acted “intentionally”. Therefore, it was not really an “accident”. So they denied her claim.
However, when people got wind of this, they exploded in outrage and threatened to boycott Farmers. The public outcry was furious enough to get the Washington State Insurance Commissioner to threaten to sue Farmers.
Only when threatened with a lawsuit, did Farmers pay Ethel’s claim.
2. Delay until the policyholder gives up
Stalling a claim with delaying tactics is one of the oldest tricks insurers use. They make things difficult for policyholders to pursue their claims and many give up after a while.
Such delaying tactics include:
- Giving the policyholder the run-around by phone
- Using onerous phone trees that lead nowhere
- Putting policyholders on hold for hours
- Sitting on a claim until important deadlines have passed
- Withholding the correct forms that needed to be filled out
Some of the more egregious tactics some insurers, like Concesco, have been caught using are deliberately mailing the wrong forms to the policyholder. Once the policyholder filled them out and mailed them back, the insurer denied the claim because the claimant “filled out the wrong paperwork” and it was “already too late fill out the correct paperwork”.
3. Confuse policyholders with cryptic fine print
Insurers put incomprehensible fine print in their contracts. Plus, insurers know nobody reads them — and even if they did, they would not be able to understand it. These contracts might have well been written in ancient Greek.
In fact, with some insurers, you cannot read their contracts until after you buy their policy.
More than half of the states passed Plain English laws for insurance contracts. However, these laws did little to help remedy the problem, according to the findings by AAJ.
For example, State Farm had a “anti-concurrent clause” that went into effect when hurricane Katrina struck the Gulf Coast. Many homeowners thought they were covered because they bought a hurricane deductible along with wind/rain damage. However, the anti-concurrent clause said flood damage wasn’t covered. This negated coverage for many homeowners, leading to 9,000 urgent requests for help to the Louisiana Department of Insurance.
Regarding auto insurance, more than half of policyholders believe that if their car was totaled, insurers would pay them the fair market value of their car. On the contrary, insurers would deduct a good chunk off the cash value citing depreciation. As a result, many policyholders get stuck owing a balance on their car loans for a car they can no longer use.
4. Discriminate by policyholder credit scores
Insurers are starting to use credit reports to determine whether policyholders can be insured and to set premiums. This practice penalizes the poor and people with little credit.
The view insurers take is no credit equals bad credit. Unfortunately, with this practice, fiscally responsible people who minimize their use of credit cards, pay in cash and keep their debt low fall through the cracks. These fiscally responsible people end up getting rate hikes doubling or tripling their premiums when they renew their policies.
Auto insurers are part of the problem. They erroneously believe that a person with low credit are reckless drivers, jacking up their rates when they sign up or renew.
All it takes is one financial crisis — through no fault of your own — to put a serious dent in your credit, and insurers unfairly punish you for this.
As in Kathryn Perry’s sad case, she was fiscally responsible with excellent credit. When her daughter was murdered, her life and finances went into a tailspin and her credit got damaged. Her auto insurer’s answer to her unfortunate troubles was a 600% hike on her premiums.
5. Cancelling a policy after a mere phone call
Policyholders are reluctant to make a claim out of fear of increased premiums, and rightly so. However, the AAJ found that insurers have refused to renew policies after policyholders called on the phone to inquire about making a claim.
Even though the policyholder never followed through with filing an actual claim, the insurer believes a phone inquiry is equivalent to a claim. Then they abruptly dump the policyholder.
This practice leads many people to label insurance policies with the unfortunately true maxim: “you use it, you lose it”.
What You Can Do About This
Insurers’ true obligation is to their policyholders, not Wall Street. But the insurance industry has completely lost sight of legal and ethical responsibilities to their policyholders, so there is a dire need for reform.
Support Insurance Reform
There are potential reforms, some of which have already been enacted by some states:
- Require insurers to work in good faith
- Require prior approval for rate increases
- Establish an insurance consumer advocate
Where Arizona Currently Stands
Arizona has a Bad Faith Law that ensures insurers work in good faith with their policyholders. Unfortunately, Arizona does not have an entity that requires prior approvals for rate increases. In other words, if you have an accident where you were at fault, your rates will go up. However, the Arizona Department of Insurance oversees the actions of insurance providers. You can file complaints against the carrier if you believe they are acting in bad faith.
However, you should not wait for the state to help you with insurance companies. There are some things you can do right now.
You Still Have The Power
Here are some ways you can protect yourself from nasty surprises down the road:
- Read your policy carefully. Know your coverage. Understand how to appeal if your claim was denied.
- Be careful when filling out forms. One little mistake can be used as an excuse to deny your claim.
- Do not cash a premium refund check. Insurers mail premium refund checks hoping to dump some policyholders. If you cash the check, it means you accept their decision to cancel your policy.
- Get everything in writing. A phone call is no proof. Keep complete records of all bills and correspondence.
- Contact the State Insurance Department if you have difficulties with your insurer. You may also contact your attorney for a consultation and learn what your options are.
- Do not give up. Insurance companies expect you to give up when they make things difficult. Keep fighting and don’t make it easy for them either.
If All Else Fails, Get An Attorney
Sometimes you can do everything right, follow all the rules and send in all the right forms on time, and your insurer can still act in bad faith or make things difficult with your claim.
In such cases, you may benefit by hiring an attorney to help you deal with insurance and still get the compensation you are entitled to.